BILL ANALYSIS
AB 1521
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 1521 (Jones) - As Amended: April 16, 2009
And As Proposed To Be Amended
SUBJECT : Insurance agents: health insurance transactions.
SUMMARY : Provides that health care service plans and health
insurers shall not enter into compensation arrangements with
agents or solicitors that vary the compensation paid to the
agents or solicitors based on the health status, claims history,
industry, occupation or geographic location of the individual or
group purchasing the coverage. Specifically, this bill :
1)Prohibits a health care service plan from directly or
indirectly entering into an agreement with a solicitor where
the compensation to be paid to the solicitor varies because of
the health status, claims experience, industry, occupation, or
geographic location of the individual or group purchasing the
coverage.
2)Specifies that this prohibition does not apply to a
compensation arrangement that involves payment of a percentage
of the premium, provided that the percentage shall not vary
because of the health status, claims experience, industry,
occupation, or geographic location of the individual or group
purchasing the coverage.
3)Defines "solicitor" as anyone who solicits or advertises on
behalf of a health care service plan for the purpose of
inducing any person to enroll in or subscribe to the plan,
including an insurance agent or broker.
4)Prohibits a health insurer from directly or indirectly
entering into an agreement with a solicitor where the
compensation to be paid to the solicitor varies because of the
health status, claims experience, industry, occupation, or
geographic location of the individual or group purchasing the
coverage.
5)Specifies that this prohibition does not apply to a
compensation arrangement that involves payment of a percentage
of the premium, provided that the percentage shall not vary
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because of the health status, claims experience, industry,
occupation, or geographic location of the individual or group
purchasing the coverage.
6)Prohibits a health care service plan or a health insurer from
entering into compensation arrangements that result in
different levels of compensation when, at the time of renewal
of an individual or group plan contract or policy, the
solicitor submits an application that results in the offer or
purchase of a different contract or policy with the same
health care service plan or insurer instead of renewal of the
existing plan contract or policy.
7)Requires a health plan, health insurer, or solicitor to notify
an individual contract or policy holder, at the time of
renewal, that an application for a different individual
contract or policy may result in a new review of the
applicant's medical history that could result in an offer, an
offer for higher premium, or a denial of coverage.
8)Provides that an application for a different benefit plan
design shall not change the terms and conditions of the
individual contract or policy currently held by the applicant.
9)Requires a solicitor to disclose to an individual or group who
is being offered, or who is purchasing, a health plan contract
or health insurance policy that he or she is acting on behalf
a health plan or insurer.
10) Requires a solicitor to disclose the plans or insurers on
whose behalf the solicitor is authorized to act.
11)Requires a solicitor, in connection with the disclosure noted
in item 10, above, to disclose that he or she is not
authorized to act on behalf of other health plans or health
insurers.
EXISTING LAW :
1)Provides for regulation of health plans by Department of
Managed Health Care under the Knox-Keene Health Care Service
Plan Act of 1975 and for regulation of disability insurers
that sell health insurance (health insurers) by the California
Department of Insurance under the Insurance Code.
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2)Requires anyone who solicits, negotiates, or effects contracts
of insurance to be licensed for that purpose by the Insurance
Commissioner, and to meet specified testing and training
requirements.
3)Establishes the licensing category of a life licensee,
authorized to act on behalf of life or disability insurers,
and further defines one type of life licensee as an accident
and health insurance licensee, authorized to transact
insurance coverage for sickness, bodily injury, or accidental
death.
4)Prohibits health plans and health insurers from directly or
indirectly varying agent compensation for health coverage sold
to small employer firms (2-50 employees) based on the health
status, claims experience, industry, occupation, or geographic
area of the small employer.
5)Prohibits, under the federal Health Insurance Portability and
Accountability Act of 1996 (HIPAA), health insurers from
deflecting or in any way avoiding the issuance of a policy to
a HIPAA eligible person or a small employer group by reducing
agent compensation (commissions, bonuses, or other rewards).
FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . The bill, as proposed to be amended, is designed to
address concerns the author has about how the health insurance
market is operating in this era of rapidly escalating costs.
Many individual and group policyholders are faced with rising
premiums that are perceived as unaffordable. In response,
they begin to search for less expensive options. The author
is concerned that many of these consumers are not sufficiently
informed about how the market operates. Thus, for example,
the bill proposes to inform these consumers that an
"independent agent" may not represent a broad range of
insurers, and thus may not be shopping for the best policy for
the particular consumer's needs.
