BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2244
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AUTHOR: Feuer
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AMENDED: April 27, 2010
HEARING DATE: June 23, 2010
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CONSULTANT:
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Bain/
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SUBJECT
Health care coverage
SUMMARY
Requires guaranteed issue of health plan and health
insurance products for children in 2011 and adults in 2014.
Establishes standard individual market rating factors
(age, geographic region, family composition and health
benefit plan design). Limits premium variation for
children's coverage until 2014 by requiring health plans
and health insurers to use "rate bands" that limit premium
variation to no more than a specified percentage of a
standard rate for a child in each particular rating
category and benefit plan.
CHANGES TO EXISTING LAW
Existing federal law:
The federal Patient Protection and Affordable Care Act
(Public Law 111-148) known as PPACA requires each health
insurance issuer that offers health insurance coverage in
the individual or group market to accept every employer and
individual that applies for such coverage. This
requirement is known as "guaranteed issue." PPACA allows a
health insurance issuer to restrict enrollment in coverage
Continued---
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to open or special enrollment periods. Additionally, a
health insurance issuer must establish special enrollment
periods for qualifying events. The federal Secretary of
the Department of Health and Human Services (DHHS) must
promulgate regulations regarding enrollment periods and
qualifying events.
PPACA establishes rating factors for individual and small
group health insurance, effective January 1, 2014, that
prohibit rates from varying with respect to the particular
plan only by the following factors:
Whether the plan or coverage covers an individual or
family;
The geographic rating area (each state must establish one
or more rating areas within the state);
Age, except that rates are prohibited from varying by
more than 3 to 1 for adults, consistent with federal law;
and,
Tobacco use, except that rates are prohibiting from
varying by more than 1.5 to 1.
PPACA prohibits a group or individual health plan from
imposing any pre-existing condition exclusion. This
provision becomes effective for adults in 2014 and for
children on September 23, 2010.
PPACA establishes a requirement to maintain minimum
essential health coverage, establishes phased-in tax
penalties for failure to maintain such coverage, and allows
exemptions from this requirement, such as for religious
reasons, hardship, or because an individual is low-income.
The requirement to maintain minimum essential health
coverage takes effect January 1, 2014 and is referred to as
the "individual mandate."
Existing state law:
Licenses and regulates health plans, by the Department of
Managed Health Care (DMHC), and health insurers, by the
California Department of Insurance (CDI).
Existing state law does not require guarantee issue or
limit the premiums for individuals in the individual health
insurance market, except premiums are regulated for
individuals eligible under federal law who previously had
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18 months of group coverage and who have exhausted
COBRA/Cal-COBRA coverage.
Existing law establishes requirements for health plans that
provide coverage to small employers. Specifically, this
body of law:
Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers.
This is known as "guaranteed issue."
Requires health plans to offer, market, and sell all of
the health plan's contracts that are sold to small
employers, to any small employers in each service area in
which the plan provides health care services. This is
known as an "all products" requirement.
Requires renewal of coverage, at the option of the
policyholder, unless there is fraud or nonpayment of
premium or the health plan leaves the market. This is
known as "guaranteed renewal."
Restricts a plan's ability to set initial and renewal
premium rates to a group of specified risk categories
(age, region, family size, and health benefit plan) and
allows only a limited premium variance of plus or minus
10 percent from a standard rate based on health status.
The limitation on premium variance is referred to as
"rate bands."
Limits pre-existing condition exclusions to six months
from the individuals' effective date of coverage, with a
requirement that health plans credit policyholders for
the time the individual was covered under previous
coverage.
Prohibits pre-existing condition exclusions of more than 12
months in policies and contracts covering one or two
individuals, with a requirement that plans credit enrollees
for the time the individual was covered under prior
coverage.
This bill:
Requires health plans/insurers, effective January 1, 2011,
to offer coverage to the responsible party for any child
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that seeks coverage (the responsible party is an adult with
custody and the right to make medical decisions for the
child). Requires health plans/ insurers, effective January
1, 2014, to offer coverage to any adult who seeks coverage.
This is known as "guaranteed issue."
Requires, effective January 1, 2011, health plans/insurers
to fairly and affirmatively offer, market, and sell all of
the plan's health plan contracts that are offered and sold
to the responsible party for a child. Requires, effective
January 1, 2014, a health plan to fairly and affirmatively
offer, market, and sell all of the plan/insurer's health
plan contracts that are sold to adults. This is known as
an "all products" requirement.
