BILL ANALYSIS
AB 1543
Page 1
Date of Hearing: May 12, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 1543 (Committee on Health) - As Amended: May 6, 2009
SUBJECT : Medicare supplement coverage: Medicare advantage.
SUMMARY : Makes conforming changes to the requirements and
standards that apply to Medicare supplement contracts and
policies (collectively Medigap policies), for the purpose of
complying with recent federal law changes affecting the
benefits, the issuance and the pricing of Medigap policies.
Contains an urgency clause to ensure that the provisions of this
bill go into immediate effect upon enactment. Specifically,
this bill :
1)Makes conforming changes to standards applicable to Medigap
policies to comply with the Medicare Improvements for Patients
and Providers Act of 2008 (MIPPA) including the following:
a) Establishes requirements for 11 new standardized Medigap
policies with an effective date on or after June 1, 2010,
consistent with MIPPA, as follows:
i) Reduces from 17 to 11 the number of standardized
policies, eliminates Plans H, I, J and High-Deductible
Plan J as the existing standardized policies,
establishes the 11 new standardized policies as Plans
A-D, Plan F, High-Deductible Plan F, Plan G, and Plans
K-N;
ii) Requires health plan and health insurer issuers of
Medigap policies (issuers) to, at a minimum, offer the
basic plan, Plan A, and requires issuers choosing to
offer any Medigap policy or policies other than Plan A
to also offer either Plan C or Plan F;
iii) Deletes from the new standardized Medigap policies
preventive and at-home care benefits, and deletes
prescription drug coverage from all standardized plans
because prescription drug coverage is now provided
through Medicare Part D;
iv) Includes hospice and respite care services as
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basic (core) benefits which must be included in all
standardized Medigap policies;
v) Makes changes to cost-sharing elements of
standardized plans, as specified;
vi) Makes conforming changes to marketing and consumer
notice provisions to reflect the changes in
standardized Medigap policies;
vii) Prohibits issuers from requiring or using the
applicant's health information, for the purpose of
determining eligibility or premium levels, or for any
other purpose not explicitly disclosed to an applicant.
Authorizes an issuer to request an applicant to
voluntarily provide health information, providing the
issuer obtains the applicant's authorization in
compliance with the federal Health Insurance
Portability and Accountability Act (HIPAA). HIPAA
generally prohibits the release of personal medical
information without a patient's authorization, unless
otherwise explicitly permitted; and,
viii) Prohibits issuers from using any new or innovative
benefits, including a change in cost sharing, to change
or reduce benefits;
b) Retains and revises the existing standards applicable to
Medigap policies with an effective date on or before June
1, 2010 and includes the following new provisions:
i) Permits issuers to allow an enrollee, subscriber,
policyholder, or certificate holder (enrollee) to
exchange an existing policy for one of the new
standardized policies, and requires issuers that chose to
do so to comply with specified requirements, including,
among other things, limiting any new preexisting
condition exclusion to six months, as specified, and only
for benefits not covered in the prior policy; and,
ii) Requires an issuer choosing to offer an enrollee the
opportunity to change to a newer policy pursuant to i)
above to make the same offer to all enrollees in a
particular policy, unless to do so would be in violation
of state or federal law.
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c) Establishes a guaranteed issue right to a Medigap policy
for Medicare-eligible individuals (beneficiaries), who are
also eligible for Medi-Cal, but have a share of cost
imposed because of a change in their income, (known as the
Medi-Cal share of cost program). Existing law establishes
a guaranteed issue right for individuals losing Medi-Cal
coverage but not those in the Medi-Cal share of cost
program;
d) Requires, upon timely receipt of notice from an enrollee
of their eligibility for Medi-Cal, as specified, an issuer
to refund any portion of the premium, adjusted for paid
claims, for that period during which an enrollee is
eligible for Medi-Cal and, at the enrollee's request, the
Medigap policy was placed in suspension;
e) Clarifies that beneficiaries are entitled to guaranteed
issue of a Medigap policy when the employer no longer
provides insurance that covers all of the coinsurance
charges under Part B of Medicare. Existing law requires
guaranteed issue of a Medigap policy for beneficiaries when
the employer ceases to provide coverage for some or all of
the supplemental benefits, but does not specifically
include a drop in coverage for Part B costs even where the
employer continues other Medigap coverage.
