BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2042|
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THIRD READING
Bill No: AB 2042
Author: Feuer (D)
Amended: 8/12/10 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 6-0, 6/23/10
AYES: Alquist, Cedillo, Leno, Negrete McLeod, Pavley,
Romero
NO VOTE RECORDED: Strickland, Aanestad, Cox
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 48-27, 5/13/10 - See last page for vote
SUBJECT : Health care coverage: rate changes
SOURCE : Health Access of California
DIGEST : This bill prohibits health care service plans
and health insurers from altering rates, as defined, or any
benefits more than once per calendar year, for individual
plan contracts and policies that are issued, amended, or
renewed on or after January 1, 2011, with certain
exceptions, and provides that, if a brand name drug becomes
available as a generic drug the application of a lower
cost-sharing rate for the generic drug will not constitute
an alteration of benefits.
Senate Floor Amendments of 8/12/10 clarify that
implementation of the bill will not conflict with federal
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laws and regulations.
ANALYSIS :
Existing law
1. Provides for the regulation of health care service plans
(health plans) by the Department of Managed Health Care
(DMHC), and for the regulation of health insurers by the
California Department of Insurance (CDI).
2. Prohibits health plans and insurers from changing
premium rates or coverage policies without prior written
notification of the change to the contract holder or
policyholder.
3. Prohibits health plans and insurers, 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.
4. Requires health plans and insurers providing coverage in
the individual market to allow an enrollee to transfer
to another individual health plan or policy of equal or
lesser benefits at least once a year, as determined by
the plan or insurer, without undergoing medical
underwriting.
This bill:
1. Prohibits health plans and insurers from altering rates,
as defiend, or any benefits, included in the individual
plan contract or policy, more than once per calendar
year, for contracts or policies that are issued,
amended, or renewed on or after January 1, 2011.
2. Defines "rates," 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.
3. Defines "cost sharing," for the purposes of this bill,
to include, but not be limited to, copayments,
coinsurance obligations, deductibles, out-of-pocket
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costs, and charges for covered benefits other than the
premium.
4. Provides an exemption for health plans and insurers to
alter rates if an enrollee or insured changes geographic
region or family composition, but requires the change in
the rates offered to reflect only the change in region
or in family composition.
5. Clarifies that, in situations where coinsurance
obligations are based on a percentage of the cost of
services, a change in provider rates during the term of
a contract or policy is permissible, even if that change
would increase the charge for covered benefits to the
enrollee or insured.
6. Specifies that if a generic version of a brand name
prescription drug becomes available, the application of
a lower cost-sharing rate for the generic drug than that
of the brand name version shall not constitute an
alteration in benefits. If a generic equivalent of a
brand name prescription drug becomes available, the
placement of the brand drug into another formulary tier
or increasing the copayment for that brand shall not
constitute an alteration of benefits or rate increase.
7. Specifies that health plans and insurers may not change
the structure, tiers, or cost-sharing for generic and
brand name drugs during the course of the year.
8. Specifies that plans may lower the premium if it does
not otherwise alter cost sharing or any benefits and if
the reduction in premium is consistent with other
provisions of state and federal law.
9. Applies these provisions to any new contract or policy
issued when an individual chooses to transfer to another
individual health plan or policy of equal or lesser
benefits without undergoing medical underwriting.
10.Specifies that a new individual plan contract or policy
may only be issued annually.
11.Exempts contracts and policies issued through a publicly
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funded state health care coverage program, including,
but not limited to, the Medi-Cal Program and the Healthy
Families program, and Medicare supplement contracts from
the provisions of the bill.
12.Specifies that a plan may provide coverage for newly
approved treatments, therapies, and prescription drugs
related to an existing benefit or service provided under
the contract, and that there be n limitation on
medically necessary services.
13.Clarifies that implementation of the bill will not
conflict with federal laws and regulations.
Background
California's regulatory agencies, DMHC and CDI, oversee
roughly 200 health plans and insurers, which collectively
provide coverage for 27 million people. DMHC regulates
health plans, including Health Maintenance Organizations
(HMOs) and some Preferred Provider Organization (PPO)
plans. CDI regulates multiple lines of insurance,
including disability insurers offering health insurance,
which are generally PPO plans and traditional indemnity
coverage. Five HMOs-Kaiser, Blue Cross, HealthNet,
Pacificare, and Blue Shield-currently account for 76.0
percent of health plan enrollment in the state.
Collectively, these plans cover 20 million Californians.
Although DMHC and CDI both regulate health plans and
insurers providing health coverage, each regulator employs
a different approach, based on historical differences. At
the heart of the difference is the "promise-to-pay" versus
the "promise-to-deliver care." DMHC-licensed 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
become blurred over time because of the historical
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exceptions made for two large PPO health plans and
insurers, 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.
