BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 745 (Coto) Hearing Date: July 1, 2009
As Amended: May 7, 2009
Fiscal: No
Urgency: No
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.
DIGEST
Existing Federal law
1. Federal Law, the Employee Retirement Income Security Act
of 1974, sets minimum standards for the regulation of any
private-sector plan, created when an employer or union
compensates employees in the form of pensions and other
benefits, including employer-sponsored health coverage.
2. ERISA is basically a law of fiduciaries and trusts. Its
main purposes include making sure, within a voluntary
framework for the provision of employee benefits, that plan
sponsors follow through on promises to provide pensions and
other benefits, including health coverage.
3. As used under ERISA, "health plan" is a form of legal
entity which arises when an employer promises to provide
and pay for employee health benefits. Under ERISA, such
self-funded health plans can include multiple employer
welfare arrangements, as alternatives to health insurance
programs, health maintenance organizations, and preferred
provider organizations.
4. ERISA requires a Third Party Administrator (TPA) to
automatically provide to ERISA-plan participants a summary
AB 745 (Coto), Page 2
plan description providing information on the benefits
available, the rights of participants and beneficiaries in
the plan, how benefits are obtained, and the process for
appealing denied benefits.
5. ERISA includes a preemption clause that provides states
are forbidden from enforcing laws relating to
private-sector employee health benefit plans but can
regulate "the business of insurance".
Existing State Law
1. Provides for the regulation of health insurers by the
California Department of Insurance (CDI) and health plans
by the Department of Managed Health Care (DMHC).
2. Defines "administrator" as any person who collects any
charge or premium from, or who adjusts or settles claims
on, residents of this state in connection with life or
health insurance coverage and imposes specified obligations
pursuant to state law. (The term "administrator" excludes
an employer acting on behalf of its employees or the
employees of one or more subsidiary or affiliated
corporations of that employer; a union on behalf of its
members and entities acting in various other specified
roles.)
3. Prohibits an administrator from acting as such without a
written agreement between the administrator and the
insurer, as specified.
4. Requires, pursuant to the written agreement in 2) above,
the payment to the administrator of any premiums or charges
for insurance by, or on behalf of, the insured to be deemed
to have been received by the insurer and prohibits the
payment of return premiums or claims by the insurer to the
administrator from being deemed payment to the insured or
claimant until such payments are received by the insured or
claimant.
5. Requires the administrator to maintain adequate books
and records of all transactions between it, and insurers
and insured persons, as specified.
6. Requires the Insurance Commissioner to have access to
AB 745 (Coto), Page 3
the books and records of the administrator for the purpose
of examination, audit, and inspection.
7. Requires, where the services of an administrator are
utilized, the administrator to provide a written notice
approved by the insurer, to insured individuals, advising
them of the identity of and relationship among the
administrator, the policyholder or enrollee, and the
insurer.
8. Directs an administrator who collects funds to identify
and state separately in writing to the person paying to the
administrator any charge or premium for insurance coverage
the amount of any such charge or premium specified by the
insurer for such insurance coverage.
9. Requires, by regulation, dental insurance policies
regulated by CDI and dental-only specialized health plans
regulated by DMHC to disclose in the evidence of coverage
the address and telephone number provided pursuant to the
policy or plan to which complaints from members are to be
directed and a description of the policy or plan's
grievance procedure.
AB 745 (Coto), Page 4
This bill
1. Directs the a Third Party Administrator of a self-funded
dental benefit plan organized pursuant to ERISA to include
in the Explanation of Benefit document provided to plan
participants and also in forms sent to participants in
response to claims for benefits the following disclosure:
"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 consumer protection provisions of 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 United
States Department of Labor, Office of Participant
Assistance. You can contact the Office of Participant
Assistance at ____________."
2. Specifies that this bill only applies to a TPA for a
self-funded dental benefit plan otherwise subject to the
jurisdiction of the federal government.
3. Specifies that the plan administrator shall insert in the
blank in the above disclosure the appropriate number for the
Office of Participant Assistance.
4. Makes a legislative finding that regulating TPAs pursuant
to this bill constitutes a regulation of insurance within
the meaning of the ERISA exemption from preemption.
