BILL ANALYSIS
AB 2042
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 2042 (Feuer) - As Amended: April 6, 2010
SUBJECT : Health care coverage: rate changes.
SUMMARY : Prohibits health care service plans and health
insurers (collectively "carriers") 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.
Specifically, this bill :
1)Prohibits carriers from, more than once in a calendar year,
altering rates or benefits of individual plan contracts and
policies that are issued, amended, or renewed on or after
January 1, 2011.
2)Permits carriers to alter rates if an enrollee or insured
changes geographic region or family composition, but requires
the change in the rate offered reflects only those two
changes.
3)Requires the term "rate," for the purposes of this bill to
include, but not be limited to, premiums, copayments,
coinsurance obligations, deductibles, out-of-pocket costs, and
any other charges for covered benefits.
4)Prohibits this bill, if coinsurance obligations are based on a
percentage of the cost of services, from preventing a change
in provider rates during the term of the contract even if that
change increases the charge for covered benefits to the
enrollee or insured.
5)Excludes the provisions of this bill from contracts and
policies issued through a publicly funded state health care
coverage program, including, but not limited to, the Medi-Cal
Program and the Healthy Families Program, or to Medicare
supplement contracts.
EXISTING LAW :
1)Provides for the regulation of health plans by the Department
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of Managed Health Care (DMHC) and regulation of disability
insurers who sell health insurance by the California
Department of Insurance (CDI).
2)Prohibits changes in premium rates or coverage from becoming
effective without prior written notification of the change to
the contractholder or policyholder. Prohibits carriers,
during the term of a group plan contract or policy, from
changing the rate of the premium, copayment, coinsurance, or
deductible during specified time periods.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, several
carriers have proposed substantial rate hikes over the last
several months, most notably, Anthem Blue Cross proposed fee
increases that averaged around 25% and ranged up to 39%. The
effect of these types of dramatic increases is to drive more
and more people out of the market and thus leaving them
without any health care coverage. According the UCLA Center
for Health Policy Research, the number of California residents
without insurance increased by nearly 2 million over 2008 and
2009 (from 6.4 million to 8.2 million) due substantially to a
decrease in private health care coverage. The author states
that while federal health care reform will bring much more
certainty to the market (through health insurance exchanges,
guaranteed issuance, and community rating), many of these
elements will not take effect until 2014 and given that
California still has a significant period of economic recovery
ahead, it is essential that we take appropriate actions to
stabilize the individual market and provide Californians with
the predictability they deserve.
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 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.
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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 Care Service Plan Act of 1975
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.
3)HEALTH INSURANCE RATE INCREASES . According to a study
published in the journal Health Affairs in 2007, premiums paid
by employees for small group coverage (2-50 employees) in
California increased 53% between 2003 and 2006, from $250 to
$382 per month, and premiums for individual coverage rose 23%
between 2002 and 2006, from $211 to $259 per month. In 2006,
a single person age 32-52 earning the median income who
purchased individual insurance spent, on average, 16% of
income on premiums and out-of-pocket medical expenses. In
addition to an increase in premiums, for individual insurance,
the share of medical expenses paid by insurance as opposed to
patients declined from 2002 to 2006. In 2003, individual
market policies paid 75% of medical costs on average. That
figure had dropped to 55% just three years later. In the
small-group market the proportion of claims paid by insurers
for a standardized population remained constant. Small group
market policies retained their actuarial value, paying for
roughly 83% of medical expenses across a similar period.
4)ANTHEM BLUE CROSS 2010 RATE INCREASES . In November 2009, the
state's largest health insurer in the individual market,
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Anthem Blue Cross, notified CDI of their intention to raise
rates by up to 39% for policyholders in the individual market.
The decision by Anthem Blue Cross to implement these premium
increases after similar increases during last year caused
great concern not only in California, but across the nation.
The Assembly Committee on Health held an oversight hearing on
February 23, 2010 on the rate increases, as did the House
Energy & Commerce Subcommittee on Oversight and Investigations
on February 24, 2010. Kathleen Sebelius, Secretary of the
U.S. Department of Health and Human Services (HHS), wrote to
the president of Anthem Blue Cross asking for a detailed
justification for the increases to the public. Secretary
Sebelius also requested that Anthem Blue Cross make public
information on the percent of the company's individual market
premiums that is used for medical care versus the percent that
is used for administrative costs.
