BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1800
AUTHOR: Ma
AMENDED: May 25, 2012
HEARING DATE: June 20, 2012
CONSULTANT: Trueworthy
SUBJECT : Health care coverage.
SUMMARY : Requires a health care service plan contract and a
health insurance policy, except for a specialized health care
service plan contract, to provide a limit on annual
out-of-pocket expenses for all covered benefits.
Existing law:
1.Provides for regulation of health insurers by the California
Department of Insurance (CDI) under the Insurance Code, and
provides for the regulation of health plans (collectively
referred to as carriers) by the Department of Managed Health
Care (DMHC), pursuant to the Knox-Keene Health Care Service
Plan Act of 1975 (Knox-Keene Act).
2.Requires carriers to provide certain benefits, but generally
does not require carriers to cover prescription drugs.
Establishes various requirements on carriers if they do offer
prescription drug coverage.
3.Establishes the Patient Protection Affordability Care Act
(ACA), which imposes various requirements, some of which take
effect on January 1, 2014, on states, carriers, employers, and
individuals regarding health care coverage.
4.Establishes the California Health Benefit Exchange (Exchange),
pursuant to the ACA, to facilitate the purchase of qualified
health plans (QHPs) by qualified individuals and qualified
small employers by January 1, 2014.
5.Prohibits all carriers from setting lifetime limits. Prohibits
"restricted annual limits" on coverage through 2013, subject
to oversight by the Secretary of the federal Department of
Health and Human Services (HHS), with no annual limits allowed
starting in 2014 to new plans in the individual market, and
all new and existing group plans, excluding self-insured
plans.
Continued---
AB 1800 | Page 2
6.Requires, under the ACA, carriers that offer coverage in the
small group or individual market to ensure coverage includes
essential health benefits (EHBs), as defined. Provides that
the EHB package will be determined by the federal Department
of HHS Secretary and must include, at a minimum, ambulatory
patient services; emergency services; hospitalizations; and
prescription drugs, among other things. Requires issuers to
reduce cost sharing on EHB for individuals with a household
income of 400 percent of the federal poverty level (FPL) or
below, who enrolls in a silver-level QHP in the individual
market or through the Exchange.
7.Defines, under the Knox-Keene Act, basic health care services
as:
a. Physician services, including consultation and referral;
b. Hospital inpatient service and ambulatory care services;
c. Diagnostic laboratory and diagnostic and therapeutic
radiologic services;
d. Home health services;
e. Preventive health services;
f. Emergency health care services, including ambulance and
ambulance transport services and out-of-area coverage; and
g. Hospice care, as specified.
8.Requires a health plan contract to provide to subscribers and
enrollees basic health care services, as specified, except
that the DMHC Director may, for good cause, by rule or order,
exempt a plan contract or any class of plan contracts from
that requirement. Requires the DMHC Director to define the
scope of each basic health care service that health care
service plans are required to provide as a minimum for
licensure. Provides that a health plan is not prohibited from
charging subscribers or enrollees a copayment or deductible
for a basic health care service or from setting forth, by
contract, limitations on maximum coverage of basic health care
services, provided that the copayments, deductibles, or
limitations are reported to, and held unobjectionable by, the
DMHC Director.
This bill:
1.Requires a health care service plan contract and a health
insurance policy, except for a specialized health care service
plan contract, that is issued, amended, or renewed on or after
January 1, 2014, to provide a limit on annual out-of-pocket
expenses for all covered benefits.
AB 1800 | Page
3
2.Requires the limit to apply to any copayment, coinsurance,
deductible, and any other form of cost sharing for any covered
benefits, including prescription drugs, if covered.
3.Requires the limit not to exceed the limit set forth in the
ACA and any subsequent rules, regulations, or guidance issued.
4.Prohibits anything under this section from being construed as
to affect the reduction in cost sharing for eligible insureds
described in the ACA and any subsequent rules, regulations, or
guidance issued.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor costs, potentially in the range of $50,000 to
DMHC to modify regulations related to drug exclusions, workload
costs to DMHC and CDI of $100,000, combined, to ensure plan
filings reflect these changes. CalPERS, Medi-Cal, Healthy
Families, and other state-administered health plans already
comply with the requirements of this bill related to
out-of-pocket maximums, so no fiscal impact is expected from
this provision.
