BILL ANALYSIS
SB 1163
Page 1
Date of Hearing: August 26, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 1163 (Leno) - As Amended: August 25, 2010
SENATE VOTE : 23-12
SUBJECT : Health care coverage: denials: premium rates.
SUMMARY : Requires health care service plans (health plans) and
health insurers to file with the Department of Managed Health
Care (DMHC) and the California Department of Insurance (CDI)
(regulators) specified rate information for individual and small
group at least 60 days prior to implementing any rate change.
Requires rate filings to be actuarially sound and to include a
certification by an independent actuary that any increase is
reasonable or unreasonable. Requires the filings in the case of
large group contracts only for unreasonable rate increases, as
defined by the Patient Protection and Affordable Care Act
(PPACA) (Public Law 111-148), prior to implementing any such
rate change. Increases, from 30 days to 60 days, the amount of
time that health plan or insurer provides written noticed to an
enrollee or insured before a change in premium rates or coverage
becomes effective. Requires health plans and insurers that
decline to offer coverage to or deny enrollment for a large
group applying for coverage or that offer small group coverage
at a rate that is higher than the standard employee risk rate
to, at the time of the denial or offer of coverage, provide the
applicant with reason for the decision, as specified.
Specifically, this bill :
Rate Review
1)Requires health plans and insurers to file with regulators all
required rate information for individual and small group at
least 60 days prior to implementing any rate change. Requires
the filings in the case of large group contracts only for
unreasonable rate increases, as defined by PPACA, at least 60
days prior to implementing any such rate change.
2)Requires health plans and insurers, for individual and small
group contracts, to disclose to regulators information
regarding identifying and contact information, contract forms,
product and segment type, enrollment, annual rates, earned
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premiums, incurred claims, average rate increases and
effective date of increase, review category, number of
affected subscribers/enrollees, overall annual medical trend
factor assumptions, amount of the projected trend attributable
to the use of certain factors, claims cost and rate of
changes, enrollee/insured cost-sharing, changes in benefits
and administrative costs, actuarial certification, consumer
inquiries and complaints, and any other information required
to be reported under the PPACA.
3)Requires health plan subject to 1) above to also disclose
specified aggregate data for all rate filings in the
individual and small group health plan markets related to the
number and percentage of rate filings and the plan's average
rate increase by the following categories, as specified.
4)Permits regulators to require health plans and insurers to
submit all rate filings to the National Association of
Insurance Commissioners' (NAIC) System for Electronic Rate and
Form Filing (SERFF). Requires submission of rate filings to
SERFF to be deemed to be filing with regulators for purposes
of compliance with the rate filing requirements of this bill,
but requires plans and insurers to submit any other
information required comply with this bill.
5)Requires rate filings to be actuarially sound and to include a
certification by an independent actuary or actuarial firm that
the rate increase is reasonable or unreasonable and, if
unreasonable, that the justification for the increase is based
on accurate and sound actuarial assumptions and methodologies.
6)Requires plans and insurers to contract with an independent
actuary to comply with 5) above. Prohibits the actuary or
actuarial firm from being be an affiliate or a subsidiary of,
nor in any way owned or controlled by, a health plan, health
insurer, or a trade association of health plans or insurers.
Prohibits a contracted actuary or actuarial firm board member,
director, officer, or employee from serving as a board member,
director, or employee of a health plan or insurer. Prohibits
a health plan, health insurer, or a trade association of
health plans board member, director, or officer from serving a
board member, director, officer, or employee of the actuary or
actuarial firm.
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7)Prohibits anything in this bill from being construed to permit
regulators to establish rates for contractual health care
services.
8)Requires all information submitted under this bill to be made
publicly available by regulators except, that contracted rates
between a health plan or insurer and a provider or a large
group are deemed confidential information that will not be
made public.
