BILL ANALYSIS
AB 1759
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1759 (Blumenfield) - As Amended: March 9, 2010
SUBJECT : Health care coverage: premium rates.
SUMMARY : Prohibits health care service plans (health plans) and
health insurers from using a change in demographics or
enrollment as the basis for a premium rate change in the group
market during the length of a contract. Exempts a violation of
this prohibition by a health plan from being subject to the
crime provision that applies to the Knox-Keene Health Care
Service Plan Act of 1975 (Knox-Keene).
EXISTING LAW :
1)Provides for the regulation of health plans by Department of
Managed Health Care (DMHC) (under Knox-Keene) and regulation
of disability insurers who sell health insurance by the
California Department of Insurance (CDI).
2)Prohibits, except as specified, a health plan or health
insurer from changing its premium rates or applicable
copayments or coinsurances or deductibles for group health
plan contracts or group health insurance policies after the
group contractholder or group policyholder has delivered
written acceptance of the contract or policy, after the start
of the open enrollment period, or after receipt of the premium
payment for the first month of coverage.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, existing law
permits health plans and health insurers to change rates
mid-year "when authorized or required in the group contract;"
and, group insurance contracts and renewals typically contain
language similar to the following: "the health plan reserves
the right to re-rate the premium if the demographics or
enrollment varies by more than 10%." The author states that a
mid-year rate change is a significant issue in the current
economic environment of lay-offs and corporate down-sizing.
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According to labor reports, California lost more than half a
million jobs in 2009; payrolls shrank by 38,800 jobs in
December and the unemployment rate remained flat at 12.4%.
Rate changes can be devastating for an employer who is seeing
a reduction in business. A mid-year rate change could also
present significant issues for the growing and
financially-healthy employer. A 10% growth in employment
would trigger the health plan's contractual right to re-rate
the premium. Employees are the ones most hurt financially
when there is a mid-year rate increase. A mid-year rate
change for employers buying coverage for employees could mean
financial pressures to reduce or cancel employer coverage.
For workers, the mid-contract rate increases could have major
impact, leaving them without employer sponsored coverage or
unable to purchase more expensive health coverage. The author
states that this bill would protect companies and other large
group purchasers with more than 50 people from a mid-contract
rate change.
2)HEALTH INSURANCE REGULATION IN CALIFORNIA . Regulation and
oversight of health insurance in California is split between
two state departments, the DMHC and CDI. DMHC regulates
health care service plans (health plans), including health
maintenance organizations (or HMOs) and some Preferred
Provider Organization (PPO) plans. CDI regulates multiple
lines of insurance, including disability insurers offering
health insurance, generally PPO plans and traditional
indemnity coverage.
Although DMHC and CDI both regulate carriers providing health
coverage, each department approaches that regulation very
differently. At the heart of the difference between health
plans and health insurers is the "promise to pay" versus the
"promise to deliver care." DMHC-licensed plans, often
referred to as Knox-Keene health plans, arrange for and
organize the delivery of health care and services through
contracted or owned providers and facilities and are required
to cover all medically necessary services. Disability
insurers protect against (indemnify) the expense or charges
(losses) associated with illness or injury and typically
provide coverage for defined benefits that may be specifically
limited in the policy, such as number of visits or annual
dollar limits. The distinction between the two regulatory
frameworks has blurred over time because of the historical
exceptions made for two large PPO carriers, Blue Cross and
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Blue Shield, who offer PPO products under both DMHC and CDI,
but fundamental differences remain in the expectations and
regulatory oversight by each regulator. In general, DMHC has
greater authority and responsibility to review and approve
health plan products and benefit designs than CDI has to
review health insurance products under its purview.
3)RELATED LEGISLATION .
a) AB 2042 (Feuer) prohibits health plans and health
insurers from, more than once in a calendar year, altering
rates (as defined) or benefits of individual plan contracts
and policies that are issued, amended, or renewed on or
after January 1, 2011, with certain exceptions. AB 2042 is
set to be heard in the Assembly Health Committee on April
13, 2010.
b) AB 2170 (Lowenthal) prohibits carriers covering
prescription drug benefits and using a formulary from
changing the applicable copayments or deductibles or
coinsurances for prescription drug benefits for the length
of the contract or policy. AB 2170 is set to be heard in
the Assembly Health Committee on April 20, 2010.
c) AB 2578 (Jones and Feuer) requires carriers, effective
January 1, 2012, to apply for prior approval of proposed
rate increases, under specified conditions, and imposes on
DMHC and CDI specific rate review criteria, timelines and
hearing requirements. AB 2758 also contains a provision
similar to that contained in this bill, prohibiting
carriers from making a change in premiums during the length
of a contract. AB 2578 passed by a vote of 13-5 when it
was heard in the Assembly Health Committee on March 23,
2010.
