BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 1163
S
AUTHOR: Leno
B
AMENDED: April 19, 2010
HEARING DATE: April 21, 2010
1
CONSULTANT:
1
Bain/
6 3
SUBJECT
Health care coverage: denials: premium rates
SUMMARY
Requires health plans and insurers to give 180 days written
notice of changes in the premium rate or coverage before
such change takes effect. Extends requirements placed on
health plans and insurers when they deny individual
coverage to when plans and insurers deny group purchasers.
Requires health plans and insurers to provide data and
demographic information on individual and large group
denials of coverage, any changes in rates, any changes in
cost sharing, and any changes in covered benefits.
Requires health plans and insurers to provide to its
regulator specified information, such as provider prices
and utilization increases, with respect to rate increases
for each product.
CHANGES TO EXISTING LAW
Existing law:
Existing law requires health plans and health insurers that
decline to offer coverage or that deny enrollment of an
individual or his or her dependents applying for individual
coverage, or that offer individual coverage at a rate that
is higher than the standard rate, to provide the individual
applicant with the specific reason for the decision in
writing at the time of the denial or offer of coverage.
Continued---
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 2
Existing law prohibits health plans from changing the
premium rate or coverage for an individual plan contract
unless the plan has delivered a written notice of the
change at least 30 days prior to the effective date of the
contract renewal, or the date on which the rate or coverage
changes. Existing law requires a notice of an increase in
the premium rate to include the reasons for the rate
increase.
Existing law requires individual health plans and health
insurers to have written policies, procedures, or
underwriting guidelines establishing the criteria and
process by which the plan or insurer makes its decision to
provide or to deny coverage to individuals applying for
coverage, and sets the rate for that coverage. These
guidelines, policies, or procedures are required to assure
that the plan rating and underwriting criteria comply with
all other applicable provisions of state and federal law.
Existing law requires health plans and health insurers to
annually file with its regulator a general description of
the criteria, policies, procedures, or guidelines the plan
or insurer uses for rating and underwriting decisions
related to individual health plan contracts, including
automatic declinable health conditions, health conditions
that may lead to a coverage decline, height and weight
standards, health history, health care utilization,
lifestyle, or behavior that might result in a decline for
coverage or severely limit the plan products for which they
would be eligible.
Existing law permits a plan or insurer to comply with this
requirement by submitting to its regulator underwriting
materials or resource guides provided to plan solicitors or
solicitor firms, provided that those materials include the
information required to be submitted.
This bill:
This bill would extend, from 30 days to 180 days, the
requirement that plans and insurers provide advance written
notice of changes in the premium rate or coverage for an
individual plan contract before such change takes effect,
and would apply this 180-day notice to group contracts.
This bill would extend the following requirements currently
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 3
placed on health plans and insurers selling individual
coverage, to health plans and insurers selling group
coverage:
Health plans and insurers that decline to offer coverage
or deny enrollment for a group applying for coverage or
that offer coverage at a rate that is higher than the
standard rate must, at the time of the denial or offer of
coverage, provide the applicant with the specific reason
for the decision in writing, in clear, easily
understandable language.
A notice of an increase in the premium rate must include
the reasons for the rate increase. The notice must state
in italics either the actual dollar amount of the premium
rate increase or the specific percentage by which the
current premium will be increased. The notice must
describe in plain, understandable English any changes in
the plan design or any changes in benefits, including a
reduction in benefits or changes to waivers, exclusions,
or conditions, and highlight this information by printing
it in italics. The notice must also specify in a minimum
of 10-point bold typeface, the reason for a premium rate
change or a change to the plan design or benefits.
This bill makes a notice provided to a group employer a
private and confidential communication. At the time of
application, the plan must give the individual applicant
the opportunity to designate the address for receipt of
the written notice in order to protect the
confidentiality of any personal or privileged
information.
This bill requires the current notices health plans and
insurers must provide regarding denials of individual
coverage to be in clear and easily understandable language.
This bill requires a health plan/insurer that declines to
offer coverage or denies enrollment to any individual or
large group to quarterly provide to the Department of
Managed Health Care (DMHC), the California Department of
Insurance (CDI), the Managed Risk Medical Insurance Board
(MRMIB), and the public all of the following until January
1, 2014:
The number and proportion of applicants for individual
coverage and large group coverage that were denied
coverage for each product offered by the health
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plan/insurer.
The health status and risk factors for each applicant
denied coverage, by product. For individual coverage,
this information must also include age, gender, language
spoken, occupation, and geographic region of the
applicant, by product.
Demographic information about applicants denied coverage,
including gender, age, language spoken, occupation, and
geographic region of the applicant, by product.
