BILL ANALYSIS
AB 786
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 786 (Jones) - As Amended: April 22, 2009
SUBJECT : Individual health care coverage: coverage choice
categories.
SUMMARY : Requires the Director of the Department of Managed
Health Care (DMHC) and the Commissioner of the California
Department of Insurance (CDI) to jointly develop a system to
categorize all health coverage products sold to individuals, as
specified. Specifically, this bill :
1)Requires, on or before September 1, 2010, DMHC and CDI to
develop, by regulation, a system to categorize all individual
health plan contracts and individual health insurance policies
offered and sold by health care service plans (health plans)
and disability insurers selling health insurance (health
insurers) into five coverage choice categories (choice
categories) that do all of the following:
a) Include four choice categories applicable to both
individual health plan contracts and individual health
insurance policies, with a fifth category applicable only
to health insurance policies under the jurisdiction of CDI.
Requires the fifth category to be based on the highest
cost-sharing and the lowest benefit levels for health
insurance policies that do not otherwise meet the
requirements imposed on health plans subject to the
jurisdiction of the DMHC under the Knox-Keene Health Care
Service Plan Act of 1975 (Knox-Keene );
b) Reflect a reasonable continuum between the choice
category with the lowest level of health care benefits and
the choice category with the highest level of health care
benefits;
c) Permit reasonable benefit variation within each choice
category;
d) For the four categories that apply to both health plan
contracts and health insurance policies, requires DMHC and
CDI to coordinate the development of the categories to
ensure consistent interpretation across products and
markets and ease of comparison for consumers;
e) Include, within each choice category, at least one
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standard health maintenance organization (HMO) and one
standard Preferred Provider Organization (PPO) health
benefit plan, each of which is the lowest benefit level in
the choice category, except for the fifth category that
only applies to health insurance policies, in which case
there would be no standard HMO plan;
f) Establishes, for each choice category, a maximum limit
on annual out-of-pocket costs, (what consumers must pay
directly) including, but not limited to, copayments,
coinsurance, and deductibles for covered benefits; and,
g) Be developed by taking into account any written analysis
provided by the University of California (UC) as requested
in this bill.
2)Requires health plans and health insurers to submit filings,
no later than April 1, 2011, for all individual products that
will be offered or sold after that date, and requires DMHC and
CDI to categorize each product submitted to them into a choice
category within 90 days of the date filed. Requires,
thereafter, any other individual plans and policies to be
filed with DMHC or CDI.
3)Prohibits health plans and health insurers from offering or
selling an individual health benefit plan until DMHC or CDI
has categorized the health benefit plan pursuant to 2) above.
4)To facilitate consumer comparison shopping, requires all of
the following:
a) Permits health plans and health insurers to offer
products in any choice category, but for health plans that
offer a product in the fifth category, the health plan must
offer the standard product in that category, the standard
product in either the first or second category, and the
standard product in the third category;
b) DMHC and CDI to develop a notice that provides
information about the choice categories, including the
range of cost sharing and the benefits and services,
including any variation in the benefits and services in
each choice category; and,
c) Requires every health plan, health insurer, or agent and
broker to provide the notice in 4) b) above when
marketing any individual health benefit plan, and requires
the notice to accompany marketing, purchase, and renewal of
individual coverage.
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5)Establishes the basic parameters of the five choice categories
to be developed by DMHC and CDI so that the first category is
the most comprehensive category with the lowest cost sharing,
the third category reflects the mid-point of individual market
products covering medical, surgical, and hospitals expenses,
and the fifth category, applicable only to health insurance
policies, includes coverage for medical, surgical, and
hospital expenses, and is consistent with benefit requirements
applicable to policies sold pursuant to the Insurance Code.
6)Requires health plans and health insurers to establish prices
for individual health benefit plans that reflect a reasonable
continuum between the products offered in the lowest choice
category and the highest choice category. Prohibits health
plans and health insurers from establishing a standard risk
rate for a health benefit plan in a choice category lower than
a health benefit plan in a lower choice category.
7)Requires the director of DMHC and the CDI commissioner to
report annually on the health benefit plans offered in each
choice category, and on enrollment in each choice category,
commencing January 1, 2013, and every three years thereafter,
the director of DMHC and the CDI commissioner to jointly
determine if the choice categories should be revised to meet
consumer needs.