Wellpoint (Anthem Blue Cross' parent company) sent a response to
Secretary Sebelius on February 11, 2010, stating that an
independent actuarial firm concluded that their rates are
actuarially sound and necessary, reflecting the expected
medical costs associated with the membership in their plans,
and that they satisfy or exceed the medical loss ratio
required by California law. The letter went on to state that
rate increases reflect the increasing underlying medical costs
in the delivery system which are unsustainable. Specifically,
Wellpoint explained that rates in the individual market were
rising faster than medical inflation due to a number of
factors, including: a) a less healthy risk pool; b)
individuals moving to lower-cost options; c) individuals aging
into a higher age category; and, d) "deductible leveraging,"
when enrollee deductibles and co-payments do not increase with
medical inflation, and medical costs increases
disproportionately fall on the premiums.
At the request of CDI Commissioner Steve Poizner, Anthem Blue
Cross has agreed to delay the increases until May 1, 2010 to
allow an independent actuary to review their rates.
5)HEALTH CARE SPENDING . The 2009 edition of the California
HealthCare Foundation's "Healthcare Costs 101" (based on the
latest health spending information available from the HHS,
Centers for Medicare and Medicaid Services) stated that
although there has been some moderation in health spending
growth in recent years, its share of the economy continues to
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grow. In 2007, national health care spending reached $2.2
trillion ($7,421 per person). If left unchecked, health care
spending is projected to reach 20% of the country's gross
domestic product (GDP) by 2018. The report also highlighted
the following trends:
a) Health spending grew 6.1% in 2007, the smallest increase
since 1998, extending a five-year decelerating trend.
Nevertheless, health spending continues to outpace
inflation and is projected to reach $2.5 trillion this
year.
b) Projections indicate that the recession will more than
offset the recent moderation in health spending. Health
care's share of the GDP is expected to rise rapidly, to
17.6% of GDP this year.
c) Nationally, per-person costs for health care increased
81% between 1997 and 2007.
6)RELATED LEGISLATION .
a) AB 1759 (Blumenfield) prohibits carriers from using a
change in demographics or enrollment as the basis for a
premium rate change during the length of a contract. AB
1759 is set to be heard in the Assembly Health Committee on
April 13, 2010.
b) AB 2170 (Bonnie 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 2578 passed by a vote of 13-5
when it was heard in the Assembly Health Committee on March
23, 2010.
7)PREVIOUS LEGISLATION .
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a) AB 1218 (Jones) of 2009 and AB 1554 (Jones) of 2008
would have required health plans licensed by DMHC and
health insurers certificated by CDI, to annually submit for
prior approval to the respective regulator any increase in
the rate charged to a subscriber or insured, as specified,
and would have imposed on DMHC and CDI specific rate review
criteria, timelines, and hearing requirements. 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 carriers to
obtain prior approval for a rate increase, defined in a
similar manner to rates under AB 1218 of 2009. SB 425 did
not have a hearing, at the author's request, and died in
the Senate Health Committee.
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.
8)SUPPORT . Health Access and the California Congress of Seniors
write that this bill is a common-sense measure to give
consumers a modicum of predictability for their health
insurance by simply requiring that consumers have an
enrollment period when they know what their premiums,
benefits, copays, and deductibles will be for the next twelve
months. Supporters further state that this bill will prevent
insurers and health maintenance organizations (or HMOs) from
hiking rates and cutting benefits every month.
9)OPPOSITION . Health Net writes that there are legitimate
reasons why a product's cost-sharing arrangements may change
during a contract year. For instance the enrollee or insured
age may change during the term of the coverage or as
occasionally occurs, a lower cost generic drug comes onto the
market replacing a higher cost name brand drug. Additionally,
Health Net and Blue Shield of California state that not all of
possible changes occur at the same time in a calendar year,
making compliance with this bill difficult. California
Association of Health Underwriters writes that this bill would
prohibit certain individuals from receiving a lower rate,
which occurs when an individual gets a divorce or drops a
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dependent. The California Association of Health Plans asserts
that health plans are preparing to implement the most
important and expansive health care reform bill in decades and
advancing piecemeal legislation at the state level in the
midst of major reform is counterproductive.
10)TECHNICAL AMENDMENT . On page 3, line 27 of the bill, delete
"health insurance" and insert "provider"
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Congress of Seniors
Opposition
Anthem Blue Cross
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
Health Net
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097