4)PREVIOUS LEGISLATION .
a) AB 1218 (Jones) of 2009 and AB 1554 (Jones) of 2008 were
substantially similar to AB 2578 (Jones and Feuer) of this
year. AB 1218 failed passage in the Assembly Health
Committee and AB 1554 failed passage in the Senate Health
Committee.
b) SB 425 (Ortiz) of 2006 would have required health plans
and insurers to obtain prior approval for a rate increase,
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defined in a similar manner to rates under AB 1218 of 2009.
SB 425 did not have a hearing at the author's request.
c) SB 26 (Figueroa) of 2004 would have required health
plans and health insurers to obtain prior approval of rate
increases from DMHC and CDI, as specified, and would have
potentially required significant refunds of premiums
previously collected. SB 26 died in the Senate Insurance
Committee.
5)SUPPORT . Pacific Federal writes that a mid-year rate change
is a significant issue in this economic environment of
lay-offs and corporate downsizing, and could be devastating
for the employer which is seeing a reduction in business.
Consumer Attorneys of California states that recent rate
increases have hit small business owners hard, as they
struggle to keep shop doors open and provide adequate health
coverage for employees and that this bill is a common sense
measure that will benefit both consumers and business owners
alike. The Valley Industry and Commerce Association states
that this bill will protect both employers and employees
against unpredictable and unrestricted mid-year rate changes.
The Neighborhood Legal Services of Los Angeles County states
that this bill seeks to control skyrocketing health insurance
premiums by prohibiting insurers from changes premium rates in
the midst of a binding contract. The California Psychological
Association writes that this bill is a step in ensuring
California's business and individuals will be able to properly
budget health care premiums for the year and continued access
to health care and mental health treatment. The California
Medical Association asserts that this bill closes a loophole
that allows random mid-contract rate changes, which can be a
destabilizing event for employers who are trying to balance
the books and keep people employed. The California Teachers
Association states that this measure would contribute to
affordable, stable health costs for Californians.
6)OPPOSITION . Health Net writes that carriers aggressively
compete to attract and retain business and, given the costs
associated with attracting new business, carriers strive to
renew business when the contract period ends. Health Net
states that a unilateral mid-term premium increase without a
legitimate justification is contrary to carriers' goal of
attracting and retaining business. Health Net further states
that should there be a material, not trivial, change in the
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composition of the group, the contracts signed by those groups
authorize Health Net to review and adjust the rates. Kaiser
Permanente writes that current law permits changes in rates
only with the purchaser's agreement at the outset of the
contract and that this bill would prevent adjustments even
when plans and purchasers agree it is in their mutual interest
to make them. Blue Shield of California writes various
geographic locations have large disparities in the cost of
medical services throughout the state (rural vs. urban, for
example) and this bill would prohibit premium changes based on
those factors, even when the changes are favorable to the
employer. The Association of California Life and Health
Insurance Companies and the California Association of Health
Plans state that this bill could cause implementation problems
due to the fact that the terms "demographics" and "enrollment"
are not defined, and could be interpreted in different ways.
7)AUTHOR'S AMENDMENT . The author requests that the Committee
approve an amendment to delete the word "demographics" on page
2, line 23 and page 3, line 23 of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
Pacific Federal (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
Association of California Water Agencies
California Chapter of the American College of Emergency
Physicians
California Communities United Institute
California Medical Association
California Psychological Association
California School Employees Association
California Teachers Association
Consumer Attorneys of California
Neighborhood Legal Services of Los Angeles County
Valley Industry and Commerce Association
Opposition
Association of California Life and Health Insurance Companies
Blue Shield of California
California Association of Health Plans
AB 1759
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Health Net
Kaiser Permanente
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097