BILL ANALYSIS
SB 1163
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 1163 (Leno) - As Amended: June 23, 2010
SENATE VOTE : 23-2
SUBJECT : Health care coverage: denials: premium rates.
SUMMARY : Extends requirements related to denying coverage that
are placed on health care service plans (health plans) and
insurers selling individual coverage to health plans and
insurers selling group coverage. Requires health plans and
insurers, on or before June 1, 2011, and for each rate filing
thereafter, to disclose to the Department of Managed Health Care
(DMHC) and the California Department of Insurance (CDI), for
each rate filing in the individual, small employer, and large
group health plan markets, specified information. Requires
health plans and insurers to also disclose aggregate data
related to the number and percentage of rate filings, as
specified. Requires DMHC and CDI to review each rate filing for
consistency with applicable state law and regulations as well as
federal law, regulations, rules, or other guidance and to
determine that it is actuarially sound. Increases, from 30 days
to 180 days, the number of days that plans and insurers are
required to provide advance written notice of changes in the
premium rate or coverage for an individual plan contract before
such change takes effect, and applies this 180-day notice to
group contracts. Specifically, this bill :
DENIAL OF COVERAGE OR ENROLLMENT
1)Extends the following requirements currently placed on health
plans and insurers selling individual coverage, to health
plans and insurers selling group coverage:
a) 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;
b) A notice of an increase in the premium rate must include
the reasons for the rate increase. The notice must state
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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; and,
c) A notice provided to a group employer is 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.
2)Requires current notices health plans and insurers provide
regarding denials of individual coverage to be in clear and
easily understandable language.
3)Requires a health plan or insurer that declines to offer
coverage or denies enrollment to any individual to quarterly
provide to DMHC, CDI, the Managed Risk Medical Insurance
Board, and the public all of the following until January 1,
2014:
a) The number and proportion of applicants for individual
coverage and large group coverage that were denied coverage
for each product offered by the health plan/insurer; and,
b) 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.
4)Requires DMHC and CDI to post on their respective Web sites
the following information for each product offered by a health
plan or insurer, and for all products offered by the health
plan/insurer:
a) 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; and,
b) The written policies, procedures, or underwriting
guidelines whereby the health plan/insurer makes its
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decision to provide or to deny coverage to applicants.
5)Requires public reporting to be done in a manner consistent
with maintaining patient privacy. Requires academic
institutions and other entities, including those eligible for
the Consumer Participation Program and that have the capacity
to maintain patient privacy, to be able to obtain
patient-specific data without patient name or identifier.
6)Deletes the prohibition against the public disclosure of
company-specific rating and underwriting criteria and
practices submitted to the Director of DMHC.
RATE REVIEW
7)Increases, from 30 days to 180 days, the number of days that
plans and insurers are required to provide advance written
notice of changes in the premium rate or coverage for an
individual plan contract before such change takes effect, and
applies this 180-day notice to group contracts.
8)Requires health plans and insurers, on or before June 1, 2011,
and for each rate filing thereafter, to disclose to DMHC and
CDI, for each rate filing in the individual, small employer,
and large group health plan markets, specified information
related to the company contact information, its products,
enrollment, premiums, claims, rate increases, medical trend
factor assumptions, changes in enrollee cost sharing and
benefits, and summaries of consumer inquiries and complaints
related to rates. Requires health plans and insurers to also
disclose aggregate data related to the number and percentage
of rate filings, as specified.
9)Requires rate filings, including all supporting material, to
be publicly available on the DMHC and CDI Web sites. Requires
all submissions to DMHC and CDI to be made electronically in
order to facilitate review. Requires each rate filing to
include a summary of rate changes offered in plain language
for consumers. Requires DMHC and CDI to post to their
respective Web sites information about the rate filing and
justification in an easy to understand language for the
public.
10)Requires health plans and insurers to post all proposed rate
increases, including all accompanying documentation, on their
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Web site.
11)Requires DMHC and CDI to review each rate filing for
consistency with applicable state law and regulations as well
as federal law, regulations, rules, or other guidance and to
determine that it is actuarially sound. Requires DMHC and CDI
to consider public comment on the rate filing for no less than
60 days and respond, as specified. Requires DMHC and CDI to
conduct a public hearing on the rate filing on any of the
following grounds:
a) A consumer or consumer advocacy organization requests a
hearing within 45 days of the rate filing. If DMHC or CDI
grants a hearing, it must issue written findings in support
of that decision.
b) If DMHC or CDI determines for any reason to hold a
hearing.
c) If DMHC or CDI finds that the rate filing does not
comply with the provisions of this section.
12)Requires DMHC and CDI, after completing a rate review, to
post to their respective Web site any changes to the rates and
the reason for those changes, including any documentation to
support those changes.
13)Requires DMHC and CDI, consistent with federal law, rules,
and guidance, to:
a) Provide data on health plan rate trends in premium
rating areas and a summary of the nature of consumer
inquiries and complaints related to health plan rates that
have been received for the past two plan years to the
United States Secretary of Health and Human Services (DHHS
Secretary).
b) Commencing with the creation of the American Health
Benefit Exchange (Exchange), provide to the Exchange such
information as may be necessary to allow compliance with
federal law, rules, and guidance. Requires DMHC and CDI to
develop an interagency agreement with the Exchange to
facilitate the reporting of information regarding rate
filings that is consistent with the responsibilities of the
Exchange.
14)Requires DMHC and CDI to apply for grant funding from the
federal government for the purposes of rate review consistent
with the requirements of federal law, rules, and guidance.
Requires additional costs and expenses associated with rate
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reviews to be supported by fees, as specified.
EXISTING LAW :
1)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.
2)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. Requires a notice
of an increase in the premium rate to include the reasons for
the rate increase.
3)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.
4)Requires health plans and health insurers to annually file
with DHMC or CDI 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.
5)Permits a health plan or insurer to comply with this
requirement by submitting to DMHC or CDI underwriting
materials or resource guides provided to plan solicitors or
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solicitor firms, provided that those materials include the
information required to be submitted.
FISCAL EFFECT : According to the Senate Appropriations
Committee of a previous version of this bill:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
DMHC review of data $240 $130 $140 Special*
CDI review of data $125 $210 $210
Special**
*Managed Care Fund
**Insurance Fund
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill seeks to
provide California consumers, regulatory agencies and policymakers
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% led policymakers and DMHC and
CDI, 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 DMHC and CDI are required to provide to
the federal government.
The author states that this bill 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. 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
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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.
2)FEDERAL HEALTH CARE REFORM . On March 23, 2010, President Obama
signed the Patient Protection and Affordable Care Act (PPACA)
(Public Law 111-148). The PPACA makes several fundamental changes
to the private health insurance market, including requiring the
DHHS Secretary, 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 Web sites.
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 PPACA 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
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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.
3)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
(Margolin), Chapter 1128, Statutes of 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 University of California, Los Angeles (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, purchasing alliance
representatives, advocates, and DMHC and CDI, 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 DMHC and CDI 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. Firms in industries with high
rates of low-wage workers were identified by some interviewees
as experiencing difficulties in obtaining health insurance for
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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.
4)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. PPACA 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 DMHC and CDI 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 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% 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
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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 1%-2% 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.
5)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
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
contrast6) 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.
Health Net argues that extending the 30-day notice to six
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. Health Net 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
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the federal government issues its guidelines.
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Alliance for Retired Americans
California Chiropractic Association
California Nurses Association
California School Employees Association
California Teachers Association
Congress of California Seniors
Consumers Union
Opposition
Anthem Blue Cross
Association of California Life & Health Insurance Companies
California Association of Health Plans
Health Net
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097