BILL ANALYSIS
AB 2578
Page 1
ASSEMBLY THIRD READING
AB 2578 (Jones and Feuer)
As Amended May 28, 2010
Majority vote
HEALTH 13-5 APPROPRIATIONS 12-5
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|Ayes:|Monning, Ammiano, Carter, |Ayes:|Fuentes, Ammiano, |
| | | |Bradford, |
| |De La Torre, De Leon, | |Charles Calderon, Coto, |
| |Eng, Hayashi, Hernandez, | |Davis, |
| |Jones, Bonnie Lowenthal, | |Monning, Ruskin, Skinner, |
| |Nava, V. Manuel Perez, | |Solorio, Torlakson, |
| |Salas | |Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Adams, Conway, Emmerson, |Nays:|Conway, Harkey, Miller, |
| |Gaines, Audra Strickland | |Nielsen, Norby |
| | | | |
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SUMMARY : Requires health care service plans licensed by the
Department of Managed Health Care (DMHC) and health insurers
certificated by the California Department of Insurance (CDI),
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. Specifically, this bill :
1)Prohibits health plans and health insurers (carriers) from
implementing a rate increase without regulatory approval,
except as specified in this bill, and requires carriers to
submit proposed rate increases to DMHC or CDI respectively
(regulators) for review and approval. Defines "rate" for
purposes of this bill to include premiums, copayments,
coinsurance obligations, deductibles, and other charges.
2)Prohibits any rate from being approved or remaining in effect
that is excessive, inadequate, unfairly discriminatory, or
otherwise in violation of specified existing law.
3)In applying the standard in 2) above, requires regulators to
consider whether the rate mathematically reflects the
carrier's investment income and is reasonable in comparison to
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coverage benefits; prohibits regulators from considering the
degree of competition.
4)Requires carriers to file any required rate application as a
complete application, as specified, with the respective
regulator for a rate increase that will become effective on or
after January 1, 2009, allows for no more than one rate filing
per year, and requires officers of the company, specifically
the chief executive and chief financial officers, to certify
the data, information, and representations in the rate filing.
5)Imposes the burden of proof on carriers to provide the
regulators with evidence and documents establishing by a
preponderance of the evidence the carrier's compliance with
the requirements of this bill.
6)Requires carriers to submit rate applications electronically
and requires regulators to post the applications on their Web
sites within 10 days of receipt. Requires regulators to
review all rate increases which become effective January 1,
2010 to December 31, 2011 for compliance with this bill.
7)Requires all information submitted in a rate application and
all information submitted in support of the application to be
subject to the California Public Records Act, except for
financial data, as specified.
8)Requires regulators to notify the media and the public of any
rate application submitted by a carrier, as specified, and
requires the rate to be deemed approved within 60 days after
the date of the public notice, unless the regulator conducts a
hearing, as specified
9)Requires all hearings to be conducted in accordance with laws
governing state administrative hearings, including that the
hearing be conducted by an administrative law judge (ALJ) in
the Department of General Services Office of Administrative
Hearings, that the regulators be subject to required notices
and discovery and that the decision of the ALJ is subject to
review by the regulators. Requires the right to discovery to
be liberally construed and requires discovery disputes to be
determined by the ALJ.
10)Authorizes any person to initiate or intervene in any of the
proceedings, establishes parameters for judicial review, and
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ensures the right of consumers to challenge final decisions by
the regulator in court, as specified, and requires the
regulator or the court to award reasonable costs, including
witness fees, for persons meeting specified requirements, and
requires the applicant to pay those fees.
11)Subjects carriers to penalties for violation of the
provisions in this bill, and authorizes regulators to charge
fees to cover costs of applications filed, and establishes two
new state special funds to receive those revenues for the sole
purpose of implementing this bill.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Annual fee-supported special fund costs of at least $30
million to $40 million to DMHC and CDI, combined, to process,
review, approve, post, and monitor activities related to rate
increase approvals. According to the regulators and the
carriers, several thousand policies may be subject to review
per requirements of this bill. The number of policy changes
under review is numerous because each proposed increase in
premiums, copayments, coinsurance, and deductibles would be
subject to review.
2)Workload to DMHC and CDI includes data collection, actuarial
analysis, consumer services, rate enforcement, legal analysis,
administrative law hearings, and continued oversight.
Assuming an expansion of magnitude considered in this bill,
DMHC may increase total staffing by up to 50% and CDI may
increase staffing up to 15%.
3)The significant increase in fee-supported special funds may be
required for several years and especially during major
coverage expansions in several years per requirements of the
federal Patient and Patient Protection and Affordable Care Act
(PL-111-148) (health reform). Actual costs may subside
earlier depending on patterns of health coverage expansions
and related changes in insurance product pricing.
4)Federal health reform includes some support for states to
conduct general rate review and report to the federal
government about unjustified rates. California will likely
receive $5 million each year for the next five years. This
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federal funding would offset fee-supported special fund costs
generated by this bill.
COMMENTS : According to the author, this bill is necessary
because premiums in California are soaring far above the rates
of both general and medical cost inflation. The majority of
Californians with health insurance fear that ongoing premium
increases will cost them their health insurance coverage.
Unchecked premium increases hit small businesses, the 3 million
Californians purchasing health insurance in the individual
market and retirees not yet eligible for Medicare, the hardest.
Consumers, particularly those buying coverage on their own, must
often choose between purchasing coverage with higher
deductibles, co-pays and coinsurance obligations or going
without care. The author states that this situation is
occurring at a time when HMOs and health insurers are
experiencing record profits and unprecedented reserves. The
author claims that the current lack of health insurance
regulation has resulted in outrageous premium increases in which
policyholders are funding record corporate profits, high
executive pay and excessive overhead rather than medical care.
By comparison, the author points out, federal Medicare spends at
least 98% of its revenue on care. The author argues that rate
regulation will not only save money for those who have
insurance, but it will make it more likely that uninsured
Californians can afford coverage.
In California, health insurance is generally not subject to rate
regulation, with few exceptions. Medicare supplement policies
and contracts sold by both health plans and insurers are subject
to prior approval and regulation of their medical loss ratios
(MLRs), the ratio of benefits to premium. Health plans and
insurers are subject to specific marketing, underwriting, and
rating rules relating to health coverage sold to small employer
groups of 2-50. Both regulators ensure compliance with the
small group rating rules primarily in response to complaints.
CDI-regulated insurers are subject to filing and review of
rates, referred to as "file and use" and must meet minimum MLR
standards, but only for individual products. The MLR
requirements do not apply to plans regulated by DMHC under the
Knox-Keene Health Care Services Plan Act of 1975 (Knox-Keene).
Knox-Keene plans are limited to no more than 15% administrative
costs, but DMHC does not include profit as an administrative
cost.
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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 that 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.
In November 2009, the state's largest health insurer in the
individual market, 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
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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:
1) a less healthy risk pool; 2) individuals moving to lower-cost
options; 3) individuals aging into a higher age category; and,
4) "deductible leveraging," when enrollee deductibles and
co-payments do not increase with medical inflation, and medical
costs increases disproportionately fall on the premiums.
In May 2010, Anthem Blue Cross withdrew its plan for rate
increases, stating that "inadvertent miscalculations" had been
made when medical costs were calculated.
The 2009 edition of the California HealthCare Foundation's
"Healthcare Costs 101" (based on the latest health spending
information available from the U.S. Department of 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 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:
1)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.
2)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.
3)Nationally, per-person costs for health care increased 81%
between 1997 and 2007.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097
FN: 0004723