8)Requests UC, through the California Health Benefits Review
Program (CHBRP) administered by UC, to assist the director of
DMHC and the CDI commissioner in implementing this bill by
providing a written analysis with relevant data of all of the
following:
a) Products sold and purchased in the individual market;
b) The benefits and services covered by the individual
health benefit plans, including any limitations or
exclusions;
c) Cost sharing applicable to individual health benefit
plans, including deductibles, copayments, coinsurance,
maximum out-of-pocket limits, and other limits or
exclusions that require individual consumers to pay for
basic health care services in whole or in part;
d) The distribution of products purchased in terms of
benefits and services as well as cost sharing; and,
e) The share of the individual market that is short-term
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coverage, conversion coverage, renewal of existing
coverage, or sale to a person not previously covered by
individual coverage.
9)Requests CHBRP in providing the information requested in 8)
above to distinguish between products regulated by DMHC and
CDI.
10)Requires the CHBRP report requested under 8) above to be due
three months prior to the implementation of the choice
category provisions of this bill and three months prior to the
annual reports and triennial reviews required by the director
and the commissioner in this bill.
11)Requires all health insurance policies, except for a
specialized health insurance policy, offered and sold to
individuals after January 1, 2011 to cover hospital, medical,
and surgical services, and to meet existing coverage
requirements, at a minimum. Effective January 1, 2011 for the
fifth choice category establishes the maximum out of pocket
expenditure at $10,000 per year with adjustments based on the
Consumer Price Index.
12)Requires every health insurance policy sold under the fifth
category, which may only be offered by health insurers under
the Insurance Code to provide the following disclosure in 14
point type on all marketing materials as well as the offer of
coverage:
Insurance products in this category include
significant limits on benefits and the health care
services that are covered. If you have a serious
injury, a serious illness such as a heart attack or
cancer, or ongoing health care costs associated with a
chronic condition such as diabetes or heart disease,
coverage under this policy may not pay for a
substantial share of the costs of doctors, hospitals,
or other treatments. You may face additional
out-of-pocket costs for doctors, hospitals and other
services even if you have met your deductible or
out-of-pocket maximum. This product does not provide
maternity coverage. Please examine this policy
carefully before purchasing.
13)Requires, on or after January 1, 2011, all health benefit
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plans offered or sold to groups or individuals to contain a
maximum limit on out-of-pocket costs, including but not
limited to, copayments, coinsurance, and deductibles for
covered benefits.
EXISTING LAW :
1)Provides for regulation of health plans by DMHC under the
Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene)
and for regulation of health insurers by the CDI under the
Insurance Code. Authorizes health plans to offer and sell
health care service plan contracts and authorizes health
insurers to offer and sell health insurance policies, as
specified.
2)Requires health plans licensed under Knox-Keene to cover all
medically necessary basic health care services, as defined.
Defines basic health care services to include: physician
services; hospital inpatient and outpatient services,
including outpatient physical, occupational, and speech
therapy; diagnostic laboratory and X-ray services; preventive
and routine care, such as vaccinations and routine checkups;
emergency and urgent care services, including ambulance and
out-of-area emergency services; and, medically appropriate
home health services. Requires Knox-Keene plans to assume
full financial risk for services covered under a plan
contract. There is no requirement for health insurers subject
to regulation by CDI to cover "basic health care services" or
to make coverage decisions for basic benefits based on medical
necessity.
3)Requires every health plan and every health insurer, to cover
or offer coverage for, specified mandated benefits or types of
coverage. Mandated benefits and mandated offerings may apply
to individual coverage, group coverage, or both, depending on
the statutory requirements related to that benefit, and in
most instances, apply equally to health plans and health
insurers. There are some specific mandates or mandated
offerings that apply only to health plans or only to health
insurers.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
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1)PURPOSE OF THIS BILL . According to the author, this bill is
needed because health insurers and health plans are currently
able to sell consumers health coverage without any standards
for co-payments, deductibles, level of coverage, or covered
benefits. The author states that California consumers seeking
to buy individual health insurance face confusing choices, and
that because the different products have varying deductibles,
copayments, yearly and lifetime maximums and covered benefits,
it is nearly impossible for consumers to compare premiums and
coverage. In addition, the author points out, while health
plans regulated by DMHC are required to cover doctors,
hospitals and preventive care, and other basic health care
services, health insurers regulated by CDI are permitted to
sell hospital-only or physician-only coverage, as well as
insurance that pays only a small fraction of the actual cost
of care. According to the author, this bill organizes the
individual insurance market and makes it understandable for
consumers. Finally, the author intends that this bill will
eliminate "junk insurance" which is marketed as quality
coverage but only has limited coverage for hospitalization or
covers only a small fraction of the actual costs consumers may
face.
