BILL ANALYSIS �
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 151
A
AUTHOR: Monning
B
AMENDED: As Introduced
HEARING DATE: June 22, 2011
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CONSULTANT:
5
Chan-Sawin
1
SUBJECT
Medicare supplement coverage
SUMMARY
Requires health care service plans (health plans) and
health insurers offering Medicare supplement coverage
(Medigap policies) to issue coverage for a Medigap policy
on a guaranteed issue basis to an individual enrolled in a
Medicare Advantage (MA) plan issued by the same issuer if
there is an increase in the enrollee's premium. Requires
all health plans and insurers offering Medigap policies to
issue such coverage on a guaranteed issue basis to an
individual enrolled in a MA plan offered by a different
health plan or insurer under specified circumstances.
Makes technical changes to the requirements and standards
that apply to Medigap policies, for the purpose of
complying with recent changes in federal law.
CHANGES TO EXISTING LAW
Existing federal law:
Establishes the Medicare program as a
government-administered health insurance program for people
age 65 or older and certain people younger than age 65,
such as those with disabilities and those with permanent
Continued---
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kidney failure.
Requires states, under the Medicare Improvements for
Patients and Providers Act of 2008 (MIPPA), to adopt
changes to Medigap policies, as outlined in the model
regulations developed by the National Association of
Insurance Commissioners (NAIC). MIPPA reduces the number
of standardized Medigap policies from 14 to 11, and makes
other changes to benefit and cost-sharing requirements, and
disclosure and issuance requirements.
Establishes the federal Patient Protection and Affordable
Care Act (Public Law 111-148) (PPACA), which, among other
things, makes a number of changes to the payment structures
and payment methodologies for MA plans intended to reduce
federal payments to MA plans.
Requires, beginning January 1, 2014, each health plan or
insurer that offers health insurance coverage in the
individual or group market to accept every employer and
adult that applies for such coverage. (This requirement is
known as "guaranteed issue.") Also requires health plans
and insurers to provide guaranteed issue of health coverage
for children beginning September 2010.
Allows a health plan or insurer to restrict enrollment in
coverage to open or special enrollment periods.
Additionally, a health insurance issuer must establish
special enrollment periods for qualifying events, pursuant
to regulations promulgated by the federal Secretary of the
Department of Health and Human Services (DHHS).
Makes changes to the categories of Medigap policies,
including:
Eliminating Medigap policies with drug coverage
that were no longer needed after the enactment of
Medicare Part D, as well those with little enrollment,
largely due to high cost-sharing (Medigap plans H, I,
and J); and
Adding two new Medigap policies that include some
level of cost sharing to provide lower cost options
(Medigap plans M and N).
Existing state law:
Provides for the regulation of health plans by the
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Department of Managed Health Care (DMHC), and for the
regulation of health insurers by the Department of
Insurance (CDI).
Establishes standards for Medigap policies sold in
California, which provide Medicare beneficiaries who are
not enrolled in a MA plan with coverage for benefits and
cost-sharing that is not covered by Medicare. Medigap
policies are subject to the jurisdiction of either DMHC or
CDI, depending on the type of policy, in a manner generally
consistent with federal laws applicable to Medigap
policies, and are subject to benefit and cost-sharing
requirements for 11 standardized benefit plans, open
enrollment and guaranteed issue requirements, and specified
notice and disclosure requirements pertaining to Medigap
applicants and enrollees.
Requires Medigap coverage to be issued on a guaranteed
issue basis to an individual who is enrolled in a MA plan
that reduces any of its benefits, increases cost sharing or
premiums, or terminates certain relationships with
providers, for Medigap coverage that is issued by the same
issuer or by a subsidiary of, or a network that contracts
with, the parent company of that issuer.
Requires health plans and insurers that issue Medicare
supplement contracts or policies, as defined, to make
available to specified individuals who are 64 years of age
or younger and who do not have end-stage renal disease
(ESRD), specified Medicare supplement benefit plans.
This bill:
Requires Medigap policies to be issued on a guaranteed
issue basis to an individual enrolled in a MA plan for
Medigap coverage by the same issuer of the MA plan if there
is an increase in his/her premium.
Requires guaranteed issue of Medigap coverage to an
individual who is enrolled in a MA plan from any issuer if
his/her MA plan issuer, a subsidiary of the parent company
of the issuer, or a network that contracts with the parent
company of the issuer does not offer supplement plans and
any of the following occur:
A reduction in benefits;
An increase in cost sharing;
An increase in premiums; or
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A discontinuation of the relationship or contract
under the plan with a provider who is currently
furnishing services to the individual, for other than
good cause relating to quality of care.
