BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 1163
S
AUTHOR: Leno
B
AMENDED: August 25, 2010
HEARING DATE: August 31, 2010
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CONSULTANT:
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Bain/
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PURSUANT TO S.R. 29.10
SUBJECT
Health care coverage: denials: premium rates
SUMMARY
Requires 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 at least 60 days prior to implementing any
rate change. Requires rate filings to be actuarially
sound. Increases, from 30 days to 60 days, the amount of
time that a health plan or insurer must provide written
notice before a change in premium rates or coverage becomes
effective. Requires health plans and insurers that decline
to offer coverage or that 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 provide the applicant with reason for the
decision.
CHANGES TO EXISTING LAW
Existing federal law:
Requires, under the federal Patient Protection and
Affordable Care Act (Public Law 111-148, known as "PPACA"),
the federal Secretary of the Department of Health and Human
Continued---
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Services, in conjunction with states, to establish a
process for the annual review of unreasonable increases in
premiums for health insurance coverage, beginning with the
2010 plan year.
Requires the process described above to require health
insurance issuers to submit to the Secretary and the state
a justification for an unreasonable premium increase prior
to the implementation of the increase. Requires health
plans and insurers to prominently post such information on
their Internet websites, and requires the Secretary to
ensure the public disclosure of information on such
increases and justifications for all health plans and
insurers.
Defines a "grandfathered plan" under PPACA as a plan in
which an individual was enrolled on the date federal health
care reform was signed into law. Grandfathered plans are
exempt, with specified exceptions, from the requirements
placed on health plans and insurers by PPACA.
Existing state law:
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.
Existing state law does not limit the premiums for
individuals in the individual health insurance
market, except for individuals eligible under federal law
who previously had 18 months of group coverage and who have
exhausted COBRA/Cal-COBRA coverage.
Requires, through regulation, the administrative costs
incurred by a health plan to be reasonable and necessary,
taking into consideration such factors as the plan's stage
of development. Requires, if the administrative costs of
an established plan exceed 15 percent, or if the
administrative costs of a plan in the development phase
exceed 25 percent, the plan to demonstrate to the Director,
if called upon to do so, that its administrative costs are
not excessive administrative costs and are justified under
the circumstances and/or that it has instituted procedures
to reduce administrative costs which are proving effective.
Establishes, through regulation, minimum medical loss
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ratios for individual health insurance products regulated
by CDI.
States that nothing in a specified provision of the
Knox-Keene Act is to be construed to permit the director to
establish the rates charged subscribers and enrollees for
contractual health care services, and prohibits the
director of DMHC's enforcement of the requirements of the
state's small group health law from being deemed to
establish the rates charged subscribers and enrollees for
contractual health care services.
Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers. This
is known as "guaranteed issue." Requires health plans to
offer, market, and sell all of the health plan's contracts
that are sold to small employers, to any small employers in
each service area in which the plan provides health care
services. This is known as an "all products" requirement.
This bill:
Rate Filings
Requires health plans and health insurers to file with the
respective regulator all required rate information for
individual and small group health plan contracts at least
60 days prior to implementing any rate change. Requires
the filing to be concurrent with the existing required
written notice of a premium change for individual and small
group contracts.
Requires a plan and insurer to disclose to its regulator 25
specified types of information for each individual and
small group rate filing. Examples of the information
required to be filed include product type (PPO or HMO),
annual rate, total earned premiums in each plan contract
form, total incurred claims in each contract form, average
rate increase initially requested, average rate of
increase, effective date of rate increase, number of
subscribers/enrollees affected by each plan, the overall
annual medical trend factor assumptions in each rate filing
for all benefits and by aggregate benefit category (such as
hospital inpatient, hospital outpatient, physician
services, prescription drugs), the amount of the projected
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trend attributable to the use of services, price inflation,
or fees and risk for annual plan contract trends by
aggregate benefit category, any changes in enrollee
cost-sharing over the prior year, any changes in enrollee
benefits over the prior year, any changes in administrative
costs, and any other information required for rate review
by the federal health care reform law.
Requires, for large employer contracts, health plans and
insurers to file with DMHC/CDI at least 60 days prior to
implementing any rate change all required rate information
for unreasonable rate increases. Requires a plan/insurer
to also submit any other information required pursuant to
any regulation adopted by DMHC/CDI to comply with the rate
filing provisions of this bill.