9)Requires all information to be submitted to regulators
electronically. Requires the information below to be made
available on regulators' and plan/insurers Web sites, as
specified, 60 days prior to the implementation of the rate
increase:
a) Justifications for any unreasonable rate increases,
including all information and supporting documentation as
to why the rate increase is justified;
b) Overall annual medical trend factor assumptions in each
rate filing for all benefits;
c) Actual costs by aggregate benefit category to include
hospital inpatient, hospital outpatient, physician
services, prescription drugs, and other ancillary services,
laboratory, and radiology; and,
d) The amount of the projected trend attributable to the
use of services, price inflation, or fees and risk for
annual plan contract trends by aggregate benefit category,
such as hospital inpatient, hospital outpatient, physician
services, prescription drugs and other ancillary services,
laboratory, and radiology. Requires a health plan or
insurer that exclusively contracts with no more than two
medical groups to instead disclose the amount of their
actual trend experience for the prior contract year by
aggregate benefit category, using benefit categories that
are to the maximum extent possible the same or similar to
those used by other plans.
10)Requires regulators to accept and post to their websites any
public comment on a rate increase submitted during the 60-day
period in 9) above.
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11)Exempts a number of programs and contracts from the rate
review provisions, including specialized health plan
contracts, Medicare supplement plans; Medi-Cal managed care,
Healthy Families Program, Access for Infants and Mothers
Program, the California Major Risk Medical Insurance Program,
the Federal Temporary High Risk Pool, and health plan
conversion contracts.
12)Permits regulators, in consultation with each other and on or
after July 1, 2012, to issue guidance to plans and insurers
regarding compliance with this bill. Exempts such guidance
from being subject to the Administrative Procedure Act.
Requires regulators to consult with each other when issuing
guidance, adopting necessary regulations, or posting
information on their websites.
13)Permits regulators, whenever it appears that any person has
engaged, or is about to engage, in any act or practice
constituting a violation of this bill, including the filing of
inaccurate or unjustified rates or inaccurate or unjustified
rate information, to review the rate filing to ensure
compliance with the law.
14)Permits regulators to review other filings.
15)Requires regulators to report at least quarterly to the
Legislature on all unreasonable rate filings.
16)Requires regulators to post on its Web site any changes to
the proposed rate increase, including any documentation
supporting those changes. Requires regulators to post
findings on its Web site if it finds that an unreasonable rate
increase is not justified or that a rate filing contains
inaccurate information.
17)Requires regulators, in a manner consistent with applicable
federal laws, rules, and regulations, to:
a) Provide data to the United States Secretary of the U.S.
Department of Health and Human Services (DHHS) on health
care service plan rate trends in premium rating areas;
b) Provide to the California Health Benefit Exchange
(established pursuant to the PPACA) commencing with its
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creation, such information as may be necessary to allow
compliance with federal law, roles, regulations, and
guidance.
Consumer notification
18) Requires health plans and insurers that decline to offer
coverage to or deny enrollment for a large group applying for
coverage or that offer group coverage at a rate that is higher
than the standard rate to, at the time of the denial or offer
of coverage, provide the applicant with the specific reason or
reasons for the decision in writing, in clear, easily
understandable language, as specified.
19) Increases, from 30 days to 60 days, the amount of time
that a health plan or an insurer provides written noticed to
an enrollee or insured before a change in premium rates or
coverage becomes effective. Requires the notice in 18) above,
and written notices regarding rate changes in existing law to
be in 12-point type.
Grandfathered Plans
20)Deems a health plan or a health insurer to be in compliance
with the requirement in the small employer health insurance
law that health plans and health insurers fairly,
affirmatively offer, market and sell all of the benefit plans
designs it makes available (known as the "all products"
requirement) with respect to grandfathered plan contracts
under the PPACA, as long as:
a) The plan/insurer offers to renew the grandfathered plan
contract unless the plan withdraws the plan contract/policy
from the small employer market;
b) The plan/insurer provides appropriate notice of the
grandfathered status of the plan in any materials provided
to an enrollee of the contract describing the benefits
provided under the contract, as required under PPACA; and,
c) The plan/insurer makes no changes to the benefits set
forth in the grandfathered plan contract other than those
required by state or federal law, regulation, rule or
guidance and those permitted to be made to a grandfathered
plan under PPACA.
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EXISTING LAW :
1)Provides for the regulation of health plans by DMHC and
regulation of health insurers by CDI.
2)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.
3)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.
4)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.
5)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.
6)Permits a health plan or insurer to comply with this
requirement by submitting to DMHC or CDI underwriting
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materials or resource guides provided to plan solicitors or
solicitor firms, provided that those materials include the
information required to be submitted.