PRIOR VOTES :
Assembly Health: 13- 6
Assembly Appropriations:11- 6
Assembly Floor: 46- 27
COMMENTS :
1.Author's statement. Despite having health insurance, millions
of Californians still have excessive medical expenses that
they pay out of their own pocket. People with chronic health
conditions need frequent and sometimes expensive care.
Unfortunately, there is no limit on how much an insured
patient is charged. Some health plans pass along tens of
thousands of dollars in costs to their insured patients by
limiting shared costs on their insurance products. This
occurs when patients reach the deductible limit set by their
insurance company, and are forced to make a desperate choice
between paying for necessary medical care or their mortgage,
groceries, or children's education.
AB 1800 | Page 4
AB 1800 clarifies California health plans have one annual
capped deductible, which includes all out-of-pocket (OOP)
costs for covered benefits. The OOP cap will include consumer
costs for hospitalization, physician visits, prescription
drugs, co-payments, deductibles, and any other form of cost
sharing the patient must pay for out of their own pocket.
This provides transparency so patients will know each year the
maximum they will be expected to pay for their health coverage
and benefits. AB 1800 is not a benefit mandate; it simply
aligns plans that already cover these expensive medications
with federal health care reform so patients are not paying
exorbitant amounts monthly for medications they need.
2.Background. On March 23, 2010, President Obama signed the ACA
(Public Law
111-148), as amended by the Health Care and Education
Reconciliation Act of 2010 (Public Law 111-152). Regarding the
private health insurance market, the ACA primarily
restructures the individual and small group markets, setting
minimum standards for health coverage, providing financial
assistance to individuals with income below 400 percent of the
FPLl, including reduced cost sharing, tax credits for small
employers, and the establishment of Health Benefit Exchanges
and EHBs that are required to be offered by QHPs.
Beginning in 2014, QHPs will be required to offer coverage at
one of four levels: bronze, silver, gold, or platinum.
Levels will be based on a specified share of full actuarial
value of the EHBs. These plans will be prohibited from
imposing an annual cost-sharing limit that exceeds the
thresholds applicable to Health Saving Account (HSA)-qualified
High Deductible Health Plans (HDHPs).
AB 1800 | Page
5
In 2013, the annual out-of-pocket maximum will be $6,050 for
an individual and $12,100 for family coverage. Catastrophic
plans are also permitted only in the individual market for
young adults (under age 30) and for those persons exempt from
the individual mandate, but catastrophic plans must cover EHBs
and have deductibles equal to the amounts specified as
out-of-pocket limits for HSA-qualified HDHPs.
3.Essential health benefits. Effective January 1, 2014, federal
law requires Medicaid benchmark and benchmark-equivalent
plans, plans sold through the Exchange, and health plans and
health insurers providing coverage to individuals and small
employers to ensure coverage of EHBs. EHBs must include 10
general categories and the items and services covered within
the following categories:
� Ambulatory patient services;
� Emergency services;
� Hospitalization;
� Maternity and newborn care;
� Mental health and substance use disorder
services, including behavioral health treatment;
� Prescription drugs;
� Rehabilitative and habilitative services and
devices;
� Laboratory services;
� Preventive and wellness services and chronic
disease management; and
� Pediatric services, including oral and vision
care.
On December 16, 2011, the HHS Center for Consumer Information
and Insurance Oversight released an EHB Bulletin proposing
that EHBs be defined using a benchmark approach. States are
given the option of selecting from specified benchmark health
insurance plans.
1.Cost sharing. Cost sharing may include copayments,
coinsurance, and/or deductibles. Copayments are a form of
cost sharing in which a health plan enrollee pays a specific
amount out-of-pocket at the time of receiving a health care
service or when paying for a prescription, after any
applicable deductible. Coinsurance is the percentage of
AB 1800 | Page 6
covered health care costs for which a health plan enrollee
is responsible, after any applicable deductible. Deductibles
are a fixed dollar amount an enrollee is required to pay
out-of-pocket within a given time period before
reimbursement begins for eligible health care services.