The written policies, procedures, or underwriting
guidelines by which the health plan/insurer makes its
decision to provide or to deny coverage to applicants.
The regulators would be required to post on their
respective Internet Websites the following information for
each product offered by a health plan/insurer, and for all
products offered by the health plan/insurer:
The number and proportion of applicants for individual
coverage denied coverage, as well as aggregate
information about health status and demographics of those
denied coverage.
The number and proportion of applicants for large group
coverage denied coverage, as well as aggregate
information about health status and demographics of the
employees of those large groups denied coverage.
The written policies, procedures, or underwriting
guidelines whereby the plan/insurer makes its decision to
provide or to deny coverage to applicants.
This bill deletes the prohibition against the public
disclosure of company-specific rating and underwriting
criteria and practices submitted to the director.
This bill would require health plans and insurers to
disclose to its regulator the following:
The written policies, procedures or underwriting
guidelines whereby the plan makes its decision to
determine the standard rate and to issue a policy at a
rate higher or lower than the standard rate.
For each product in the individual and small group
market, the rates, including both the standard rate,
rates that are higher than standard rates, and rates that
are lower than standard rates.
For the individual, small group and large group markets,
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 5
the number and proportion of policyholders charged a
standard rate, a rate that is higher than the standard
rate, or a rate that is lower than the standard rate.
For each of these categories, demographic information
must be provided, including age, gender, language spoken
and geographic region.
Requires the regulators to disclose such information to the
public, both in summary fashion its Website and in full on
request.
This bill would require health plans and health insurers,
on or before June 1, 2011, and no less than annually
thereafter, to disclose to their respective regulators all
of the following with respect to rate increases for each
product:
Any change in rate.
Any change in cost sharing.
Any change in covered benefits.
This bill would require, on or before June 1, 2011, and no
less than annually thereafter, a health plan and insurer to
also disclose to its regulator all of the following with
respect to rate increases for each product:
Actuarial memorandum.
Assumptions on trends in medical inflation, including
justification.
Specific worksheets or exhibits documenting increases in
costs.
Enrollee population characteristics that increase or
decrease costs.
Utilization increases.
Provider prices.
Administrative costs.
Medical loss ratios.
Reserves and surplus levels, including tangible net
equity and reserves in excess of tangible net equity.
Changes in cost sharing.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
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According to the author, this bill seeks to provide California
consumers, regulatory agencies and policymakers with critical
information regarding the actuarial basis and justification for
premium increases as well as data regarding denial and coverage
rates.
The author states that the provisions of this bill requiring
detailed data and actuarial justification for premium increases
and non-standard premium charges are necessary in response to
provisions contained in the recently enacted federal health
reform legislation requiring California regulatory agencies to
provide detailed information regarding premium trends and to
identify inappropriate premium increases. In addition, the
author states the recent public furor over annual premium rate
hikes as high as 39 percent led policymakers and regulators,
including the Attorney General, to seek detailed information
justifying the rate increases. Failure to comply with these
requests forced the Attorney General to file subpoenas seeking
the kind of information that regulators are required to provide
to the federal government
The author states that uncontrolled increases in health care
premiums are bankrupting California families and businesses.
According to a 2009 Kaiser Family Foundation report, premiums
for employer-based health insurance have more than doubled since
2000, a growth rate three times that of wages. The same report
found that worker out-of-pocket financial liability has
dramatically increased since 2006. By 2025, one in every four
dollars in our nation's economy will be spent on health care.
This bill would increase the length of notice time that plans
and insurers must provide to purchasers of individual coverage
who experience changes in rates or coverage, from 30 days to 180
days, and would extend this 180-day notice requirement to group
purchasers. The author states this change is intended to
provide consumers with adequate time to research and shop for
comparable products as 30 days is completely insufficient for
consumers to either make alternative arrangements for coverage,
or to plan for the increased burden for their household or
business. Finally, this legislation additionally requires plans
and insurers to report detailed information regarding their
coverage and denial rates in the individual and large group
market (small group purchasers are protected with guaranteed
issue of coverage).
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Rather than constructively working with providers to lower costs
and premiums, the author and sponsor contend that health plans
and insurers have responded to the premium backlash by
increasing their efforts to identify and reduce high-risk
consumers from their products. Because any group of patients
who are identified as likely to cost more than the premiums they
will pay are unprofitable to the plan or insurer, there is a
competitive disincentive to maintain good coverage for groups of
Californians who have high medical costs. Because of this
competitive disincentive, the author argues this means that
certain geographic areas, women and occupations are potentially
being singled out for coverage denials. Unfortunately, there is
little available data regarding coverage and denial decisions
made by insurance companies. The author asserts obtaining such
information is absolutely paramount to ensuring fair access to
health care coverage for all Californians.