2)For Medigap policies that become effective on or after May 21,
2009, requires issuers, including a third party administrator
acting on behalf of an issuer, to adhere to requirements of
the federal Genetic Information Nondiscrimination Act of 2008
(GINA) including, among other things, all of the following:
a) Prohibits an issuer from denying or conditioning the
issuance, eligibility or effectiveness of a Medigap policy,
including any preexisting condition exclusion, or
discriminating in the pricing of a Medigap policy, on the
basis of genetic information with respect to an individual
or family member;
b) Prohibits an issuer from requesting or requiring an
individual or a family member of that individual to undergo
a genetic test, except for specified limited exceptions,
including that an issuer may request, but not require, a
genetic test for research purposes, as defined, providing
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that the issuer complies with specified disclosures and any
genetic information collected is not used for underwriting,
determination of eligibility, premiums, or issuance,
renewal or replacement of a Medigap policy; and,
c) Enacts in state Medicare supplement law relevant
definitions from the federal GINA, including the definition
of "genetic information" which means, with respect to any
individual, information about the individual's genetic
tests, the genetic tests of family members of the
individual, and the manifestation of a disease or disorder
in a family member of the individual. Provides that
Medicare supplement policies must also comply with existing
state law applicable to genetic testing and genetic
information.
3)Clarifies that health plans arranging directly or indirectly
to provide health care services under the Medicare Advantage
program, pursuant to Medicare Part C, must be licensed as a
the Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene) health plan and comply with all applicable
provisions of Knox-Keene unless otherwise preempted by federal
law. Medicare Part C allows beneficiaries with Part A
(Hospital) and Part B (Medical) Medicare to select a private
health plan that provides for all of the health care benefits,
in which case they would not need to purchase a Medigap
policy.
4)Makes other technical and conforming changes.
EXISTING LAW :
1)Provides for regulation of health plans by the Department of
Managed Health Care (DMHC) under Knox-Keene and for regulation
of health insurers by the California Department of Insurance
(CDI) under the Insurance Code.
2)Establishes standards for Medigap policies sold in California
which provide Medicare beneficiaries with coverage for
benefits and cost-sharing not covered by Medicare. Medigap
policies are subject to the jurisdiction of either DMHC or CDI
depending on the type of policy, in a manner generally
consistent with federal laws applicable to Medigap policies,
including benefit and cost-sharing requirements for 17
standardized benefit plans, open enrollment and guaranteed
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issue of Medigap policies for specified individuals, and
specified notices and disclosures that must be provided to
Medigap policy applicants and enrollees.
3)Establishes in federal law the Medicare program as a
government-administered health insurance program for people
age 65 or older and certain people younger than age 65, such
as those with disabilities and those who have permanent kidney
failure or amyotrophic lateral sclerosis (Lou Gehrig's
disease).
4)Under the federal MIPPA, requires states to adopt by September
24, 2009, specific modernization changes to Medigap policies,
as outlined in the model regulations developed by the National
Association of Insurance Commissioners (NAIC), and consistent
with requirements in MIPPA. MIPPA reduces from 17 to 11 the
number of standardized Medigap policies and makes other
changes to Medigap coverage including changes to benefit and
cost-sharing requirements, and changes to disclosure and
issuance requirements.
5)Under the federal GINA, prohibits a health insurer, including
issuers of Medigap policies, from denying or conditioning the
issuance, effectiveness, or pricing of the policy on the basis
of genetic information. Requires states to enact conforming
changes by July 1, 2009.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the Assembly Committee on
Health, this bill conforms California law related to Medigap
policies to requirements in two new federal laws: GINA and
MIPPA. MIPPA requires states to conform state Medigap law to
changes made by the NAIC model Medigap regulation as a result
of the two new federal laws. The Committee points out that
failure to enact the changes in the NAIC model act will result
in California losing its ability to regulate Medigap policies.
2)BACKROUND . Medicare is the federal health insurance program
that provides health care coverage for most people age 65 and
older; people younger than 65 with disabilities who meet
specified criteria; people with Lou Gehrig's disease; and,
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people with end-stage renal disease, permanent kidney failure
requiring dialysis, or transplant. Medicare is divided into
four parts:
a)Part A covers most inpatient hospital care, and some
inpatient skilled nursing facility care, home health care,
and hospice care;
b)Part B covers a portion of outpatient medical services such
as doctors' services, outpatient hospital care, laboratory
tests, outpatient physical and speech therapy, certain home
health care, certain ambulance services, and certain
medical equipment and supplies;
c)Part C, known as Medicare Advantage, allows Medicare
beneficiaries to enroll in and receive Medicare benefits
through private health insurance plans, such as HMOs; and,
d) Part D provides prescription drug coverage through
private drug plans;
Medicare does not cover all medical services and also does not
pay 100% of certain covered services. Although Medicare pays
for certain preventive services and covers most medically
necessary services, the percentage of out-of-pocket health
care expenses for Medicare beneficiaries can be sizable and
typically increases with age. Examples of items Medicare does
not cover include: hearing aids; eyeglasses; dental care;
acupuncture; chiropractic care; long-term care at home or in a
nursing home, when the care needed is primarily personal care
services or custodial care; and health care outside the United
States.