Makes technical changes to conform state law with federal
requirements that:
Eliminate Medigap policies with drug coverage that
were no longer needed after the enactment of Medicare
Part D, as well those with little enrollment, largely
due to high cost sharing (Medigap plans H, I, and J);
and
Add two new Medigap policies that include some
level of cost sharing to provide lower cost options
(Medigap plans M and N).
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, there will be minor and absorbable costs to DMHC
and CDI to continue oversight of MA and Medigap plans.
BACKGROUND AND DISCUSSION
According to the author, the recent federal health reform
law, among other things, will begin to reduce federal
payments to MA plans beginning in 2012. MA plans have been
paid about 13 percent more than the amount paid for
coverage in the Medicare fee-for-service (FFS) program, a
payment level that will be reduced under a complex formula.
This subsidy has enabled MA plans in different geographic
areas to provide coverage or benefits that would not have
been possible without the additional payment. The author
asserts that, in some cases, this has meant that plans
offer coverage in higher costs areas that they would
otherwise have shunned. In other cases, this has meant
that plans offered additional benefits that would not
otherwise have been offered. The new formula will provide
a lower payment level to these MA plans, but will provide
additional payments to high performing plans.
The author argues that, due to the changes in federal
payment policies, many Medicare enrollees will face a
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different choice than when they originally selected a MA
plan and that this bill will ensure that all Medicare
recipients in a MA plan facing increased costs or reduced
benefits have the option to enroll in the Medicare FFS
program and purchase a Medigap plan to help cover the costs
of coinsurance, copayments, and deductibles.
Medicare
Medicare is the federal health insurance program that
provides payment for certain medical expenses for most
people age 65 and older, certain disabled people under age
65, and people of all ages with end-stage renal disease
(permanent kidney failure treated with dialysis or a
transplant). Medicare is the nation's largest health
insurance program, covering over 46.5 million Americans in
2010, 4.6 million of them in California. Beneficiaries
have choices as to how to access benefits provided through
four Medicare benefit programs:
Part A: The "hospital insurance program" covers
inpatient care in hospitals, skilled nursing facilities
after a hospital stay, and religious nonmedical health
care institutions. Part A also helps cover hospice
services and home health care services. Most people are
automatically enrolled in Part A with no premium.
Part B: Complementing Part A, Part B covers outpatient
services, including physicians' services, and home health
care and preventive services, as well as equipment and
supplies, such as prosthetic devices. Part B is optional
and premiums are based on income. Coinsurance for Part B
is generally 20 percent of the Medicare-approved amount
for the service, but the beneficiary may also be subject
to "excess charges," or charges above the Medicare rate
from physicians or suppliers who don't accept the
Medicare rate.
Part C: Part C, also known as Medicare Advantage, refers
to Medicare-approved managed care plans (PPOs and HMOs)
that provide Part A and B benefits to enrollees. In
addition to providing Part A and Part B services, MA
plans usually provide other coverage such as Medicare
prescription drug coverage (Part D), sometimes for an
extra cost. In 2010, roughly 1.7 million of the 4.6
million Medicare beneficiaries in California were in a
Medicare Advantage plan.
Part D: The "voluntary prescription drug benefit
program" covers outpatient prescription drugs not
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otherwise covered by Part B.
Under ''original Medicare'' or Medicare FFS, beneficiaries
receive their Part A and Part B benefits directly from the
federal government through a fee-for-service system, with
the exception of prescription drug benefits, which
beneficiaries can purchase from private insurance companies
offering Part D prescription drug plans. Alternatively,
individuals can choose to receive Medicare benefits,
including prescription drug benefits, through a Part C
Medicare Advantage plan.
Medigap policies
While original Medicare provides extensive benefits, it is
not designed to cover the total cost of medical care for
Medicare beneficiaries. The percentage of out-of-pocket
health care expenses for Medicare beneficiaries can be
sizable and typically increases with age. As the Medicare
FFS program pays only 80 percent of approved charges for
doctor and outpatient services, these coverage gaps can be
substantial. Many people who do not have coverage from a
current or previous employer that covers these gaps choose
to get some type of additional coverage to pay some of the
costs not covered by original Medicare, such as
coinsurance, copayments, and deductibles. A Medigap policy
is a health insurance policy sold by private insurance
companies specifically to fill "gaps" in original Medicare
coverage. A Medigap policy typically provides coverage for
some or all of the deductible and coinsurance amounts
applicable to Medicare-covered services, and sometimes
covers items and services that are not covered by Medicare.