Federal health care reform
Federal health care reform, effective January 1, 2014,
makes several fundamental changes to the private health
insurance market. Health plans are prohibited from
imposing any preexisting condition exclusion or
discriminating on the basis of any health status-related
factor. Premium rates can vary only by individual or
family coverage, rating area, age, or tobacco use. Health
plans are required to accept every employer and individual
in the state that applies for coverage, although plans may
restrict enrollment to open or special enrollment periods.
Health plans are prohibited from establishing individual
eligibility rules based on health status-related factors,
including medical condition, claims experience, receipt of
health care, medical history, genetic information, and
evidence of insurability.
Federal health care reform also requires the Secretary of
the Department of Health and Human Services (DHHS), in
conjunction with states, to establish a process for the
annual review, beginning with the 2010 plan year, of
"unreasonable increases in premiums" for health insurance
coverage. This process must require health plans and
insurers to submit to the Secretary and the relevant state
a justification for an unreasonable premium increase prior
to the implementation of the increase. Health plans and
insurers must prominently post such information on their
Internet Websites.
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The Secretary of DHHS is required to carry out a program to
award grants to states during the five-year period
beginning with fiscal year 2010 to assist states in
carrying out the annual review of unreasonable increases in
premiums for health insurance coverage. As a condition of
receiving a grant, a state, through its Commissioner of
Insurance, must provide the Secretary with information
about trends in premium increases in health insurance
coverage in premium rating areas in the state; and make
recommendations, as appropriate, to the state Exchange
(Exchanges are entities required to be established by
federal health care reform) about whether particular health
insurance issuers should be excluded from participation in
the Exchange based on a pattern or practice of excessive or
unjustified premium increases.
The health care reform bill appropriated to the Secretary $250
million to be available for expenditure for grants to states.
The Secretary is required to establish a formula for determining
the amount of any grant to a state that considers the number of
plans of health insurance coverage offered in each state, and
the population of the state. No state qualifying for a grant
can receive less than $1 million or more than $5 million for a
grant year.
Background
Existing law permits health plans and insurers to deny coverage
to individuals and employers with more than 50 eligible
employees who are seeking coverage. The rates of denial,
"rating up" (charging more) for individual coverage or
"declining to quote" for mid-size and large employers is not
publicly known.
The state's small group health insurance law, known as AB
1672 from 1992, provides regulatory protections for the
state's small employers (50 or fewer eligible employees),
such as guaranteed issue, and rate bands that limit premium
variation. However, guarantee issue does not apply to
mid-size (firms above 50 eligible employees) and large
firms.
A 2006 UCLA study found, although the data indicate that
most mid-size firms offer health insurance, some mid-size
firms may face difficulties due to their claims experience
or face other barriers. A series of interviews with
stakeholders, including health plan executives, brokers,
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 9
purchasing alliance representatives, advocates, and
regulators, were conducted by UCLA researchers to explore
these issues. The majority of stakeholders - consisting
mostly of brokers and purchasing alliance representatives -
reported that mid-size firms with poor experience are
either unable to obtain a quote or have difficulty
obtaining an affordable quote for health insurance. These
respondents commented that some carriers declined to
provide a quote or offered a limited selection.
Mid-size firms with 50-100 employees were reported to be
more likely to experience such a barrier than mid-size
firms with 101-250 employees. Lack of negotiating power
and rate volatility were also mentioned by some regulators
and brokers as barriers for mid-size firms. Other barriers
identified were more general to the U.S. health care
system, such as high costs of health care and cost-shifting
between public and private payers. No one pointed to major
barriers unique to mid-size firms with respect to
geographic area or industry. However, firms in industries
with high rates of low-wage workers were identified by some
interviewees as experiencing difficulties in obtaining
health insurance for their employees. Most stakeholders
reported that a variety of health coverage options or plans
existed for mid-size firms, but the range of choices was
considered to be more similar to that available to small
rather than large employers.
Arguments in support
This bill is jointly sponsored by Health Access California
and the Alliance of Californians for Community Empowerment
(ACCE) to publicly disclose the criteria and processes used
by health insurers to deny coverage and to set rates. ACCE
argues, under current California law, health insurers can
price individual health insurance based on health status
and many other factors, including occupation and geography.
There is no reliable public information on how many
Californians have their rates increased dramatically
because of health status or other factors.
According to the sponsors, this bill takes another step to
correct the problems with California's insurance market by
requiring public disclosure of rates, and reasons,
processes and criteria for setting rates. Federal health
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 10
reform requires state oversight of "unreasonable" premium
increases starting with the 2010 plan year, and provides
$250 million in grants to states for this effort. The new
federal law requires public disclosure and public
justification of the rates by insurers and health plans.