Some individuals with income under 400 percent of the FPL
will receive refundable tax credits toward the purchase of
QHPs. The payment will go directly to the insurer and will
reduce the premium liability for that individual. Those who
qualify for premium credits and are enrolled in an exchange
plan at the silver tier beginning in 2014 will also be
eligible for assistance in paying any required cost-sharing
for their health services. Cost sharing subsidies will
further reduce those out-of-pocket maximums for qualifying
individuals.
2.Families USA Report. A February 2011 Families USA report
found that, in 2011, an estimated 1.9 million Californians are
in families that will have out-of-pocket spending, for
essential benefits, that exceeds the caps the ACA puts into
place. The total amount by which this spending will exceed the
new caps is more than $3.0 billion. The report identifies 71.5
percent of the Californians who will spend more than the
out-of-pocket caps are in working families and 1.4 million
Californians who will spend more than the out-of-pocket caps
are in families where at least one person is employed full- or
part-time. The report concludes that the ACA creates new
out-of-pocket caps that will protect California families from
catastrophic health care costs. These new caps guarantee that
consumers will not have to pay more out-of- pocket for covered
services than a set amount each year, thereby limiting
deductibles, copayments, and co-insurance.
3.California Health Benefits Review Program (CHBRP). AB 1996
(Thomson), Chapter 795, Statutes of 2002, requests the
University of California to assess legislation proposing a
mandated benefit or service and prepare a written analysis
with relevant data on the medical, economic, and public
health impacts of proposed health plan and health insurance
benefit mandate legislation. CHBRP was created in response
to AB 1996, and SB 1704 (Kuehl), Chapter 684, Statutes of
2006, extended CHBRP for four additional years. CHBRP
indicates this bill is not a conventionally defined benefit
mandate because it does not mandate coverage of specific
treatments and services. This bill impacts the terms and
AB 1800 | Page
7
conditions of coverage of plans and policies. CHBRP has
adjusted the analysis regarding medical effectiveness, cost,
and public health impacts to address the requirements of
this bill.
a. Medical effectiveness. In general, studies of the
effects of cost sharing on privately insured, nonelderly
adults, the population to which this bill would apply, have
found that: persons who face higher cost sharing for a
particular type of health care service use less of that
service than persons who face lower cost sharing, persons
who face higher cost sharing reduce use of both essential
and non-essential health care services, and cost sharing
has stronger effects on the use of health care by
low-income persons than high-income persons. There were no
relevant studies on annual out-of-pocket maximums. With
regard to deductibles, persons enrolled in HDHPs were as
likely to fill any prescriptions as persons enrolled in
PPOs, the preponderance of evidence from two studies
suggest that persons enrolled in HDHPs are more likely than
persons enrolled in PPOs to discontinue use of some classes
of prescription drugs for chronic conditions, and persons
enrolled in HDHPs are less likely than persons enrolled in
PPOs to be adherent to daily prescription drug therapy for
some chronic conditions.
b. Coverage impacts. This bill affects the health
insurance of approximately 21.66 million people. Of that,
3.3 percent (714,780) would have their cost sharing reduced
as a result of the annual out-of-pocket maximum, and 63.89
percent of enrollees (13,838,620) have coverage that is not
compliant with this bill. Among the enrollees with
outpatient prescription benefits, 61 percent of enrollees
(13,220,970) have an annual out-of-pocket maximum, but
prescription drugs are excluded from the annual
out-of-pocket maximum. Public coverage would not be
impacted by this bill because they are already compliant.
Additionally, 5,151 enrollees are estimated by CHBRP to
become uninsured because of premium increases resulting
from this bill.
c. Utilization impacts. CHBRP projects no overall change
in the number of users of health care services after the
increase in the number of uninsured is taken into
consideration. However, CHBRP estimates an increase in
AB 1800 | Page 8
utilization by users as a result of the decrease in
enrollee out-of-pocket cost sharing expense. This increase
in utilization by existing users would result in costs
being shifted from enrollees to plans and policies. CHBRP
estimates that the total medical cost per user paid by a
plan or policy would increase by 1 percent and the total
medical cost per enrollee would decrease by 3 percent.