By law, health plans and insurers can offer only 10
standardized Medigap benefit packages, referred to as
Medigap plans A through N (plans A, B, C, D, F, G, K, L, M
and N. All must offer the core benefits listed below:
Coinsurance for 61 to 90 hospital days ($283 per
day in 2011) and coinsurance for the 60 lifetime
reserve days ($566 per day in 2011);
100 percent of the cost of hospital care beyond 150
days covered by Medicare, up to a maximum of 365
lifetime days;
Cost sharing for hospice care;
20 percent coinsurance of Medicare-approved
charges, after the $162 annual Part B Medicare
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deductible has been met; and
The first 3 pints of blood in each calendar year.
Some plans may also cover other health care costs that
Medicare doesn't cover, such as foreign travel emergency
medical care.
Medigap policies are "guaranteed issue" at certain times
for eligible beneficiaries as specified in state and
federal law. For example, at the point where an individual
first becomes eligible for Medicare there is an "open
enrollment" period where they can purchase any Medigap
policy without medical underwriting. Beneficiaries are
also guaranteed coverage when certain events occur, such as
losing access to employer-sponsored Medigap coverage,
losing access to a MA plan, or deciding within 12 months of
initially enrolling in a MA plan to instead enroll in
Medicare FFS. There is also a limited right to purchase a
Medigap policy on a guaranteed issue basis if the MA plan
reduces benefits, increases cost sharing, or changes the
network such that the individual no longer has access to a
current medical provider. In these cases, a person can
purchase a Medigap policy if one is available from the same
company or a related company.
Unless eligible for open enrollment or guaranteed issue,
Medicare beneficiaries wishing to purchase Medigap coverage
or change plans are subject to medical underwriting, and
can be denied coverage based on their health status or
claims experience. Medigap policies are guaranteed
renewable as long as the premium is paid and, generally
speaking, cannot be cancelled because of a person's health
condition or for any reason other than non-payment of the
premium. Insurers can, however, at their discretion,
increase the premiums for Medigap coverage.
In June 2010, the array of standardized Medigap plans
changed after a congressionally mandated review by NAIC.
(NAIC represents state insurance regulators and develops
and publishes model insurance laws and regulations.) These
changes eliminated Medigap policies with drug coverage that
were no longer needed after the enactment of Medicare Part
D, as well as others that had little enrollment, largely
due to high cost sharing. Some plans were modified and two
new plans were added that include some level of cost
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sharing in an attempt to provide lower cost options.
Prior legislation
AB 1543 (Jones and Fletcher), Chapter 10, Statutes of 2009,
makes conforming changes to the requirements and standards
that apply to Medigap policies for the purpose of complying
with federal law changes established in MIPPA, which
reduced from 14 to 11 the number of standardized Medigap
policies, makes other changes to Medigap coverage including
changes to benefit and cost sharing requirements, and makes
changes to disclosure and issuance requirements.
SB 375 (Speier), Chapter 206, Statutes of 2005, makes
certain changes to California's Medicare Supplement
coverage provisions to conform with the federal Medicare
Prescription Drug, Improvement, and Modernization Act of
2003. Expands, as of January 1, 2007, eligibility
requirements for Medigap coverage including the expansion
of open enrollment to certain individuals who lose Medi-Cal
eligibility, and to individuals in MA plans whose benefits
are reduced. Prohibits policy issuers from requesting
health information from an applicant who is guaranteed
issuance of coverage.
SB 1531 (Speier), Chapter 555, Statutes of 2002, allows a
Medicare beneficiary to obtain a Medigap policy on a
guaranteed issue basis if a MA plan reduces its benefits,
increases the cost sharing amount, or discontinues for
other than good cause relating to the quality of care, a
provider currently furnishing services to the individual.
SB 1814 (Speier), Chapter 707, Statutes of 2000, among
other things, requires the Insurance Commissioner to
annually prepare a rate guide which provides information on
all the Medicare supplement insurance policies and
contracts which are sold in California.
SB 764 (Speier), Chapter 706, Statutes of 2000, makes
conforming changes in state law with federal laws governing
Medicare supplement policies.
Arguments in support
AARP, the sponsor of AB 151, writes that the PPACA will
reduce federal subsidies to MA plans starting next year
and, as a result, plans can be expected to reduce benefits,
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increase premiums and/or cost sharing, and perhaps withdraw
from areas they now serve. AARP states that, in any case,
consumers will undoubtedly see a different array of plan
offerings, and should have the option to continue with the
MA plan or to switch to original Medicare and purchase a
supplemental policy to cover the gaps in coverage.
California Health Advocates (CHA) writes that state law
reflects the changing circumstances as people age. Current
law provides a guaranteed right to a Medigap policy if a
health plan drops the treating provider from the plan's
network or increases copayments. However, a Medicare
beneficiary can only exercise those rights during their
annual open enrollment period, and then only if their MA
plan also issues Medigap coverage, which some companies
providing MA plans do not. CHA states that current law
does not allow beneficiaries the right to a Medigap policy
if the premium for their MA plan goes up, and that this
bill would add that right to existing rights, and remove
the restriction that limits them to the same company
issuing the MA plan.
