BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2578|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 2578
Author: Jones (D), et al
Amended: 8/17/10 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 5-1, 6/23/10
AYES: Alquist, Cedillo, Leno, Pavley, Romero
NOES: Aanestad
NO VOTE RECORDED: Strickland, Cox, Negrete McLeod
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/12/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Walters, Wyland
ASSEMBLY FLOOR : 43-28, 6/2/10 - See last page for vote
SUBJECT : Health care coverage: rate approval
SOURCE : Author
DIGEST : This bill requires health care service plans and
health insurers, effective January 1, 2012, to apply for
prior approval of proposed rate increases, under specified
conditions, imposes on the Department of Managed Health
Care (DMHC) and California Department of Insurance (CDI)
specific rate review criteria, timelines and hearing
requirements, and states that any proposed rate that is not
acted on by DMHC or CDI on its own discretion within 60
days is deemed approved.
CONTINUED
AB 2578
Page
2
ANALYSIS :
Existing law
1. Provides for the regulation of health plans and insurers
by the Department of Managed Health Care (DMHC) and the
California Department of Insurance (CDI), respectively.
2. Limits administrative costs for health plans regulated
by DMHC to 15 percent and establishes minimum medical
loss ratios for health insurers regulated by CDI for
specified individual indemnity dental and vision
policies (50 percent), and minimum loss ratios for
individual health insurance, excluding indemnity payout
policies (70 percent).
3. Authorizes DMHC and CDI to charge fees associated with
regulatory filings and, in addition, requires that the
regulatory enforcement programs be entirely paid for by
health plan and insurer fees and assessments.
4. Establishes the Consumer Participation Program (CPP)
within DMHC, which allows for the awarding of reasonable
advocacy and witness fees to any person who meets
specified criteria and who has made a substantial
contribution on behalf of consumers to the adoption of a
regulation, order, or decision made by the director.
This bill:
1. Prohibits health plans and insurers from implementing a
rate increase without regulatory approval, except as
specified in this bill, and requires health plans and
insurers to submit proposed rate increases to DMHC or
CDI respectively, for review and approval. Specifies
certain information that is required to be included in a
rate application.
2. Defines "rate" for purposes of this bill to include
premiums, copayments, coinsurance obligations,
deductibles, and other charges.
3. Exempts Medicare supplement contracts and specialized
health plan contracts covering dental services or vision
AB 2578
Page
3
services.
4. Prohibits any rate from being approved or remaining in
effect that is excessive, inadequate, unfairly
discriminatory, or otherwise in violation of specified
existing law.
5. Requires DMHC or CDI to consider whether the rate
mathematically reflects the health plan or insurer's
investment income, and is reasonable in comparison to
coverage benefits. Prohibits DMHC and CDI from
considering the degree of competition.
6. Requires DMHC and CDI review a rate application pursuant
to regulations promulgated by the department to
determine reasonable rates for medical expenses and all
nonmedical expenses, including the rate of return,
surplus, overhead, and administration.
7. Requires health plans and insurers 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, 2012.
8. Allows for no more than one rate application, per
product, 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.
9. Imposes a burden of proof on health plans and insurers
to provide the DMHC or CDI with evidence and documents
establishing, by a preponderance of the evidence, the
health plan or insurer's compliance with the
requirements of this bill.
10.Requires health plans and insurers to submit rate
applications electronically and requires DMHC or CDI to
post the applications on their websites within 10 days
of receipt.
11.Requires all information submitted in a rate
application, and all information submitted in support of
AB 2578
Page
4
the application, to be subject to the California Public
Records Act, except for financial data, as specified.
12.Requires DMHC or CDI to review all rate increases which
become effective January 1, 2010 to December 31, 2011
for compliance with this bill.
13.Requires DMHC or CDI to notify the media and the public
of any rate application submitted by a health plan or
insurer, as specified, and requires the rate to be
deemed approved within 60 days after the date of the
public notice, unless the regulatory agency conducts a
hearing, as specified.
14.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 DMHC or CDI be
subject to required notices and discovery, and that the
decision of the ALJ is subject to review by the DMHC or
CDI.
15.Requires the right to discovery to be liberally
construed and requires discovery disputes to be
determined by the ALJ.
16.Authorizes any person to initiate or intervene in any of
the proceedings, establishes parameters for judicial
review, and ensures the right of consumers to challenge
final decisions by the regulator in court, as specified.
17.Requires DMHC, CDI, or the court to award reasonable
costs, including witness fees, for persons meeting
specified requirements, and requires the applicant to
pay those fees.
18.Subjects health plans and insurers to penalties for
violation of the provisions in this bill, and authorizes
DMHC and CDI 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.