2)BACKGROUND . While the majority of those with health insurance
obtain that coverage on the job, individual coverage is the
main alternative for those who are not covered through
employment and are ineligible for publicly subsidized health
coverage. Health plans and insurers selling individual
coverage conduct medical underwriting, the process of
reviewing an applicant or applicants' medical history to
determine the financial risk posed by the applicant or
applicants, and may deny an applicant health insurance, limit
a benefit package, or charge a higher premium based on the
assessed level of risk. A 2007 study, supported by California
HealthCare Foundation (CHCF), found that the actuarial value
of individual coverage has declined dramatically over time.
In 2003, individual market policies paid 75% of medical costs
on average, while three years later; the figure had dropped to
55%. The same study found that individual market premiums
increased by 23% between 2002 and 2006. According to a RAND
study on consumer decision making in California's individual
health insurance market, funded by CHCF and published in
Health Affairs in May 2006, reducing the complexity of
shopping for individual coverage could increase participation
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as much as, if not more than, price subsidies.
3)CALIFORNIA HEALTH BENEFITS REVIEW PROGRAM . AB 1996 (Thomson),
Chapter 795, Statutes of 2002, requests UC to assess
legislation proposing a mandated benefit or service, and
prepare a written analysis with relevant data on the public
health, medical, and economic impact of proposed health plan
and health insurance benefit mandate legislation. CHBRP was
extended for four additional years in SB 1704 (Kuehl), Chapter
684, Statutes of 2006. The Assembly Health Committee
requested that CHBRP analyze the introduced version of this
bill because it required all health insurance policies to
cover physicians, hospitals, and preventive services. CHBRP
determined that any benefits that would be mandated as a
result of this bill are not specified, but assigned to DMHC
and CDI to define, and concluded that a traditional CHBRP
mandate analysis was not feasible. Highlights from the CHBRP
issue analysis delivered to Assembly Health Committee on April
17, 2009 include:
a) Enrollees . In 2006, 17.7 million, or 6.8%, of the
non-elderly U.S. population purchased health insurance in
the private individual market. In contrast, in California,
a larger portion of the non-elderly population-about 2
million, or 11.5% of those who are commercially
insured-purchased products in the individual market.
b) Premiums . Prices for individual policies vary
considerably. Nationally, average annual premiums are
$2,613 for single coverage and $5,799 for family plans. In
California, as of September 2008, CHBRP estimates that the
average annual premium in the individual market was $7,146
for a family of 2.99 persons and $2,905 for single
individual coverage.
c) Deductibles . In 2006, the average deductible in
single-coverage individual plans/policies in California was
$2,136 with out-of-pocket maximums averaging $3,998. (A
deductible is the amount the consumer must spend before the
coverage begins.) According to data CHBRP collected from
the seven largest carriers in California, from 2006 to
2009, high deductible health plans (HDHPs) ($1,000 or more
for an individual or $2,000 or more for a family)
represented over half of the individual insurance market.
d) Out-of-pocket costs . CHBRP cited one study of the six
leading insurance carriers in California which found that
Californians with individual coverage are all in plans with
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some out-of-pocket maximum. CHBRP noted that if this bill
is interpreted to require the regulatory agencies to
establish out-of-pocket maximums, this bill could have
implications for the use of health care services and the
costs of insurance. Using comprehensive benefit packages
as the base for comparison (i.e., non-HDHPs), premium
increases would range from 1% to 25%, depending on the
maximum level of the out-of-pocket costs established by
regultors. Products associated with less comprehensive
benefit packages would likely face greater premium effects,
when altering just out-of-pocket maximums, and holding all
other plan/policy design elements constant.
e) Minimum benefits and coverage . CHBRP identified the
differences between Knox-Keene and the requirements in the
Insurance Code, including that DMHC-regulated plans must
offer basic health care services, as defined. CHBRP
reported that since CDI does not routinely collect
information on the types of services offered as covered
benefits for all types of health insurance policies, CHBRP
is unable to estimate the number of insured who potentially
would be affected by the benefit requirements in this bill.