The author is also concerned that compensation structures might
be used by health plans and insurers to cause agents to steer
consumers into the more profitable policies that might not be
the best fit for that consumer.
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Finally, the author is concerned that as consumers seek more
cost-effective options, medical underwriting might be
triggered that results in the consumer being worse off than
had he or she not applied for an alternative to their current
plam.
2)Background . According to a 2002 issue brief by the Center for
Studying Health System Change (The Center), The Role of Health
Insurance Brokers, insurance brokers (used in the report as
the generic reference to agents and brokers) play an important
role in helping small employers find affordable health care
coverage for workers and their dependents. The Center
conducted site visits and key informant interviews in 12
communities, including one California community, Orange
County. In Orange County, health plans reported that brokers
provided more than 90% of business referrals from the small
employer market. The study found that health plans typically
pay brokers on a commission basis, which vary within and
across markets from 2%-8% of the premium. The Center also
found that commissions can also vary significantly within a
specific market. For example, a health plan trying to
increase market share might compensate brokers at 10% while
other health plans in the same community pay 6%-8%. The study
also found that most health plans build broker commissions
into the premium, whether the firm uses a broker or not.
Commissions are typically highest the first year of the sale,
but continue to accrue as long as the consumer stays with the
insurer. Some health insurance companies also provide agents
with bonuses and other incentives for meeting productivity
goals, placing new business with a carrier, and re-signing
current enrollees. According to The Center, health plans pay
higher rates during the phase of what is known as the
"underwriting cycle" when they are trying to attract new
business, and lower rates during the phase where they are
seeking to restore profitability. The Center also found that
health plans occasionally use commission rates to discourage
brokers from referring bad risks or market segments with above
average utilization. For example, some health plans pay no or
lower commissions for business sold to the smallest groups,
which often have the highest potential for adverse selection.
The Center also found that in addition to helping employers
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select a health insurance product, most brokers will also then
assist them in explaining benefits options to employees,
completing enrollment forms, and ensuring enrollees receive
the necessary documentation, such as member enrollment cards.
The Center also found that services may continue after
enrollment, especially for small employers without staff to
handle benefits issues. The Center suggested that reducing or
eliminating broker commissions might not result in lower
premiums because health plans would probably take over many of
the services currently provided by brokers and pass along the
cost to purchasers.
3)Support . Consumer and labor organizations support this bill.
Health Access and Consumers Union argue that the prohibitions
and disclosures required by the bill are intended to reduce
the incentive to "churn" coverage, the practice of moving
individuals from one product to another. Supporters state
that currently in the individual health insurance market, it
is advantageous for both insurers and agents to churn business
because the agent gets a higher compensation for new business
and the insurer gets the opportunity to conduct a new round of
medical underwriting for the new product. For healthier
individuals who can pass underwriting, they can move to a
different, possibly cheaper product, but those with claims
history or pre-existing conditions are denied the chance to
change, so that if they want to stay insured, they must stay
in coverage that costs them more and more over time, because
only high risk individuals stay with that product. The
Congress of California Seniors states that the dizzying array
of choices for individual insurance leads people to rely on
agents to help them and this bill would ensure that the
consumer better understands the market.
4)Opposition . Health insurers and the insurance agent community
opposed the previous form of bill. The previous form
(currently in print) of the bill would impose increased duties
on agents, and require detailed disclosure to consumers of the
compensation they are paid. The language that the author will
be offering in Committee, and that has been discussed in this
analysis, was provided to the opposition late last week. The
opposition has informally indicated that the language as
proposed to be amended is an improvement. Further, the
opposition has offered the author specific language that
modifies the language that is proposed to be amended to the
bill. That offer by the opposition, if accepted, would move
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the three agents' associations to a neutral position. As of
the time this analysis was prepared, however, the author had
not had the opportunity to review and respond to the
opposition's proposal.
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (Sponsor)
California Federation of Teachers
California Labor Federation
Congress of California Seniors
Consumers Union
Service Employees International Union
Opposition
Anthem Blue Cross
Association of California Life and Health Insurance Companies
California Association of Health Plans
California Insurance Wholesalers Association
Civil Justice Association of California
Health Net
Insurance Brokers and Agents of the West
National Association of Insurance and Financial Advisors of
California
Surplus Line Association of California
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086