Since Medicare does not cover all medical services, and
because of the potential for high cost sharing in the form of
deductibles and coinsurance, many people choose to supplement
Medicare with other coverage. A private Medigap policy, sold
by commercial insurance companies, is an option that pays for
part or all of Medicare's coinsurance and deductibles. Under
federal law, there are 11 standardized Medigap plans (assigned
letters A thru L, with some letter plans eliminated such as
the current Plan E). In addition to the core benefits which
must be offered in all Medigap policies, some plans may also
cover other health care costs that Medicare doesn't cover,
such as foreign travel emergency medical care. Two plans, F
and J, have a high deductible option.
Medigap policies are guaranteed issue at certain times for
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eligible beneficiaries as specified in state and federal law.
For example, at the point where an individual first becomes
eligible for Medicare there is an "open enrollment" period
where they can purchase any Medigap policy without medical
underwriting. Beneficiaries are also guaranteed coverage, or
"guaranteed issue," when certain events occur, such as the
loss of employer-sponsored Medigap coverage. Unless eligible
for open enrollment or guaranteed issue, Medicare
beneficiaries wishing to purchase Medigap coverage or change
plans are subject to medical underwriting and can be denied
coverage based on their health status or claims experience.
Medigap policies are guaranteed renewable as long as the
premium is paid and, generally speaking, cannot be cancelled
because of a person's health condition or for any reason other
than non-payment of the premium. Insurers can however, in
their discretion, increase the premiums for Medigap coverage.
3)NAIC MEDIGAP MODEL REGULATION . NAIC is the organization of
insurance regulators from the 50 states, the District of
Columbia and the five U.S. territories. NAIC meetings are a
national forum for resolving major insurance issues that
allows regulators to develop common national policies on the
regulation of insurance when a national policy is appropriate.
NAIC develops and publishes model laws and regulations across
the broad spectrum of insurance issues, including health
insurance. In order to be considered for development and
adoption, a NAIC model law or regulation must involve a
national standard and/or require uniformity among all the
states. NAIC model laws often form the basis of state and
federal legislation and, in some instances, federal law
requires states to enact or to incorporate elements of NAIC
model laws.
The conference report of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) included
language encouraging the NAIC to adopt standards modernizing
the Medigap market. In March 2007, NAIC adopted a
modernization proposal and MIPPA subsequently granted states
the authority to adopt the NAIC changes and made additional
changes to Medigap. On September 24, 2008, the NAIC adopted a
revised model Medigap regulation which includes major changes
to Medigap plans and benefits pursuant to MIPAA and also
contains changes required by GINA. Under federal law, states
must adopt the NAIC model revisions in order to continue to
regulate the Medigap market. In the absence of state adoption
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of the federal requirements, the federal Centers for Medicare
and Medicaid Services will regulate Medigap policies instead
of the state. States must adopt the revisions required by
GINA by July 1, 2009 and the revisions required by MIPPA by
September 24, 2009. This bill is based on the revised NAIC
model law and includes an urgency statute to facilitate timely
compliance with these deadlines for state enactment.
4)MIPPA . MIPPA includes major changes to Medigap plans and
benefits. MIPPA reduces from 17 to 11 the number of
standardized Medigap plans (leaving Plans A-D, Plan F,
High-Deductible Plan F, Plan G, and Plans K-N. MIPAA requires
all issuers selling Medigap policies to offer at least the
basic standardized plan, Plan A. If an issuer chooses to
offer any other plan besides Plan A, they must also then offer
one of two other plans, Plan C or Plan F. MIPPA eliminates
certain Medigap benefits that were determined to be
underutilized or outdated, specifically the preventive care
benefit and the at-home recovery benefit, and removes
prescription drugs from some benefit plans as a result of the
establishment of Medicare Part D coverage for prescription
drugs under MMA. According to the NAIC, the eliminated
preventive care benefit is no longer needed because of the
enhanced preventive care benefits now offered in Medicare Part
B. NAIC reports the at-home recovery benefit was an
underutilized and outdated benefit given the limited
availability of the benefit in the old plans and no longer
provided a significant benefit. MIPPA also adds hospice as a
basic core benefit in all Medigap policies, with the goal of
ensuring that hospice coverage is available to all Medicare
beneficiaries.
MIPPA adds to the instances when a Medicare beneficiary is
entitled to guaranteed issue of a Medigap policy.
Specifically, MIPPA establishes a guaranteed issue right for
individuals who are eligible for Medicaid (Medi-Cal in
California) but who have a potentially substantial share of
cost imposed because of a change in their income, known as the
Medi-Cal share of cost program. Current law entitles
individuals who lose Medi-Cal eligibility to guaranteed issue
of Medigap, but not those who remain eligible for Medi-Cal
with a share of cost. MIPPA also entitles a beneficiary to
guaranteed issue if they lose coverage under the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) or the
California Continuation Benefits Replacement Act (Cal-COBRA).