Prohibits, effective January 1, 2011, health plans and
health insurers offering contracts to children from
excluding or limiting coverage due to any pre-existing
condition.
Prohibits, effective January 1, 2014, health plans/insurers
offering contracts to adults from excluding or limiting
coverage due to any pre-existing condition.
Defines the rating period as the period for which premium
rates established by a plan/insurer are in effect and,
requires the rating period to be no less than 12 months.
Requires all health benefit plans offered to an adult or a
child to provide at least all of the basic health care
services in this bill.
Establishes standard rating categories of age, geographic
region, family composition and health benefit plan design
selected. Limits, until January 1, 2014, the age
categories for children to 3 categories: under age 5, age
5 to 15 and age 15 to 19. Prohibits the rate from varying
more than 2 to 1 for children.
Establishes, for rating purposes, four family size
categories: single, married couple, one adult and child or
children, and married couple and child or children.
Prohibits, effective January 1, 2011, a health plan/insurer
from excluding any child who would otherwise be entitled to
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health care services on the basis of an actual or expected
health condition of that child. Prohibits a health plan
contract from limiting or excluding coverage for a child by
type of illness, treatment, medical condition, or accident.
Applies these prohibitions to coverage for adults,
effective January 1, 2014.
Requires health plan contracts to be guaranteed renewable
except for nonpayment of premium or fraud or
misrepresentation.
Requires premiums for a child in a particular risk category
to be no more than 120 percent or no less than 80 percent
of the plan's standard risk rate until January 1, 2012.
Effective January 1, 2012, this factor may not be more than
110 percent or less than 90 percent. The limit on premium
variance is referred to as "rate bands." The standard risk
rates must remain in effect for no less than 12 months.
Requires disclosures in plan and insurer solicitation and
sales materials of specified information, including a
summary brochure that summarizes all of its plan contracts.
Permits DMHC and CDI to issue regulations to carry out the
purpose of this bill.
FISCAL IMPACT
According to the Assembly Appropriations Committee:
1)Fee-supported (health plan fees) special fund costs of
$600,000 to $700,000, combined, to DMHC and CDI to
establish regulations related to the requirements of this
bill. Absorbable, on-going workload to each department
to continue oversight of the individual insurance market.
2)Unknown, potentially significant state savings, in excess
of tens of millions of dollars, to the extent this bill
reduces enrollment in or reimbursements by Medi-Cal,
Healthy Families, or the California Children's Services
(CCS) programs. Because this bill increases the
availability of private health insurance to children with
pre-existing health conditions, children and families may
rely less on publicly funded health programs. For
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example, California currently spends about $2 billion
(all funds) on the CCS program. Some of these costs will
likely shift to private health coverage.
BACKGROUND AND DISCUSSION
According to the author, the newly enacted federal health
care reform law prohibits the use of pre-existing condition
exclusions for children in the individual market. The
author maintains there was a dispute between insurers and
the federal government about whether the new federal law
requires guaranteed issue for children, and this bill would
clarify that for California. According to the author, the
new federal law also does not specifically address rating
rules in the individual market prior to 2014. The author
maintains that this bill will align California law with the
federal health care reform law and will ensure that
children cannot be denied health insurance coverage, or be
charged more because of a pre-existing condition.
Background
In March 2010, President Obama signed PPACA, as amended by
the Health Care and Education Reconciliation Act of 2010
(Public Law 111-152). Among its many provisions, the new
law prohibits group health plans or individual health
insurance carriers from imposing any pre-existing condition
exclusion on coverage. In September 2010, insurers will no
longer be able to have a pre-existing condition exclusion
for coverage of children. Insurers will not have to meet
this same requirement for adults until January 2014.
According to a March 28, 2010 New York Times article, just
days after the President signed PPACA into law, there was a
dispute over the language in the law regarding the
pre-existing conditions coverage provisions. While
insurers agreed that health insurance carriers offering
individual or group coverage were unable to impose a
pre-existing condition exclusion on coverage for children
beginning in September 2010, the article stated insurers
disagreed that the law required them to "guarantee issue"
coverage to children until 2014.