d. Cost impacts. Total net expenditures would increase by
$246.5 million and enrollee out-of-pocket expenditures are
likely to decrease by $275.5 million. Total premium
expenditure by private employers for group insurance is
expected to increase by $361.14 million or .6 percent and
$72.76 million or .95 percent for individual insurance. The
average portion of the premium paid by the employers in
large group market would increase by $1.77 and $5.55 per
member per month (PMPM) and, in the small group market, the
increase would be $.96 and $6.41, respectively. The higher
PMPM increases apply to CDI-regulated products. The major
impact would be to shift some of the out-of-pocket expenses
from enrollees to plans or policies and to the purchasers.
e. Public health impacts. The ability to estimate public
health impact is limited. However, there is a preponderance
of evidence showing that cost sharing in general is
associated with reduced utilization and treatment adherence
and poorer clinical outcomes. There may be a public health
impact by reducing the financial burden on enrollees that
currently have an annual out-of-pocket maximum, but the
increases in premiums for CDI-regulated large-group,
small-group, and individual market are likely to result
from this bill and will lead to loss of insurance for an
estimated 5,151 individuals. In general, due to the lack of
data, the effects of many of the requirements and the
magnitude of the public health impact are unknown.
4.Related legislation. SB 951 (Hernandez) selects the Kaiser
Small Group HMO as California's benchmark plan to define EHB.
The Kaiser Small Group HMO covers all state mandates and will
ensure the state does not defray additional costs. SB 951 is
currently pending before the Assembly Health Committee.
AB 1453 (Monning) is nearly identical to SB 951. AB 1453 is
currently pending before the Senate Health Committee.
5.Prior legislation. AB 310 (Ma) of 2011 would have prohibited
AB 1800 | Page
9
health plan contracts and health insurance policies that cover
outpatient prescription drugs from requiring coinsurance, as
defined, as a basis for cost sharing for outpatient
prescription drug benefits and would have imposed specified
limitations on copayments, as defined, and out-of-pocket
expenses for outpatient prescription drugs. AB 2011 was held
in Assembly Appropriations Committee.
SB 51 (Alquist) Chapter 644, Statutes of 2011, established
enforcement authority in California law to implement
provisions of the ACA related to medical loss ratio
requirements on health plan and health insurers and
prohibitions on annual and lifetime benefits.
SB 961 (Wright) of 2010 would have required a health plan
contract or health insurance policy that provides coverage for
cancer chemotherapy treatment to establish limits on enrollee
out-of-pocket costs for prescribed, orally administered,
nongeneric cancer medication. SB 961 was vetoed by the
Governor Schwarzenegger. In his veto message, he indicated
that his concerns about adding costs to our increasingly
expensive health insurance premiums had not been addressed and
that SB 961 is unnecessary in light of the provisions of the
federal health reform act that will take effect on January 1,
2014, and will cap out-of-pocket costs for both individuals
and families.
SB 900 (Alquist), Chapter 659, Statutes of 2011 and AB 1602
(Perez), Chapter 655, Statutes of 2011 established the
California Health Benefit Exchange.
AB 2170 (Bonnie Lowenthal) of 2010 would have prohibited
health plans and health insurers that cover prescription drugs
and use a formulary from increasing applicable copayments or
deductibles for prescription drugs for the length of the
contract, including, but not limited to, during an open
enrollment period. AB 2170 died on the Assembly Appropriations
Committee Suspense File.
SB 161 (Wright) of 2009 would have required a health plan
contract or health insurance policy issued, amended, or
renewed after January 1, 2010, that provides coverage for
cancer chemotherapy treatment, to provide coverage for an
orally administered cancer medication no less favorably than
intravenously administered or injected cancer medications
AB 1800 | Page 10
covered under the contract or policy. In his veto message,
Governor Schwarzenegger stated, "For those patients fortunate
enough to have health coverage in today's economic
environment, health plans already provide coverage for oral
anticancer medications. This bill limits a plan's ability to
control both the appropriateness of the care and the cost by
requiring them to immediately cover every medication as soon
as it receives federal approval regardless of the provisions
of the health plan's formulary placing them at a severe
disadvantage when negotiating prices with drug manufacturers.
