BILL ANALYSIS
AB 745
Page 1
ASSEMBLY THIRD READING
AB 745 (Coto)
As Amended May 7, 2009
Majority vote
HEALTH 19-0
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|Ayes:|Jones, Fletcher, Adams, | | |
| |Ammiano, Block, Carter, | | |
| |Conway, De La Torre, De | | |
| |Leon, Emmerson, Gaines, | | |
| |Hall, Hayashi, Hernandez, | | |
| |Bonnie Lowenthal, Nava, | | |
| |V. Manuel Perez, Salas, | | |
| |Audra Strickland | | |
| | | | |
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SUMMARY : Requires the third party administrator (TPA) of a
self-funded dental benefit plan to include a disclosure in the
explanation of benefits (EOB) document and benefit claim forms
which provides the contact information for the federal
Department of Labor (DOL), which regulates self-funded plans, in
the event the consumer has a payment dispute with the plan.
Specifically, this bill :
1)Directs the TPA of a self-funded dental benefit plan to
include the following disclosure in the EOB document and in
forms sent to claimants in response to claims for benefits:
"This dental plan is self-funded and subject to
compliance with the federal Employee Retirement
Income Security Act (ERISA). As such, it is not
subject to state law governing health care coverage
for dental care. Any questions, appeals, or disputes
arising from the payment of a submitted claim should
be directed to the entity providing the coverage, or
to the U.S. DOL, Office of Participant Assistance.
You can contact the Office at __________. "
2)Requires the TPA to fill in the blank in the notice in 1)
above with the appropriate telephone number for the Office of
Participant Assistance.
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3)Specifies that this bill only applies to a TPA for a
self-funded dental benefit plan.
4)Makes a legislative finding that regulating TPAs pursuant to
this bill constitutes a regulation of insurance and is saved
from preemption under ERISA.
FISCAL EFFECT : None
COMMENTS : According to the author, current law requires dental
benefit plans regulated by the California Department of
Insurance (CDI) or the Department of Managed Health Care to
provide certain notices to consumers, including a notice that
specifies the "800" telephone number and address of the
regulator responsible for handling consumer complaints.
However, the author points out that self-funded
employer-sponsored benefit plans are regulated by ERISA, which
generally preempts state law and instead provides its own
requirements. According to the author, one notable exception to
ERISA preemption allows states to enforce laws that regulate the
business of insurance, including TPAs, which, the author
asserts, are maintained by most self-funded dental plans. The
author states that this bill is designed to regulate the
business of insurance by requiring insurance entities, such as
TPAs, to disclose to consumers in ERISA-covered plans
information regarding how to contact the federal DOL, the
regulatory agency that oversees these plans, relative to
possible payment disputes.
ERISA is a federal law that sets minimum standards for most
pension and group health plans voluntarily established by
employers and employee organizations. ERISA requires plans to
provide participants with important information about plan
features and funding; provides fiduciary responsibilities for
those who manage and control plan assets; requires plans to
establish a grievance and appeals process for participants to
get benefits from their plans; and, gives participants the right
to sue for benefits and breaches of fiduciary duty.
ERISA's treatment of health plans is both complicated and
confusing. ERISA has been interpreted as dividing health plans
into two groups regulated differently under the law:
a) individuals who are covered by self-insured plans for which
the employer, rather than an insurer, assumes the risk for
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paying for covered services; and, b) individuals who are covered
by purchased insurance. ERISA also distinguishes between the
regulation of health plans and the business of insurance, for
purposes of determining federal and state regulatory authority.
As these distinctions are not clear cut, ERISA has been the
subject of many court cases. Generally, ERISA permits states to
regulate the business of insurance, including instances in which
an ERISA plan contracts with a state licensed insurer to provide
health care to the employees. ERISA generally preempts states
from regulating health benefits provided by a self-insured ERISA
plan. ERISA self-insured plans are subject to regulation and
oversight by the federal DOL. Consequently, state insurance
departments have no authority to investigate consumer complaints
that involve self-funded ERISA. ERISA governs approximately 2.5
million health benefit plans sponsored by private employers
nationwide.
In self-funded plans, also known as self-insured plans, the
employer maintains enough money to cover employee medical
charges, and then hires a TPA, often an insurance company, to
administer the program. Self-funded plans are not underwritten
by either an insurance company or a health plan. Coverage is
provided for a group and is financed by the self-insured entity.
For example, a large employer or union may find it economically
advantageous to pay the cost for medical services for its
employees subject to the terms and conditions of the plan rather
than purchase either a group insurance policy or a group health
plan. When an employer self-funds the plan, it is generally not
subject to state laws and regulations so state mandated benefits
or prompt payment requirements do not apply. In circumstances
in which an insurance company acts as a TPA to process claims
for an employer self-funded plan, the insurance company is also
exempt from state laws and regulations.
According to CDI, it is common for self-insured plans to turn
over the administration of the health plan to a TPA. The TPA
handles all administrative tasks including claims processing and
payments. Often the employer will contract with an insurance
company to act as a TPA for all health care claims. In these
circumstances, the insurer is not subject to state laws and
regulations. CDI indicates that this bill would apply to both
TPAs that are required by CDI to obtain a license to administer
dental benefits for a self-funded employer and a health insurer
who is functioning in an administrative services only (ASO)
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capacity. Health insurers with the ASO designation and who hold
certificates of authority to transact health insurance are not
required to have a separate TPA license to act as a TPA.
The sponsor of this bill, the California Dental Association
(CDA) writes in support that ERISA-regulated plans are not
required to disclose that they are so regulated, and therefore
typically do not include a notification and contact number of
the federal agency which regulates them, thereby making it
difficult for either a patient or provider to know where to
pursue a possible payment dispute with a self-funded dental
plan. CDA asserts that this bill is a reasonable measure to
address the lack of adequate information provided to patients
who are in self-funded plans.
The Association of California Life and Health Insurance
Companies (ACLHIC) opposes this bill because it is concerned
that this bill sets a dangerous precedent by expanding CDI's
authority over TPAs that are not a contract of insurance.
ACLHIC also objects to requiring the disclosure in this bill to
be provided in the EOBs because they usually contain a standard
format and imposing changes that make them state-specific is a
very burdensome and costly requirement. ACHLIC contends that
most EOBs include information that meets ERISA requirements and
adding the lengthy disclosure required in this bill will only
confuse the consumer.
Analysis Prepared by : Cassie Rafanan / HEALTH / (916)
319-2097
FN: 0000597