The federal Secretary of the Department of Health and Human
Services (DHHS) wrote to the president of the America's
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Health Insurance Plans (AHIP) stating that, "To ensure that
there is no ambiguity on this point, I am preparing to
issue regulations in the weeks ahead ensuring that the
pre-existing condition exclusion applies to both a child's
access to a plan and his or her benefits once he or she is
in the plan." The Secretary further noted that regulations
would make clear that by September 2010, children with
pre-existing conditions may not be denied access to their
parents' health insurance plan, and that insurance
companies will no longer be allowed to insure a child but
exclude treatments for that child's pre-existing condition.
In response, AHIP's president wrote to the Secretary that
AHIP would accept the clarification of the new law and,
fully comply with it. AHIP further added that, "AHIP
members would be ready to work with DHHS to implement the
new regulations."
The individual insurance market and standard rating factors
Approximately 2 to 2.5 million Californians purchase
individual health insurance, representing approximately 7
percent of Californians. When individuals and families
apply for individual health coverage, they fill out an
application that asks detailed questions about their
current health status, current medication use and past
health history. Health plans use this information to
determine whether to offer the individual/family coverage,
how much they will pay in premiums, and whether to impose a
pre-existing condition exclusion or a waiting period before
coverage takes effect.
PPACA establishes rating factors for individual and small
group health insurance that prohibit rates from varying
except for the following factors: geographic region,
family size (individual or family), age (except that rates
are prohibited from varying by more than 3 to 1 for
adults), health benefit plan, and tobacco use (except that
rates are prohibited from varying by more than 1.5 to 1).
The standard rating categories established by this bill for
individual coverage are age, geographic region, family
composition, age and health benefit plan design selected.
For geographic region, this bill uses the same geographic
rating rules that apply to the health plans and insurers
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selling coverage to small employers. For plans operating
statewide, the small group geographic rating provision
means a plan cannot use more than nine geographic regions
in the state, divide no county into more than two regions,
and have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a
county.
For family size, this bill establishes four family size
categories: single, married couple, one adult and child or
children and married couple and child or children.
Federal law does not establish age-rating categories for
children, or have a maximum ratio that prohibits the
maximum premium rate for children's coverage from exceeding
a minimum premium amount (such as 3 to 1 for adults in
federal law). Under this bill, until January 1, 2014, the
age categories for children are required to fall within
three age categories: under age 5, age 5 to 15 and age 15
to 19. This bill also prohibits the rate for children's
coverage from varying more than 2 to 1, meaning within each
age band (e.g., age 5 to 15), the highest rate charged for
a child for a particular product in the same region could
not be more than twice that of the lowest rate.
For children's premium rates prior to 2014, this bill
requires the use of "rate bands" to limit premium variation
in the individual market based on the "phased in" approach
taken in the state's small group health insurance
requirements. In California's small group health insurance
law, health plans and health insurers file a standard rate
based on a particular age, family size, geographic area and
benefit plan design. For purposes of illustration, under
this bill, a child in Sacramento enrolled in a particular
individual product could have a standard monthly rate of
$100. A rate band of +/- 20 percent would allow a plan to
charge a child with lower-than-expected health care costs
of $80 per month, and a child with higher-than-expected
health care costs of $120 per month. Similarly, a rate
band of +/-10 percent for a child with a standard rate of
$100 could be charged a premium of $90 to $110.
This bill requires the use of rate bands of +/- 20 percent
until January 1, 2012, and +/- 10 percent until January 1,
2014. In 2014, PPACA prohibits health plans from varying
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premiums for each rating category, except for tobacco use.
Plans can charge more for a tobacco user using a ratio of 1
to 1.5. In the above example, under federal law, an
individual with a standard rate of $100 could be charged
$150 if he or she used tobacco. This bill would prohibit
such a "rate up" for tobacco use.
The chart below shows how the rating rules established by
PPACA compared with the provisions of this bill.