DMHC enforces the provisions of the Knox-Keene Health Care
Service Plan Act, which sets rules for mandatory basic
services; financial stability; availability and
accessibility of providers; review of provider contracts;
cost sharing; on-site medical surveys, including review of
patient medical records; and consumer disclosure and
grievance requirements.
Knox-Keene licensed plans must submit for review and
approval all of the types of contracts it will offer, as
well as its standard provider contracts and payment
methods, audited financial statements, administrative
structure, financial viability, actuarial analyses,
proposed advertising and marketing materials, and proposed
service areas. DMHC does not have authority to regulate
rates except in a few specified circumstances.
CDI requires premium rates to be filed for individual
health insurance, and rating plans to be filed by small
groups, but does not approve the rates per se. For
individual health insurance, CDI reviews rates after they
are filed, and may disapprove policies that provide no
economic benefit to the consumer and require that benefits
be reasonable in relation to use. The Commissioner can
also withdraw an individual health insurance policy upon a
finding that rates are unreasonable in relation to the
benefits.
Medicare supplement policies and contracts sold by both
health plans and insurers are subject to prior approval and
regulation of their medical loss ratios. Some other types
of health insurance are subject to rating restrictions, but
generally are not subject to rate regulation. Health plans
and insurers are subject to rating rules relating to health
coverage sold to small employer groups of 2 to 50 eligible
employees, but these rules do not limit the rate, per se,
that may be charged.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/16/10)
Health Access of California (source)
American Federation of State, County and Municipal
Employees
California Chiropractic Association
California Teachers Association
California School Employees Association
Congress of California Seniors
Consumers Union
Jericho
OPPOSITION : (Verified 8/16/10)
Anthem Blue Cross
Association of California Life & Health Insurance Companies
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
Health Net
ARGUMENTS IN SUPPORT : According to the sponsor, Health
Access, there is a great deal of unpredictability that
exists currently in the individual market. While the
federal health care reform law will bring much more
certainty to the market (through health insurance
exchanges, guaranteed issuance of health coverage, and
community rating), many of these elements will not go into
effect until 2014. Several plans and insurers have
proposed substantial rate hikes over the last several
months; most notably, Anthem Blue Cross proposed fee
increases that averaged around 25 percent and ranged up to
39 percent. The effect of these types of dramatic
increases is to drive more and more people out of the
market, and thus, without health coverage. Health Access
cites findings from the UCLA Center for Health Policy
Research that indicates the number of California residents
without insurance increased by nearly two million over 2008
and 2009 (from 6.4 million to 8.2 million) due
substantially to a decrease in private health care
coverage. Given that California still has a significant
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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.
The Congress of California Seniors writes 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, copayments, and
deductibles will be for the next 12 months. Both the
California Chiropractic Association and JERICHO, an
interfaith, non-profit organization who advocates on behalf
of individuals and families living in poverty, concur with
the California Congress of Seniors and further states that
the recent rate hikes have driven more and more people out
of the insurance market, leaving them without any health
care coverage.
ARGUMENTS IN OPPOSITION : Blue Shield of California
writes in opposition, stating the underlying cost of health
care has continued to rise annually and, under current
practices, health plans can break up increases due to
aging, and those due to increased provider costs, into
smaller pieces, to help smooth the financial impact on its
members. This bill prohibits smaller increases from
occurring and would result in members receiving less
frequent, but larger increases. Blue Shield also states
that the bill does nothing to alter the amount of premiums
paid by members, and instead, shifts the timing of when
rate alteration occurs.
Health Net writes that there are many legitimate reasons
why a product's cost-sharing arrangements may change during
a contract year. For instance, the age of an enrollee or
insured 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, not all of the possible changes occur at the
same time in a calendar year, making compliance with this
bill difficult.
The California Association of Health Plans asserts that
health plans are preparing to implement the most important
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and expansive health care reform bill in decades and
advancing piecemeal legislation at the state level in the
midst of major reform is counterproductive. Anthem Blue
Cross concurs, stating that, with the passage of federal
health care reform and its subsequent implementation,
health plans and insurers will need to be flexible as
possible to implement these changes, particularly in cases
where timelines will largely be out of their control.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,
Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,
Hernandez, Hill, Huber, Huffman, Jones, Lieu, Bonnie
Lowenthal, Ma, Mendoza, Monning, Nava, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Solorio, Swanson,
Torlakson, Torres, Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Blakeslee, Conway, DeVore, Emmerson, Fletcher, Fuller,
Gaines, Garrick, Gilmore, Harkey, Jeffries, Knight,
Logue, Miller, Nestande, Niello, Nielsen, Norby, Silva,
Smyth, Audra Strickland, Tran, Villines
NO VOTE RECORDED: Caballero, Cook, Hagman, Skinner,
Vacancy
CTW:do 8/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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