AB 2578
Page
5
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
CDI rate review $7,700
$15,400$15,400 Special*
and approval
DMHC rate review $10,000 $20,000
$20,000Special**
and approval
*Department of Insurance Health Rate Approval Fund
**Department of Managed Health Care Rate Approval Fund
***These amounts could be partially offset by federal grant
funds
SUPPORT : (unable to verify at time of writing)
American Association of Retired Persons
American Federation of State, County and Municipal
Employees, AFL-CIO
California Alliance for Retired Americans
California Chiropractic Association
California Congress of Seniors
California Federation of Teachers
California Labor Federation
California National Organization for Women
California Psychological Association
California Retired Teachers Association
California School Employees Association
California Teachers Association
CALPIRG
Community Resource Project
Consumer Federation of California
Consumer Watchdog
Consumers Union
Democratic Party, Los Angeles County
Disability Rights Legal Center
AB 2578
Page
6
Glendale City Employees Association
Gray Panthers Sacramento
Greenlining Institute
Health Access California
Health Care for All - California
International Longshore and Warehouse Union - N. CA
District Council
Korean Health, Education, Information and Research Center
Occupational Therapy Association of California
Organization of SMUD Employees
Planned Parenthood Affiliates of California
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Senator Dianne Feinstein
Ship Clerks' Association, Local 34
Six Rivers Planned Parenthood
Teamsters
United Food and Commercial Workers
OPPOSITION : (unable to verify at time of writing)
Anthem Blue Cross
America's Health Insurance Plans
Association of California Life & Health Insurance Companies
Blue Shield of California
California Advocates, Inc
California Academy of Family Physicians
California Association of Health Plans
California Association of Joint Powers Authorities
California Chamber of Commerce
California Hospital Association
California Medical Association
California Taxpayers Association
CSAC Excess Insurance Authority
Civil Justice Association of California
Health Net
Kaiser Permanente
ARGUMENTS IN SUPPORT : Senator Dianne Feinstein writes in
support, stating that she has also introduced similar
legislation nationally which gives the Secretary of Health
and Human Services the authority to deny or modify rate
increases that are found to be unjustified. Senator
AB 2578
Page
7
Feinstein points out that it is critical to protect
California consumers given that insurance companies are
driven by the need to return profits to shareholders.
Without proper regulatory oversight, health plans and
insurers will continue to raise rates and drop people from
coverage to maximize profits.
The California Labor Federation argues that this bill gives
the state a valuable tool to help contain health insurance
costs by requiring state approval of increases. This vital
cost containment measure is essential to help working
families keep the coverage they have, and to expand
coverage to six million Californians without it.
Many consumer advocacy groups, such as Disability Rights
Legal Center, and labor organizations, like the California
School Employees Association, and the California Teachers
Association, also write in support, stating that when
employers pay more for health care, working families end up
paying those increases through higher co-payments or by
foregoing wage increases. If health insurance premiums
continue to rise, millions of additional Californians will
be unable to afford the costs and be forced to forgo health
coverage.
Consumers Union supports this bill, stating that rate
regulation must provide means for California to understand
and attack the underlying causes of health care growth, and
urges that deliberations over rate requests should
eventually include consideration of how well insurers are
meeting standards for lowering costs. Consumer Watchdog
concurs, stating that this bill likely will qualify for
federal grant money for premium rate review, as provided
under federal health care reform. Consumer Watchdog
further states that California patients need rate
regulation for health insurance and that small businesses
and individually insured Californians are one more rate
increase away from being priced out of coverage.
Health Access California supports this bill, pointing out
that the stunning increases in health insurance premiums
for individuals and small businesses revealed earlier in
the year have capped years of steady increases in overall
premiums. Health Access asserts that existing law is
AB 2578
Page
8
plainly inadequate in light of the fact that medical
inflation, due to the aging population and increasing
medical cost, is far below the rate hikes imposed by
insurers and HMOs.
ARGUMENTS IN OPPOSITION : The Association of California
Life & Health Insurance Companies (ACLHIC) opposes this
bill, stating that it imposes an extensive system of rate
regulation that will do little to address well-documented
factors contributing to increasing premiums. ACLHIC
asserts that health insurance rate regulation has proven to
be a failure in states that have gone that route. In New
York, small employers experienced rate increases of over 20
percent and consumers pay up to 50 percent more than in
California. ACLHIC believes there is simply no way to
artificially lower premiums, outside of getting at the root
causes of medical inflation, without reducing physician and
hospital fees, reducing access to care and consumer choice,
increasing employer cost sharing, or other unpalatable
impacts on consumers.
Blue Shield opposes this bill, stating that this approach
is inherently flawed because it focuses on one very small
segment of the health care system. Blue Shield states that
2008 data shows that health care spending on insurance
costs amount to 13 percent of the total, including spending
on prevention, disease management, care coordination,
investments in health information technology, etc. In
contrast, 87 percent of the health care dollar is spent on
hospitals, physicians, pharmaceuticals and other medical
services, and that is the percentage that is on the rise.
Blue Shield argues that the bill ignores the true cost
drivers in the health care system. Health Net raises
concerns that this bill will hinder innovation in product
design, limit choices in the marketplace; they point out
that Health Net administers hundreds of product designs.
Each change varies the rate charged to the purchaser, and
in some cases, a product may be unique to one employer.
The California Chamber of Commerce (CalChamber) opposes
this bill, stating that it creates an additional
bureaucracy to implement rate regulation on health
insurance products by requiring a complex and regulated
rate approval process. The California Taxpayers
AB 2578
Page
9
Association also opposes the bill because it interferes
with the operation of the free market, and does nothing to
stem the tide of rising health care costs that have forced
insurers to charge higher premiums. The California
Association of Joint Powers Authorities and the CSAC Excess
Insurance Authority points out this bill appears to
override any mid-year bargaining agreement or modifications
to existing bargaining agreements between labor and
management to adjust premiums, co-pays, deductibles or any
other level of service.
ASSEMBLY FLOOR :
AYES: Ammiano, Bass, Beall, Blumenfield, Bradford,
Brownley, Caballero, Carter, Chesbro, Coto, Davis, De La
Torre, De Leon, Eng, Evans, Feuer, Fong, Fuentes,
Furutani, Hayashi, Hernandez, Hill, Huber, Huffman,
Jones, Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,
Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Blakeslee,
Buchanan, Conway, Cook, DeVore, Emmerson, Fletcher,
Fuller, Gaines, Garrick, Gilmore, Hagman, Harkey,
Jeffries, Knight, Logue, Miller, Nestande, Niello,
Nielsen, Norby, Silva, Smyth, Tran, Villines
NO VOTE RECORDED: Arambula, Tom Berryhill, Block, Charles
Calderon, Galgiani, Hall, Lieu, Audra Strickland, Vacancy
CTW:do 8/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****