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Beneficiaries are not required to change to the new benefit
plans which will be effective starting June 1, 2010. The NAIC
model provides for transition to the new standardized
policies, but does not require issuers to offer existing
policyholders a chance to exchange their current policy
without medical underwriting, unless an open enrollment or
guaranteed issue situation is involved. Once the states adopt
the revised model and issuers comply with applicable state
laws on approval of policy forms, rates and advertising,
issuers can market the new policies, but they cannot become
effective until June 1, 2010.
5)GINA . GINA, Public Law 110-233, enacted May 21, 2008, is
designed to prohibit the improper use of genetic information
in health insurance and employment and protects against
discrimination based on information derived from genetic
tests. GINA establishes basic legal protections which
proponents argue will enable and encourage individuals to take
advantage of genetic screening, counseling, testing, and new
therapies that will result from the scientific advances in the
field of genetics. GINA prohibits health insurers in the
group, individual, and Medigap policy markets from denying
coverage to a healthy individual or charging that person
higher premiums based solely on a genetic predisposition to
developing a disease in the future. GINA also bars employers
from using individuals' genetic information when making
hiring, firing, job placement, or promotion decisions. In
addition, insurers and employers are not allowed under the law
to request or demand a genetic test, except for
research-related purposes, and only where the issuer adheres
to specified disclosures and limitations on the collection and
use of the information. A 2001 study by the American
Management Association showed that nearly two-thirds of major
U.S. companies required medical examinations of new hires. In
addition, 14% conducted tests for susceptibility to workplace
hazards; 3% for breast and colon cancer; 1% for sickle cell
anemia; and, 10% collected information about family medical
history.
6)SUPPORT . CDI, sponsor of this bill, states that this bill is
urgently needed because if California fails to adopt the
revisions by the mandated deadlines, the state will be deemed
to be out of compliance with federal law, and thereby, lose
the authority to regulate the Medigap market. America's
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Health Insurance Plans, the national association representing
health insurance plans, writes in support of this bill that
the timeliness with which these conforming provisions must
take effect and consistency with the NAIC model regulation are
essential to ensuring that Medicare supplement policies are
available to millions of California seniors.
7)POLICY QUESTIONS AND COMMENTS .
a) Request for medical information . This bill authorizes
issuers to voluntarily collect the health information of
applicants, at the time of the application, even though
some beneficiaries are entitled to a Medigap policy through
open enrollment or other guaranteed issue requirements,
and, in these cases, issuers may not request or require
health information from applicants related to the issuance
of the contract or the premium. Consumer advocates have
been concerned that any request for health information
included with an application would leave applicants with
the impression that they must provide the information in
order to obtain coverage. Should issuers be precluded from
asking for health information in any application where the
applicant is entitled to guaranteed coverage?
b) Two-year contestability clause . For new Medigap
policies under Knox-Keene, this bill appears to have
inadvertently deleted the existing two-year limit on the
incontestability of a Medicare contract, that period during
which the issuer may cancel or nonrenew a policy because of
a material misrepresentation by the enrollee. The two-year
limit should be included for the newer policies as it is
currently for existing policies.
c) Creation of closed blocks . The federal law, and this
bill, authorize but do not require issuers to offer an
opportunity for enrollees in existing standardized plans to
switch to newer standardized plans without medical
underwriting. Without this opportunity, individuals whose
health is such that they can pass medical underwriting will
be more likely to enroll in the new standardized policies
and those who have health issues or high claims will be
forced to stay in the old policies. Since the older
policies can no longer be offered to new enrollees, over
time, the risk and costs of the pool of individuals
remaining in the old policies will deteriorate, leading to
higher premiums for the remaining enrollees, and what is
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often referred to as a "closed block of business." To
avoid this type of "death spiral" in the old policies,
should this bill require issuers to offer enrollees, on a
one-time basis, an opportunity to switch policies without
medical underwriting to a new standardized plan with the
same letter designation or, if the issuer is not offering
the same lettered plan, to another issuer offering that
lettered plan?
d) Consumer information . This bill refers individuals who
are enrolled in Knox-Keene licensed Medigap plans to CDI.
This bill should be amended to refer enrollees in
Knox-Keene plans to DMHC and the HMO Help Center available
for Knox-Keene enrollees.
8)TECHNICAL AMENDMENT . Section 10192.81 (a) (5) (b) makes
reference to Section 10305.2 (page 80, lines 24 and 25).
Section 10305.2 does not currently exist in law and is not
being added by this bill. The correct citation is Section
10350.2 .
REGISTERED SUPPORT / OPPOSITION :
Support
Commissioner of Insurance (sponsor)
America's Health Insurance Plans
Opposition
None on file.
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097