Requires health plans and insurers to also disclose the
following aggregate data for all rate filings in the
individual, small and large group markets:
Number and percentage of rate filings reviewed by plan
year, segment type, product type, number of subscribers,
and number of covered lives affected.
The plan's average rate increase by plan year, segment
type, and product type.
Any cost containment and quality improvement efforts
since the plan/insurer's last rate filing for the same
category of health benefit plan. Requires the
plan/insurer, to the extent possible, to describe any
significant new health care cost containment and quality
improvement efforts and to provide an estimate of
potential savings together with an estimated cost or
savings for the projection period.
Requires a rate filing submitted under the rate filing
provisions of this bill to be actuarially sound. Requires
a plan and insurer to contract with an independent actuary
or actuaries, and requires a filing submitted 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. Requires rate filings submitted for large
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employer contracts to include a certification by an
independent actuary that the aggregate or average rate
increase is based on accurate and sound actuarial
assumptions and methodologies, unless PPACA requires a
certification of actuarial soundness for each large group
contract.
Prohibits the rate filing provisions of this bill from
being construed to permit DMHC or CDI to establish the
rates charged subscribers and enrollees for covered health
care services.
Requires all information submitted under this bill to be
made publicly available by DMHC or CDI, except that the
contracted rates between a health plan/insurer and a
provider are deemed confidential information that are
prohibited from being made public by DMHC or CDI.
Requires the contracted rates between a health plan or
health insurer and a large group to be deemed confidential
information that are prohibited from being made public by
DMHC or CDI.
Requires DMHC, CDI, and health plans and insurers, at a
minimum, to make the following information (except for
confidential information) readily available to the public
on their Internet Websites, in plain language and in a
manner and format specified by DMHC/CDI:
Justifications for any unreasonable rate increases,
including all information and supporting documentation as
to why the rate increase is justified.
A plan/insurer's overall annual medical trend factor
assumptions in each rate filing for all benefits.
A health plan/insurer's actual costs, by aggregate
benefit category (hospital inpatient, hospital
outpatient, physician services, prescription drugs and
other ancillary services, laboratory, and radiology).
The amount of the projected trend attributable to the use
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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. A health plan or
insurer that exclusively contracts with no more than two
medical groups in the state to provide or arrange for
professional medical services for the enrollees of the
plan (e.g., Kaiser) is required to instead disclose the
amount of its 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.
Requires the above information to be made public for 60
days prior to the implementation of the rate increase.
Requires DMHC and CDI to accept and post to its Internet
Website any public comment on a rate increase submitted to
DMHC/CDI during the 60-day period.
Requires all information submitted to DMHC or CDI under the
rate filing provisions to be submitted electronically in
order to facilitate review by DMHC/CDI and the public.
Requires a plan and insurer to submit any other information
required under PPACA. Requires a plan/insurer to also
submit any other information required pursuant to any
regulation adopted by DMHC/CDI to comply with the rate
filing provisions.
Permits DMHC and CDI, notwithstanding any provision in a
contract between a health plan/health insurer and a health
care provider, to request from the health plan/insurer any
information required under the rate filing provisions of
this bill or PPACA.
Permits DMHC and CDI, on or before July 1, 2012, to issue
guidance to health plans and health insurers regarding
compliance with the above provisions. Exempts this
guidance from the Administrative Procedure Act. Requires
DMHC and CDI to consult with each other in issuing
guidance, in adopting necessary regulations, in posting
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information on their respective Internet Websites, and in
taking any other action for the purpose of implementing the
above provisions.
Permits DMHC and CDI, whenever it appears to DMHC/CDI that
any person has engaged, or is about to engage, in any act
or practice constituting a violation of the rate filing
provisions 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. Permits DMHC and CDI to review other
filings.
Requires DMHC and CDI to report to the Legislature at least
quarterly on all unreasonable rate filings.
Requires DMHC and CDI to post on its Internet Website any
changes submitted by the plan/insurer to the proposed rate
increase, including any documentation submitted by the
plan/insurer supporting those changes.
Requires DMHC and CDI, if it finds that an unreasonable
rate increase is not justified or that a rate filing
contains inaccurate information, to post its findings on
its Internet Website.