The sponsors state this bill adds greater specificity to
the federal requirements, so that state regulators can
provide better oversight. This bill will also require
individuals to receive 180 days of notice (instead of 30
days in current law) of premium increases so individuals
can plan ahead plan ahead and shop for other coverage.
Finally, the sponsors of this measure argue there is no
reliable public information on how many Californians are
denied coverage for pre-existing medical conditions, or how
many have their rates increased dramatically because of
health status or other factors. It has been estimated that
as many as 20 percent of those who apply for individual
coverage are denied that coverage. This information is
essential to allow a smooth transition to federal health
reform by minimizing rate shock and allowing interim
reforms that will make coverage more available and more
affordable.
The sponsors argue this information will also be helpful in
providing funding for a high-risk pool that actually meets
the needs of medically uninsurable Californians.
California's utterly inadequate high-risk pool covers 7,000
people with very limited benefits, including an annual
benefit cap of $75,000. Seven thousand individuals
represents only one to two percent of the medically
uninsurable. The new federal funding for the high-risk
pool may allow three or four times as many Californians to
get coverage through a high-risk pool, and to provide
better benefits at a more affordable premium than is
currently provided. But covering 20,000-30,000 medically
uninsurable will not meet the need created by insurers that
have denied coverage to hundreds of thousands of
Californians. The sponsors state this bill will, for the
first time, provide information on how many Californians
are denied coverage, and specifically for what reason.
Arguments in opposition.
The California Association of Health Plans (CAHP) argues
this bill would require health plans and insurers to
disclose the basic competitive factors that shape the
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marketplace. CAHP argues this information has no value to
consumers because consumers are protected by extensive
statutory and regulatory provisions to ensure that health
care coverage is provided fairly. Federal antitrust law
was designed to protect consumers by prohibiting
competitors from sharing information about future or
present pricing, allowances, premiums, costs, profits,
profit margins, market studies, or strategies.
CAHP argues this bill would, in contrast to federal
antitrust law and state law, illuminate the competitive
factors behind pricing, premiums, and market strategy for
health plans and insurers, and CAHP fails to see the value
in this requirement. Finally, CAHP argues that federal
health care reform will completely change the health
insurance market in California and across the country, and
requiring health plans to post detailed information
regarding underwriting is a waste of precious health care
resources, because, starting in 2014, individuals may not
be declined coverage and underwriting will be changed to
reflect federal rating restrictions.
HealthNet argues that extending the 30-day notice to 6
months is an unreasonably long period of time to allow for
any modifications of premiums and benefits, especially as
it relates to changes to drug formularies. Finally,
HealthNet and Anthem Blue Cross argue the administrative
effort and costs to implement the changes and reporting
requirements of this bill are difficult to justify when
they are likely to change when the federal government
issues its guidelines.
Prior legislation
AB 356 (Chan), Chapter 526, Statutes of 2006, requires
health plans and insurers selling products in the
individual health insurance market to disclose specified
information to individuals applying for coverage, and to
those who have such coverage, and to report a general
description of their rating and underwriting criteria and
policies to the DMHC and CDI, as specified.
COMMENTS
Drafting notes:
1. To clarify that the notice required under existing law
about the availability of coverage under the Major Risk
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 12
Medical Insurance Program applies only in the case of
rejections for individual coverage, a recommended
clarifying amendment would state that the rejection is for
an applicant of individual coverage. This change would be
made in paragraph (4) of subdivision (a) of Section 1389.25
and the parallel Insurance Code Section (10113.9(b)(4).
2. This bill requires public reporting of the health
status and risk factors for each applicant denied coverage
by product. To ensure patient privacy while allowing
access for research and consumer participation programs, a
recommended amendment would be to add the following
language to subdivisions (b) and (c) of Section 1389.26(b)
and Section 10113.91:
(5) Public reporting shall be done in a manner consistent
with maintaining patient privacy. Academic institutions
and other entities, including those eligible for consumer
participation programs, as defined in Section 1348.9 of
the Health and Safety Code, and which have the capacity
to maintain patient privacy shall be able to obtain
patient specific data without patient name or identifier.
POSITIONS
Support: Alliance of Californians for Community
Empowerment (co-sponsor)
Health Access California (co-sponsor)
AFSCME
California Pan-Ethnic Health Network
Consumers Union
Congress of California Seniors
California Chiropractic Association
California Retired Teachers Association
California Teachers Association
Oppose: Anthem Blue Cross
Association of California Life and Health
Insurance Companies
California Association of Health Plans
STAFF ANALYSIS OF SENATE BILL 1163 (Leno) Page 13
Health Net
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