Health Access California states that seniors who rely on
Medicare expect to be able to obtain Medigap coverage when
there is a change in other Medicare coverage. The Congress
of California Seniors writes that this bill will increase
fairness for seniors eligible for Medicare. The
Alzheimer's Association, California Council writes that
this bill will enable consumers to purchase coverage in
order to ensure they can pay for their vital hospital and
physician visits, medications, and preventative services.
The American Federation of State, County and Municipal
Employees (AFSCME) states that it is vital that seniors
receive the health care they deserve regardless of
pre-existing medical conditions, and that AB 151
facilitates the enrollment into the adequate health care
policy that suits a senior's particular needs. The
California Primary Care Association writes that this bill
will make Medicare prescriptions more affordable and
provide increased access to preventive care, and that
community clinics and health centers will be better able to
provide care to this population.
Arguments in opposition
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The America's Health Insurance Plans (AHIP) writes that
this bill would allow beneficiaries to game the system by
switching into and out of coverage according to their
changing medical needs. AHIP contends that, in effect,
they would make Medigap the insurer of last resort, eroding
the essential incentives to purchase insurance before it is
needed and hold it over time. AHIP further points out that
AB 151 is troublesome because there is no standards
regarding how much of an increase would trigger these new
guarantee issue opportunities, and no other state or
federal government has implemented similar provisions.
The Association of California Life and Health Insurance
Companies (ACLHIC) states that because Medigap policies are
significantly more expensive than MA plans, they believe
there would be little incentive to switch to a supplement
plan unless there was a perceived benefit to the insured,
such as utilizing medical services in a more broad
provider/facility network. ACLHIC states that shifting
risk to Medigap policies will lead to higher premiums for
these products, and make them a less affordable option for
those who choose to supplement their Medicare coverage
through an insurance plan rather than enroll in a MA plan.
The California Association of Health Plans states that this
bill is disruptive because there is no standard on how much
of a premium increase would trigger these broad new
guaranteed issue opportunities.
PRIOR ACTIONS
Assembly Health: 14- 4
Assembly Appropriations:12- 5
Assembly Floor: 49- 25
COMMENTS
1. Author's amendments to be taken in committee. The
author plans to offer amendments in committee to address
concerns raised by the opposition pertaining to adverse
selection. The amendments would establish a threshold for
a change in the premium or cost sharing levels that would
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need to be met before MA plan enrollees may switch to
another carrier for Medigap coverage on a guaranteed issue
basis. Under the amendment, MA plan enrollees must have a
15 percent increase in premiums or copayments to be able to
switch to a Medigap plan offered by another carrier without
undergoing medical underwriting. The amendments would also
provide that these switches must be concurrent with the
annual open enrollment period for the MA plan, unless the
MA plan has discontinued its relationship with the
enrollee's current provider. The amendments also clarify
that these provisions do not allow an individual to enroll
in a group Medigap policy if the individual does not meet
the eligibility requirements for the group.
2. Adverse selection. Health plans and insurers raise
concerns that allowing Medicare beneficiaries to obtain a
Medigap policy from a different health plan or insurer than
the one which provided their MA coverage may lead to
adverse selection. Adverse selection occurs when less
healthy and higher-cost individuals disproportionately
enroll in particular health insurance products. It is
unclear to what extent Medicare beneficiaries would choose
to switch policies and insurers, and it is also unclear to
what extent such an occurrence would lead to adverse
selection. However, it is possible that adverse selection
could occur. The author may wish to require reporting of
such events by plans and insurers to state regulators to
determine the extent that such adverse selection occurs and
its impact.
3. Risk adjustment may help with adverse selection issues.
PPACA requires states to risk adjust across all insurance
products in and outside of state health benefit exchanges,
and also requires risk adjustment of MA plans in 2014.
Under risk adjustment, payments are increased to insurers
that enroll higher numbers of sicker or older enrollees.
It is unclear if Medigap policies will be included in these
requirements. If risk adjustment across Medigap policies
is required, it should reduce the risk of adverse selection
associated with people switching from MA policies to
Medigap policies.
POSITIONS
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Support:AARP (sponsor)
Alzheimer's Association, California Council
American Federation of State, County and Municipal
Employees
California Alliance of Retired Americans
California Association of Health Underwriters
California Department of Insurance
California Health Advocates
California Primary Care Association
Congress of California Seniors
Health Access California
Oppose:America's Health Insurance Plans
Association of California Life and Health Insurance
Companies
California Association of Health Plans
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