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| Rating Rule | PPACA | AB 2244 |
|--------------+-------------------+---------------------|
|Rates Vary by |Allowed; state |Allowed; same |
|Geography |establishes rating |geographic rating as |
| |area, federal |used in state small |
| |Secretary of DHHS |group health |
| |reviews. |insurance law (up to |
| | |9 regions allowed). |
|--------------+-------------------+---------------------|
|Rates Vary by |Allowed. |Allowed. |
|Age |No specific |3 age categories |
|(Children) |categories of age, |until 2014: |
| |or 2 to 1 limit. | |
| | | Under age 5 |
| | | Age 5-15 |
| | | Age 15-19 |
| | | |
| | |Rates cannot vary |
| | |more than 2 to 1. |
|--------------+-------------------+---------------------|
|Limits on |No rate bands. |Establishes rate |
|Premium |Standard rates |bands on premiums |
|Variance for |required in 2014. |based on a standard |
|Children |Rating on tobacco |rate as follows: |
|Through "Rate |allowed after | +/- 20 percent |
|Bands" |2014, except rates | from January 2011 |
| |may not vary by | until January |
| |more than 1.5 to | 2012. |
| |1. | +/- 10 percent |
| | | from January 2012 |
| | | until January |
| | | 2014. |
|--------------+-------------------+---------------------|
|Rating up |Allowed except |Not allowed after |
|Based on |rates may not vary |2014. |
|Tobacco Use |by more than 1.5 | |
| |to 1. | |
|--------------+-------------------+---------------------|
|Rates Vary by |Allowed. 2 |Allowed. 4 |
|Family Size |categories: |categories: |
| | Single | Single |
| | Family | Married Couple |
| | | One adult and |
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| | | child or children |
| | | Married couple and |
| | |child or children. |
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Arguments in support
This bill is sponsored by Health Access California (HAC)
and supported by children's and consumer groups, which
argue no child should be denied health insurance because of
a pre-existing medical condition, that no child should be
sold insurance that does not cover pre-existing conditions,
and premiums for children should be based on age and
geographic region and not health status. HAC intends this
measure to provide early implementation of federal health
reform for a segment of the market that already has
substantial subsidies available (through Medi-Cal and
Healthy Families coverage up to 250 percent of the federal
poverty level) for low- and moderate-income children. HAC
also intends this bill to provide a transition to health
reform modeled on the successful small employer market
rules by phasing in modified community rating, and by
limiting and then eliminating premium variation based on
health status. HAC argues that not all families with
children who are eligible for Medi-Cal and Healthy Families
can afford premiums for private insurance, but HAC argues a
greater number could afford it if premiums for private
insurance were no longer increased due to health
conditions, and that this could produce state savings to
the General Fund in the tens or hundreds of millions of
dollars from reduced enrollment in Healthy Families and
Medi-Cal.
Support if amended
Blue Shield of California (Blue Shield) writes that, in
order to implement provisions of PPACA that relate to
children's health care coverage in a manner that does not
cause undue disruption to California insurance markets, it
asks for the following amendments in this bill:
1) An annual open enrollment period for children to seek and
gain coverage on a guarantee issue basis. Blue Shield
argues that without an annual open enrollment period,
nothing would prevent parents from enrolling their
children only when health care is needed and
disenrolling them when they do not need care;
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2) An effective date of coverage that applies a certain
number of days (for example, 30 days) after an
application is received;
3) A standard lock-out period to ensure that parents are
dissuaded from dropping coverage for their children when
they are healthy. For example, if coverage is dropped
(or cancelled for nonpayment of premium), a parent could
not reapply until the lock-out period concludes;
4) Authority for insurers to coordinate benefits between
multiple policies to ensure that only one payment is
made for a claim if a child has coverage from more than
one source;
5) Greater flexibility on age bands so that insurers can
retain the use of two age bands for children (under one
year of age and from one to eighteen years of age).
Blue Shield argues retaining the two age band structure
is important so that one to eighteen year olds do not
see a large spike in premiums due to having to subsidize
the significantly higher costs attributable to newborns;
6) Language allowing an insurer to retain their existing
family tier structure and geographic regions; and,
7) Other technical changes to conform with PPACA.
Arguments in opposition
The Association of California Life and Health Insurance
Companies (ACLHIC), Anthem Blue Cross (ABC), and the
California Association of Health Plans (CAHP) write in
opposition that this bill goes well beyond the provisions
in PPACA. CAHP and ACLHIC argue that the Legislature
should wait for further guidance from the federal
government to ensure its actions are consistent with
federal requirements and definitions.
Related bills
SB 890 (Alquist) makes a number of changes to the
individual market, including requiring health plans and
health insurers in the individual market to offer
standardized products (five preferred provider organization
products and five health maintenance organization
products), and prohibiting plans and insurers from offering
other products. SB 890 also establishes standard rating
factors, including requiring health plans to change premium
rates for adults based on one-year changes in a person's
age, establishing additional standard rating factors
(geography, family size, benefit plan design) and by
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limiting premium variation and requiring premium increases
to be spread across the entire individual market.