Prohibits this bill from being construed to impair or
impede DMHC's or CDI's authority to administer or enforce
any other provision of their existing regulatory statutes.
Requires DMHC and CDI to do all of the following in a
manner consistent with applicable federal laws, rules, and
regulations:
Provide data to the Secretary on health plan rate trends
in premium rating areas.
Provide to the Exchange such information as may be
necessary to allow compliance with federal law, rules,
regulations, and guidance (commencing with the creation
of the Exchange).
Permits DMHC and CDI to require all plans and insurers to
submit all rate filings to the National Association of
Insurance Commissioners' System for Electronic Rate and
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Form Filing (SERFF). Requires submission of the required
rate filing to SERFF to be deemed to be filed with DMHC/CDI
for purposes of compliance with the above-described rate
filings.
Small Group Law - Exemption from Marketing Requirements for
Grandfathered Plans
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 and
affirmatively offer, market and sell all of the benefit
plan designs they make available to small employers (known
as the "all products" requirement) with respect to
grandfathered plan contracts as provided for under PPACA,
as long as the following requirements are met:
The plan/insurer offers to renew the grandfathered plan
contract, unless the plan withdraws the plan
contract/policy from the small employer market;
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,
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.
Changes to Notice Requirements
Requires a health plan or health insurer that declines to
offer coverage, denies enrollment of a large group applying
for coverage, or offers small group coverage at a rate that
is higher than the standard employee risk rate, to provide
the applicant with a written decision that provides the
specific reason for the decision in clear, easily
understandable language.
Increases the written advance notice before a premium rate
change can take effect from 30 to 60 days prior to the
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contract renewal effective date for group and individual
coverage, requires the written notice to be in 12-point
type and requires it to include the actual dollar amount
and the percentage premium increase, instead of the dollar
amount or the percentage increase in current law.
FISCAL IMPACT
This bill in its current form has not been analyzed by a
fiscal committee.
BACKGROUND AND DISCUSSION
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 percent 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 of this 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.
Current law pertaining to premium levels
In California, health insurance is generally not subject to
premium rate regulation, with some exceptions, such as for
individuals eligible under continuation coverage under
state or federal law. Existing law establishes
requirements for health plans that provide coverage to
small employers, including restricting a plan's ability to
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set initial and renewal premium rates to a group of
specified risk categories (age, region, family size, and
health benefit plan), and allows only a limited premium
variance of plus or minus 10 percent from a standard rate
based on health status. The limitation on premium variance
is referred to as "rate bands."
CDI-regulated insurers must meet minimum medical loss ratio
standards for individual products. The MLR requirements do
not apply to Knox-Keene plans regulated by DMHC.
Knox-Keene plans are subject to an administrative cost cap,
but DMHC does not include profit as an administrative cost.
Federal health care reform
In March 2010, the President signed into law two federal
health care reform bills, the Patient Protection and
Affordable Care Act (PPACA) and the Health Care and
Education Reconciliation Act of 2010. These bills make
significant changes to the California health insurance
market and its regulatory environment.
Section 2794 of PPACA requires the Secretary of 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 requires health insurance to submit
to the Secretary and the state a justification for an
unreasonable premium increase prior to the implementation
of the increase. Health plans and health insurers must
prominently post such information on their Internet
websites, and the Secretary must ensure the public
disclosure of information on such increases and
justifications for all health insurers. The federal
Secretary of DHHS indicated in June 2010 that DHHS will
issue regulations regarding the review of unreasonable
premium increases and the determination of unjustified
and/or excessive premium increases in the coming months.
PPACA makes available $250 million to states in grants for
health insurance premium review from 2010 through 2014.
The federal government announced earlier this month that
California was receiving an award of $1 million in the
first round of federal grants. California is using its
funding to pursue additional legislative authority across
DMHC and CDI, to expand the scope of and improve the review
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process, to increase transparency and accessibility, and to
develop and upgrade technology.
Grandfathered health plan provision
Under PPACA, "grandfathered" plans (defined as plans in
effect as of March 23, 2010), are not required to comply
with specified provisions of the federal health care reform
law. Plans that are not grandfathered must comply with the
provisions of PPACA. California's small group health
insurance law requires health plans and insurers to sell
all products to any small employer willing to purchase
coverage. This bill provides an exemption from this
California small group law requirement for grandfathered
products sold to small employers, which would be allowed to
be "closed" to new enrollment.
