BILL ANALYSIS
AB 1759
Page 1
ASSEMBLY THIRD READING
AB 1759 (Blumenfield)
As Amended April 20, 2010
Majority vote
HEALTH 12-6
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|Ayes:|Monning, Ammiano, |
| |Brownley, |
| |De Leon, Eng, Hayashi, |
| |Hernandez, Jones, Bonnie |
| |Lowenthal, Nava, |
| |V. Manuel Perez, Salas |
| | |
|-----+--------------------------|
|Nays:|Fletcher, Conway, Adams, |
| |Gaines, Smyth, Audra |
| |Strickland |
| | |
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SUMMARY : Prohibits health care service plans (health plans) and
health insurers from using a change in 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).
FISCAL EFFECT : None
COMMENTS : 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. 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
AB 1759
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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.
Regulation and oversight of health insurance in California is
split between two state departments, the Department of Managed
Health Care (DMHC) and the California Department of Insurance
(CDI). DMHC regulates 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 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.
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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 making
changes to 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.
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 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
that this bill would prohibit premium changes based on certain
factors, even when the changes are favorable to the employer.
The Association of California Life and Health Insurance
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Companies and the California Association of Health Plans state
that this bill could cause implementation problems due to the
fact that the term "enrollment" are not defined, and could be
interpreted in different ways.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097
FN: 0003938