AB 1602 (Perez) makes a number of changes to implement
federal health care reform including establishing a health
insurance exchange, prohibiting annual and lifetime benefit
limits and prohibiting a health plan or health insurer, on
or after September 23, 2010, from imposing any pre-existing
condition exclusion on children under 19 years of age,
effective on or after September 23, 2010.
PRIOR ACTIONS
Assembly Health: 11-6
Assembly Appropriations: 12-5
Assembly Floor: 50-25
COMMENTS
1. Guaranteed issue. PPACA requires "guaranteed issue"
effective January 1, 2014, and also generally requires
individuals to have health insurance coverage, a provision
known as an "individual mandate," which also begins in 2014
For children, the federal government has interpreted the
pre-existing condition exclusion provision as requiring
guaranteed issue, and this provision takes effect this
year. One of the policy concerns with guaranteed issue is
individuals waiting until they have an immediate need for
health care services before buying health coverage, which
results in an increase in premium rates overall. The
individual mandate is intended to keep individuals in the
health insurance "risk pool" so that people are paying for
insurance coverage both when they are healthy and when they
need medical care.
The PPACA provision requiring guaranteed issue also allows
health plans to restrict enrollment in coverage to open or
special enrollment periods, and charges the federal
Secretary of DHHS with promulgating regulations regarding
enrollment periods and qualifying events. These
regulations have not been issued to date. A policy
tradeoff posed by guaranteed issue is the concern over
increased health insurance premium rates versus the need
for individuals to buy coverage to ensure access to medical
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care, financial protection, and beginning in 2014, the need
to comply with the federal individual mandate.
2. Family size categories. This bill has four family size
categories based on the state's small group health
insurance law, as follows:
Single;
Married couple;
One adult and children or children; and,
Married couple and child or children.
Federal law permits two family size categories (single
and family).
SB 890 (Alquist) allows six family size categories, based
on the language in ABX1 1:
Single;
More than one child 18 years of age or under and no
adults;
Married couple or registered domestic partners;
One adult and child;
One adult and children; and,
A married couple and child or children, or
registered domestic partners and child or children.
Amendments are needed to reconcile the family size
categories in this bill and SB 890.
3. Premium variation. Both this bill and SB 890 (Alquist)
limit premium variation. AB 2244 limits premium variation
using rate bands for children's coverage, to +/- 20 percent
effective January 1, 2011, which means a ratio of 1.5 to 1,
and +/- 10 percent effective January 1, 2012, which means a
ratio of 1.2 to 1.
SB 890 requires premium variation between the highest risk
category and the lowest risk category for individual
coverage generally (including children) to vary by no more
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than a ratio of 2 to 1, effective January 1, 2011.
Amendments are needed to reconcile the premium variation
range in this bill and SB 890.
4. Drafting Notes
a) The rate bands for "in force" business in this
bill appear to contain a drafting error where the +/-
20 percent rate band is in effect until January 1,
2011 , which is the same date as the effective date of
this bill (see Section 1399.836(b)). A recommended
amendment would be to change that date to January 1,
2012 , after which the +/- 10 percent rate band would
take effect.
b) This bill requires the +/- 10 percent rate bands
for children take effect January 1, 2012. In 2014,
PPACA prohibits health plans from varying premiums for
each rating category, except for tobacco use. In one
part of this bill, the rate bands continue after
January 1, 2012, but in the definition sections of
this bill, the rate bands end on January 1, 2014 and a
standard rate would apply for both children and
adults. The author may wish to clarify if his intent
is to allow the continued use of rate bands for
children after 2014.
c) This bill requires all health benefit plans offered
to an individual or a child to provide at least all of
the basic health care services in this bill. However,
this bill does not define basic health care services
or specifically contain provisions requiring basic
health services to be provided. An amendment is
needed to clarify this provision of the bill.
POSITIONS
Support: Health Access California (sponsor)
AARP
American Federation of State, County and
Municipal Employees, AFL-CIO
California School Employees Association
Congress of California Seniors
Consumers Union
The 100% Campaign
Oppose: Anthem Blue Cross
Association of California Life & Health Insurance
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Companies
California Association of Health Plans
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