According to CHBRP, the impact of this bill would depend
on how CDI interprets any benefit requirements that would
apply to CDI-regulated products. CHBRP noted, as one
example of the differences between DMHC-regulated health
plans and CDI-regulated health insurance polices, that the
number of insured Californians in the individual market
without maternity benefits more than quadrupled between
2004 and 2008, from an estimated 192,000 in 2004 (12% of
the CDI-regulated market) to the current estimate of
805,000 (78% of the CDI-regulated market). Knox-Keene
plans must cover maternity as part of the mandate to cover
all medically necessary basic health care services.
f) Impact of standardization . CHBRP noted that, while
health plans and employers often provide detailed
information on the coverage choices available, researchers
have concluded that the provision of information, on its
own, is not sufficient to clarify confusion around health
plan decisions, since individuals can only process a
limited number of factors at any one time. According to
CHBRP, much of the success in achieving the aim of this
bill, to facilitate informed consumer choice, depends on
how this bill is implemented; particularly in ensuring that
the standard products developed by the DMHC and CDI are
available in the market and the comparative information on
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the various products is relevant, understandable,
objective, and not overwhelming to the consumer.
g) Risk Segmentation . One consequence of the increase in
high-deductible individual plan products has been greater
risk segmentation in the market. According to CHBRP, risk
segmentation occurs when consumers are offered a choice of
products that vary in the scope of benefits. Healthier
consumers tend to select the lowest price, lowest benefit
plans while persons with health concerns or conditions,
anticipating the need for health care services, tend to
select more comprehensive and more expensive products. As
CHBRP points out, benefit package design is a tool for
insurers to segment enrollees by health care risk. CHBRP
concludes that this type of risk segmentation in individual
products means that individuals with the greatest health
care needs bear a greater financial risk, which can lead to
more uninsured and underinsured persons.
h) Other Policy considerations . CHBRP's issue brief also
pointed out several other policy considerations related to
this bill, including: some insurance products regulated by
CDI may not be affected by this bill because they are
excluded from the existing definition of health insurance
in the Insurance Code, such as policies that pay daily cash
benefits during a hospital stay; individuals are likely to
continue to segment into small risk pools by benefit
design, potentially leading to a widening gap in premiums
between low and high-benefit plans; and, provisions in this
bill intended to ensure that the coverage choice categories
are somewhat comparable in terms of risk mix would not
affect current underwriting policies and procedures.
Absent regulation or requirements to ensure that all
Californians are included in the insurance pool, insurers
will likely use strategies to avoid enrolling a
disproportionate share of high-cost enrollees including
excluding preexisting conditions, medical underwriting
resulting in higher premiums for higher risk persons, and
refusing to sell coverage to first-time applicants.
4)SUPPORT . Consumer, labor, and provider organizations support
this bill as a way to help consumers more effectively
comparison shop among individual coverage options. Health
Access California, sponsor of this bill, sees this bill as a
way to organize the individual insurance market so that
consumers can shop knowledgably. Health Access California
contends that the sorting of products into categories will
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provide consumers with basic information in a manner similar
to the regulations for Medicare supplement coverage help
seniors better determine whether they are getting value for
their dollar or not. Health Access California also argues
that this bill would eliminate junk insurance by requiring all
health insurance to at least cover hospital, medical and
surgical care and requiring the regulators to establish
out-of-pocket maximums for all coverage. California
Federation of Teachers states that this bill strengthens
oversight of the individual insurance market to address the
growing problem of underinsurance and medical debt, and will
help organize the market and allow consumers to make informed
choices. Consumers Union writes that in today's individual
market it is impossible for consumers to make plan comparisons
given the lack of clear information and the variation in cost
sharing and covered services. According to Consumers Union,
many Californians with individual insurance who thought they
were purchasing quality coverage find out after they get sick
that their insurance does not cover the services they need.
Finally, Consumers Union indicates that this bill would weed
out so called "junk" insurance which deceptively promises
coverage but leaves consumers with unlimited exposure to
medical costs.
5)OPPOSE UNLESS AMENDED . Anthem Blue Cross (Anthem) writes with
an oppose unless amended position and states that this bill is
confusing and could lead to unintended consequences, including
a reduction in consumer choice, an increase in health
insurance premiums, and an increase in the number of
uninsured-outcomes that are contrary to the goals of health
care reform. Anthem writes that it is supportive of
categorizing health care products into clearly identifiable
categories based on actuarial value. Anthem contends that
helping consumers to better understand their health care
choices is an important and worthy undertaking, but educating
consumers and forcing them to pay more for their health care
are two different things.
6)OPPOSITION . Health plans, insurers, and some business
organizations oppose this bill. The California Association of
Health Plans (CAHP) opposes this bill expressing concerns that
it could negatively impact the ability of health plans to
provide flexible products to individuals at affordable prices.