COMMENTS
1. Purpose of the bill According to the California Dental
Association, the sponsor of AB 745, health benefit plans in
California are regulated by one of three agencies: the State
Department of Managed Health care, the State Department of
Insurance, or the U.S. Department of labor in the case of
self-funded plans operating under the authority of the
federal ERISA law. State law requires third party
administrators regulated by the state to include a
disclosure on their explanation of benefits documents
concerning the state agency that regulates the plan along
AB 745 (Coto), Page 5
with a contact number. However, ERISA-regulated plans are
not required to disclose the fact of their regulation nor do
they typically provide a contact number of the federal
regulatory agency, thus making it difficult for patients or
providers to know whereto pursue assistance with disputes.
2. The sponsors state that the public, providers and regulatory
bodies will be materially aided by the step of including
this information as part of a TPA's duty under California
law. As explained by the CDA, the mandate that a California
licensed TPA simply disclose to covered persons and
claimants that their plan and rights are regulated by
federal law, rather than by state law, will result in
pursuing any appeal on payment disputes along the proper
path and in the right forum, with the least waste of effort,
dollars and time.
3. The CDA states the current system of notification for those
plans regulated by ERISA is a source of inefficiency in
terms of directing patients toward the process of resolving
payment disputes. Immediate information provided on the EOB
as to whether or not the laws of the state of California
apply to that particular plan will allow patients,
providers, and regulators who receive calls from patients,
to determine quickly where the appeal rights of the consumer
reside. In short, this bill will save patients, dental
office staff and state regulators time in determining the
patients' path of appeal.
4. CDA cites the example that patients look to their providers
to resolve issues of payment disputes. Dental office staff
spends a great deal of time attempting to resolve these
issues for their patients according to the CDA. If a
patient or provider assume that the patient's
ERISA-regulated dental plan is regulated by the state (and
that assumption is often made because the EOB received by
the patient and dentist typically identifies the plan as a
commercial company), time is wasted when appealing an
adverse payment decision to the plan or to the state
regulatory agency. Appeals based on state law, or following
the dispute resolution process required in state law, will
have no bearing on plans that are self-funded. The
patient's or provider's path of appeal is different when the
plan is ERISA-regulated. AB 745 requires that both the
patient and the provider will be notified from the outset
that the plan is ERISA-regulated, and informs them to
AB 745 (Coto), Page 6
contact the appropriate office within the U.S. Department of
Labor for assistance and information when a dispute arises
with the plan's payment.
5. Finally CDA argues proper notification of the laws under
which the plan operates will have an impact upon patient
care. As one such example, CDA cites when the dentist
prescribes a course of treatment that requires more than a
single appointment. If the patient's dental plan denies all
or part of the initial treatment, the patient may be
hesitant to proceed with subsequent care if the plan is
unwilling to cover it. The dentist and patient may
cooperate to file an appeal on the payment denial with the
plan, or to the assumed state regulatory agency, but if the
plan is a self-funded plan, this course of appeal will be
wasted time, and the appeal on the denial of payment will be
delayed, further delaying subsequent treatment prescribed
for the patient.
6. Background While ERISA exempts the self-funded plan itself
from state law, third party administrators are subject to
California Department of Insurance oversight. This bill
will revise the insurance code so California regulated TPAs
will be required to include in their Explanations of
Benefits a notice these plans are subject to regulation
under ERISA, along with appropriate contact information.
7. Information provided by the California Department of
Insurance in this bill's house of origin indicates it is
common for self-insured plans to turn over the
administration of the health plans 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) 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.
AB 745 (Coto), Page 7
8. Support California Dental Association
9. Opposition The Association of California Life & Health
Insurance Companies indicates it understands the need to
keep consumers informed but states that most companies
provide information to their employees which explain that
their dental plan is self-funded and what the member's
rights are regarding disputed claims payments. ACLHIC
states that because explanation of benefit forms (EOBs) are
usually prepared in a standard format used across all
states, forcing the EOBs to provide state-specific
information will be very burdensome and costly.
10. Questions None
11. Suggested Amendments None
12. Prior Legislation None
POSITIONS
Support
California Dental Association
Opposition
The Association of California Life & Health Insurance Companies
(ACLHIC)
Principal Consultant: Kenneth Cooley (916) 651-4102