The health plan and health insurance trade associations
(the California Association of Life and Health Insurance
Companies (ACLHIC) and the California Association of Health
Plans (CAHP) seek this change, arguing there is no process
by which a small employer plan can be "closed" to new
enrollment as a product must either be actively marketed
and sold or withdrawn from the market. 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 required by law. The small group law
has 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
that body of law dealing with renewals involving withdrawn
plans apply. ACLHIC and CAHP expressed concern that
current state law will prevent employers from being able to
keep their current plan, as promised under PPACA.
Related bills
AB 2578 (Jones) requires health plans and insurers to file
a complete rate application with DMHC and CDI for a rate
increase that will become effective on or after January 1,
2012. AB 2578 would prohibit a health plan or health
insurer premium rate (defined to include premiums,
co-payments, coinsurance obligations, deductibles, and
other charges) from being approved or remaining in effect
that is excessive, inadequate, unfairly discriminatory, or
otherwise in violation of the provisions of AB 2578.
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Arguments in support
This bill is sponsored by Health Access California (HAC),
which is seeking to require public disclosure of health
insurance rate increases. HAC states that no one outside
the insurance industry knows why individuals and businesses
are paying more and getting less in health benefits. HAC
states that when Anthem Blue Cross proposed to hike rates
39 percent for individuals earlier this year, existing
California law expressly made the notice of the rate hikes
"private and confidential communication" to the individual
consumer. HAC states that the DMHC is not required to
check rates for actuarial soundness, and neither CDI or
DMHC has the statutory authority to make rates public, or
to demand the justification for rate hikes.
HAC states this bill would correct this sad state of
affairs by requiring 60 days notice of rate hikes to
consumers and small businesses, and by requiring rate hikes
and justifications for rate hikes to be posted on the
websites of health plans, health insurers, and the DMHC and
CDI. HAC states this bill will also require health plans
and insurers to give their regulators notice of rate hikes
and detailed information about rate changes, including
average rate increase, aggregate increases by benefit
category, rates of change over time, changes in co-payments
and deductibles, changes in benefits, and the number of
consumers and employers affected by each rate increase.
Finally, this bill would require rates to be actuarially
sound, would require a report on unreasonable rate
increases to the federal government, and would make all of
this public information, with only a narrow exemption for
contracted provider rates, and contracts between a health
plan/insurer and a large group.
Arguments in opposition
Consumer Watchdog (CW) writes that it is opposed unless
amended to this measure, arguing this bill does nothing to
advance the cause of protecting consumers from
unreasonable, excessive and unjustified premium rates. CW
states premium regulation relies on the duty of a regulator
to be able to reject an excessive premium, while this bill
simply requires information to be filed by insurers without
any authority being given to regulators to block rate hikes
based on that information. Additionally, CW objects to the
requirement that rates be actuarially sound, arguing this
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standard is a major step in the direction of allowing
higher premiums because it allows a wide range of
acceptable rates. CW also objects to having agreements
with health care providers be exempt from public
disclosure. Finally, CW criticizes the penalty provision
of requiring the regulator to post
on the Internet if it finds an unreasonable rate of
increase to not be justified as inadequate.
COMMENTS
1. Assembly amendments
As previously passed by the Senate, this bill required
health plans and insurers to give 180 days written notice
of changes in the premium rate or coverage before such
change takes effect. The Assembly amendments shorten
this timeframe to 60 days. In addition, the Assembly
amendments make other changes, including deleting
provisions that would have required health plans and
insurers to provide data and demographic information on
individual and large group denials of coverage. The
Assembly amendments add the rate filing provisions
described in the bill summary above.
PRIOR ACTIONS
Senate Health: 5-0
Senate Appropriations:7-3
Senate Floor: 23-12
Assembly Health 15-1
Assembly Appropriations: 12-5
Assembly Floor: 56-21
POSITIONS
Support: Health Access California (sponsor)
Prior version:
Alliance of Californians for Community Empowerment
American Federal of State, County and Municipal Employees
California Pan-Ethnic Health Network
Consumers Union
Congress of California Seniors
California Chiropractic Association
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California Retired Teachers Association
California Teachers Association
Oppose: Consumer Watchdog (unless amended)
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