According to CAHP, the individual market is currently
accessible to nearly all who apply for coverage. CAHP points
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to a 2007 survey by America's Health Insurance Plans that
found that nine out of ten applicants who went through an
application process for individual coverage were offered
coverage. CAHP argues that health plans are currently able to
keep policies affordable by ensuring that health risk is
accurately assessed and through flexibility in product design
to lower premiums. The Association of California Life and
Health Insurance Companies, wrote in opposition to a prior
version of this bill that they support transparency of health
plan choices so that individuals can compare options but that
this bill goes beyond that and has the very real possibility
of eliminating lower cost options in the market. Blue Shield
of California opposes this bill and states that it is
supportive of removing so-called junk insurance from the
market, and supports a mandate for all carriers to cover
maternity, Blue Shield is concerned that this bill may remove
more than "junk" insurance from the market depending on how
its provisions are interpreted by regulators.
7)PREVIOUS LEGISLATION .
a) SB 1522 (Steinberg) of 2008, similar to this bill, would
have required DMHC and the CDI to jointly develop a system
to categorize into five coverage choice categories health
coverage sold to individuals, as specified. AB 1522
stalled on the Assembly floor.
b) AB1 X1 (Nunez) of 2007, a comprehensive health care
reform proposal, included, among other elements, provisions
that would have significantly reformed the individual
health insurance market, including provisions identical to
the introduced version of this bill. AB1 X1 would have
required DMHC and CDI to develop, by regulation, a system
to categorize health plan contracts and insurance policies
into five choice categories, reflecting a reasonable
continuum of benefits and prices; would have required
health plans and insurers to offer coverage to individuals
without medical underwriting and regardless of their health
status or claims history, as specified; and would have
required individuals to have health insurance coverage,
with certain exceptions. AB1 X1 failed passage in the
Senate Health Committee.
c) AB 8 (Nunez) of 2007, also a comprehensive reform
measure, contained similar provisions to AB1 X1 with regard
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to individual insurance market reforms, but did not require
all individuals to have health insurance coverage. AB 8
was vetoed by Governor Schwarzenegger who stated in his
veto message, "AB 8 does not achieve coverage for all, a
critical step needed to reduce health care costs for
everyone. Comprehensive reform cannot leave Californians
vulnerable to loss or denial of coverage when they need it
most. Finally, to be sustainable, comprehensive reform
cannot place the majority of the financial burden on any
one segment of our economy."
d) SB 48 (Perata) of 2007 would have enacted product and
underwriting reforms in the individual market and other
health care system reforms. These provisions were deleted
from SB 48.
e) AB 2889 (Frommer), Chapter 826, Statutes of 2006,
requires health plans and health insurers to permit an
individual who has been covered for at least 18 months
under an individual benefit plan to transfer, without
medical underwriting, to any other individual benefit plan
with equal or lesser benefits, as specified.
f) AB 2281 (Chan) would have established standards and
disclosure requirements affecting individual benefit plans
with annual deductibles, and would have required DMHC and
CDI to develop a consumer guide on individual benefit plans
with annual deductibles to assist consumers in evaluating
competing products in the market. AB 2281 failed passage
on the Assembly floor.
g) AB 977 (Nava) of 2006 would have required health plans
and health insurers to apply to DMHC and CDI for approval
prior to offering for sale any health coverage product that
includes any deductible, copayment, or other out-of-pocket
cost or limitation on benefits or coverage, and would have
required a public notice and comment period for review of
the product approval applications. AB 977 failed passage
in the Senate Banking, Finance and Insurance Committee.
h) AB 356 (Chan), Chapter 526, Statutes of 2005, requires
health plans and insurers selling individual benefit plans
to disclose specified information to individuals applying
for coverage, and to those who have such coverage, and to
report a general description of their rating and
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underwriting criteria and policies to DMHC and CDI.
8)DRAFTING ISSUE . For clarity, this bill could be improved if
it were amended to focus the sections affecting Knox-Keene
primarily on health care service plans, and sections affecting
the Insurance Code primarily on health insurers, rather than
referencing plans and insurers in both codes.
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REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (sponsor)
American College of Obstetricians and Gynecologists, District IX
/ CA
American Federation of State, County and Municipal Employees,
AFL-CIO
California Chiropractic Association
California Federation of Teachers
California Immigrant Policy Center
California Medical Association
California Psychological Association
California Retired Teachers Association
California Society for Clinical Social Work
California Teachers Association
CALPIRG
Congress of California Seniors
Consumers Union
Having Our Say!
National Multiple Sclerosis Society
Service Employees International Union
Western Center on Law and Poverty
Oppose unless amended
Anthem Blue Cross
Opposition
Association of California Life and Health Insurance Companies
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097