7)Defines, under the federal PPACA, a "grandfathered plan" as a
plan in which an individual was enrolled on the date federal
health care reform was signed into law. Exempts grandfathered
plans, with specified exceptions, from the requirements placed
on health plans and insurers by PPACA, including when
grandfathered plans are renewed.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis of a previous version of this bill:
1)Increased costs of $1 million, combined, to DMHC and CDI to
comply with the increased reporting and oversight requirements
established by this bill. These costs will likely be supported
by a federal grant. California recently applied to the federal
government for $1 million in funding to comply with rate
review requirements.
2)The federal government has allocated $250 million over a
five-year period to support state efforts with regard to rate
review.
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 further states that provisions
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of the bill increase the amount of time consumers have to research
and shop for comparable products, from 30 days to 60 days, because
existing law does not provide sufficient time for consumers to
either make alternative arrangements for coverage, or to plan for
the increased burden for their household or business.
2)BACKGROUND . 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
Knox-Keene plans. Knox-Keene plans are limited to no more
than 15% administrative costs, but DMHC does not include
profit as an administrative cost.
3)FEDERAL HEALTH CARE REFORM . On March 23, 2010, President Obama
signed the PPACA, which 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
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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
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.
4)HEALTH INSURANCE RATE INCREASES . 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 who
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.
5)HEALTH CARE SPENDING . The 2009 edition of the California
HealthCare Foundation's "Healthcare Costs 101" states 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:
a) Health spending grew 6.1% in 2007, the smallest increase
since 1998, extending a five-year decelerating trend.
Nevertheless, health spending continues to outpace
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inflation and is projected to reach $2.5 trillion this
year;
b) 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; and,
c) Nationally, per-person costs for health care increased
81% between 1997 and 2007.
6)ACLHIC/CAHP LETTER . Under the PPACA, "grandfathered" plans
(plans in effect as of March 23, 2010 that are renewed on or
after September 23, 2010), are not required to comply with
specified provisions of the federal law. Plans that are not
grandfathered, including products sold to new business as of
September 23, 2010, must comply with all of the PPACA
provisions applicable as of that date. According to a July
10, 2010 letter to regulators from the Association of
California Life and Health Insurance Companies (ACLHIC) and
the California Association of Health Plans (CAHP), under
current California law, there is no process by which a small
employer plan can be "closed." The product must either be
actively marketed or it must be withdrawn. According to
ACLHIC and CAHP, any product that is only offered to an
existing employer on renewal and not to new business is not
being actively marketed as described in the statutes. The
Small Group Act in California had been interpreted by plans
and insurers to mean that, if a product is not being actively
marketed to new groups, it must be withdrawn from the market
and the provisions in the Act dealing with renewals involving
withdrawn plans apply. ACLHIC and CAHP expressed concern that
there is a risk that a strict interpretation of current law
will deprive employers of being able to keep their same plan
as promised under PPACA.
7)RELATED LEGISLATION . AB 2578 (Jones) requires health plans
and health insurers, 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. AB 2578 is on
the Senate Floor.
8)PREVIOUS LEGISLATION . AB 1218 (Jones) of 2009 and AB 1554
(Jones) of 2008 would have required health plans licensed by
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DMHC and health insurers certificated by CDI, to annually
submit for prior approval to the respective regulator any
increase in the rate charged to a subscriber or insured, as
specified, and would have imposed on DMHC and CDI specific
rate review criteria, timelines, and hearing requirements. AB
1218 failed passage in the Assembly Health Committee and AB
1554 failed in the Senate Health Committee.
SB 425 (Ortiz) of 2006 would have required health plans and
insurers to obtain prior approval for a rate increase, defined
in a similar manner to rates under AB 1218 of 2009. SB 425
did not have a hearing, at the author's request, and died in
the Senate Health Committee.
SB 26 (Figueroa) of 2004 would have required health plans and
health insurers to obtain prior approval of rate increases
from DMHC and CDI, as specified, and would have potentially
required significant refunds of premiums previously collected.
SB 26 died in the Senate Insurance Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (sponsor)
California Immigrant Policy Center
(previous version)
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
None on file.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097