I do believe that oral anticancer medications can be more
cost-effective and efficacious in some instances. If there is
a way to provide greater access without increasing overall
costs, I would be willing to reconsider such a measure next
year. I would encourage a collaborative approach with my
Administration, the health plans, and the pharmaceutical
manufacturers next year on this topic."
AB 2052 (Goldberg), Chapter 336, Statutes of 2002, prohibits
health plans and health insurers from making any change in
premium rates or cost sharing after acceptance of a contract
or policy or after the annual open enrollment period.
AB 974 (Gallegos), Chapter 68, Statutes of 1998, prohibits
health plans from limiting coverage for a drug that had
previously been approved by the plan and requires specified
disclosures regarding the use and contents of drug
formularies.
6.Support. Health Access California, a co-sponsor of AB 1800
writes that today Californians face out-of-pocket medical
expenses of hundreds of thousands of dollars for covered
benefits. Health Access California argues this bill will help
protect more than 10 million Californians from catastrophic
out-of-pocket costs. The Advocacy for Patients with Chronic
Illness writes that AB 1800 is needed so consumers will know
the maximum they will be expected to pay for their health
coverage and benefits each year. The Association of Northern
California Oncologists writes that due to the expensive nature
of cancer treatment, patients rely on the consistency and
affordability of their health insurance to help pay for their
treatment. A cancer's patient out-of-pocket expenses can
create an impediment to accessing vital therapies. Western
Center on Law and Poverty supports AB 1800 saying it closes
the loophole that allows plans to provide prescriptions under
a different deductible and copay system. The National Multiple
AB 1800 | Page
11
Sclerosis Society, also a co-sponsor of AB 1800, writes that
this bill will help people living with MS, who are frequent
users of the health care system, rely on important but
expensive medicines and who are struggling with rising
out-of-pocket health care costs.
7.Opposition. The California Association of Health Plans (CAHP)
is opposed unless amended arguing AB 1800 applies the federal
outofpocket limits to all covered benefits, including benefits
covered or offered by large employers that are different than
the EHBs selected by California, going farther than the ACA.
CAHP argues that unless properly amended, AB 1800 can have the
unintend8.ed consequence of increasing costs for large
employers that provide affordable coverage to their workers
through innovative benefit design. The California Association
of Life & Health Insurance Companies writes in opposition that
AB 1800 deviates from the ACA by limiting flexibility that
exists under federal guidelines for insurers to have two
separate deductibles - one for prescription drugs and one for
medical benefits. Opponents argue that because AB 1800 does
not make its provisions contingent upon the survival of the
federal ACA this will lead to higher costs and less access to
care.
9.Amendments.
a. Does the author wish to clarify the term "all covered
benefits" to mean benefits and services defined by EHB?
b. SB 1800 currently conflicts with SB 951 (Hernandez) and
AB 1453 (Monning). The author may wish to change the new
section number to avoid this conflict.
SUPPORT AND OPPOSITION :
Support: Health Access: California (co-sponsor)
National Multiple Sclerosis Society (co-sponsor)
Advocacy for Patients with Chronic Illness, Inc.
Alliance for Biotherapeutics
American Cancer Society
American Federation of State, County and Municipal
Employees, AFL-CIO
Association of Northern California Oncologists
BIOCOM
California Arthritis Foundation Council
California Black Chamber of Commerce
California Communities United Institute
AB 1800 | Page 12
California Conference Board of Amalgamated Transit
Union
California Conference of Machinists
California Family Health Council
California Neurology Society
California Pan-Ethnic Health Network
California Psychological Association
California Teamsters Public Affairs Council
California Urological Association
Community Healthcare Services
Congress of California Seniors
Crohn's and Colitis Foundation of America
Engineers and Scientists of California
Familia Unida
For Grace
International Longshore & Warehouse Union
Lupus Foundation of Southern California
Medical Oncology Association of Southern California,
Inc.
Mental Health America of California
National Association of Social Workers - California
Chapter
Neuropathy Action Foundation
Professional & Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers Union, Western
States Council
Western Center on Law and Poverty
Two individuals
Oppose: America's Health Insurance Plans (unless amended)
Association of California Life and Health Insurance
Companies
California Association of Health Plans (unless
amended)
California Association of Health Underwriters (unless
amended)
California Chamber of Commerce
CVS Caremark (unless amended)
-- END --