BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1846|
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THIRD READING
Bill No: AB 1846
Author: Gordon (D)
Amended: 6/28/12 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 5-3, 6/13/12
AYES: Calderon, Corbett, Correa, Lieu, Lowenthal
NOES: Gaines, Anderson, Wyland
NO VOTE RECORDED: Price
SENATE HEALTH COMMITTEE : 5-3, 6/20/12
AYES: Hernandez, Alquist, De Le�n, DeSaulnier, Wolk
NOES: Harman, Anderson, Blakeslee
NO VOTE RECORDED: Rubio
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/6/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 51-26, 5/29/12 - See last page for vote
SUBJECT : Consumer operated and oriented plans
SOURCE : Department of Insurance
DIGEST : This bill creates a licensing framework for
consumer operated and oriented health (CO-OP) plans that
can offer health coverage through the new California Health
Benefit Exchange (Exchange).
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ANALYSIS :
Existing law:
1. The federal Affordable Care Act (ACA), requires the
Secretary of the United States Department of Health and
Human Services to establish the CO-OP program for the
purpose of fostering the creation of qualified nonprofit
health insurance issuers to offer qualified health plans
in the individual and small group markets in the states
in which they are licensed to offer those plans and
makes start-up and solvency loans available for those
purposes, as specified;
2. The Knox-Keene Health Care Service Plan Act of 1975,
provides for the licensure and regulation of health care
service plans by the Department of Managed Health Care
(DMHC) and makes a willful violation of that act a
crime;
3. Also provides for the regulation of various forms of
insurance by the Insurance Commissioner (Commissioner)
and requires insurers to obtain a certificate of
authority from the Commissioner in order to be admitted
to transact insurance business in the state;
4. Creates the Exchange to facilitate the purchase of
qualified health plans by qualified individuals and
qualified small employers by January 1, 2014;
5. Requires the Exchange to use a competitive process to
select carriers to participate in the Exchange;
6. Requires the state to reimburse local agencies and
school districts for certain costs mandated by the
state. Statutory provisions establish procedures for
making that reimbursement.
This bill:
1. Authorizes the Director of DMHC to issue a health care
service plan license, and the Commissioner to issue a
certificate of authority, to a CO-OP that has been
organized as a nonprofit member organization or
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nonprofit member corporation or to a foreign CO-OP that
has been organized as a nonprofit member organization or
nonprofit member corporation under the laws of another
state, provided that the entity meets the requirements
governing CO-OPs.
2. Requires a CO-OP seeking or maintaining a license to be
subject to the same fees that are imposed on other
carriers.
3. Requires domestic and foreign CO-OPs to be subject to
all applicable rules and regulations including, but not
limited to, the issuance of a license, the operation and
renewal provisions, and the financial responsibility,
and shall be subject to any state laws.
4. Requires a CO-OP to be subject to the same requirements,
terms, and conditions as those imposed on other carriers
participating in the Exchange.
5. Authorizes, if a CO-OP is unable to reach agreement with
the Exchange on terms, conditions, or price, the
Exchange to impose terms, conditions, or price on the
CO-OP health care service plan. Permits, if a CO-OP
fails to comply with any of the provisions of its
contract with the Exchange, the Exchange to impose
contract sanctions, including monetary penalties.
Allows, to the extent permitted under federal law, the
Exchange to limit enrollment in the CO-OP offered
through the Exchange if the CO-OP fails to comply with
Exchange contract specifications.
6. Authorizes DMHC and Department of Insurance (CDI) to
request any documentation relating to a CO-OP's start-up
loan or solvency loan.
7. Requires a CO-OP to be subject at all times to the
prohibitions in the ACA against converting or selling to
a for-profit or nonconsumer-operated entity at any time
after receiving a solvency loan.
8. Requires a CO-OP to do all of the following:
A. Implement policies and procedures to foster and
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ensure member control of the organization. Requires
a CO-OP to meet the following requirements:
(1) The CO-OP shall have governing documents
that incorporate governing rules that ensure that
the directors of the operational board are elected
by a majority vote of a quorum of the CO-OP
members;
(2) All members of the CO-OP shall be eligible
to vote for each director on the CO-OP's
operational board;
(3) Each member of the CO-OP shall have one vote
in the election of each director of the CO-OP's
operational board;
(4) The first elected directors of the CO-OP's
operational board shall be elected no later than
one year after the effective date on which the
CO-OP provides coverage to its first member; the
entire operational board shall be elected no later
than two years after the same date;
(5) Elections of the directors on the CO-OP's
operational board shall be contested so that the
total number of candidates for vacant positions on
the operational board exceeds the number of vacant
positions, except in cases where a seat is vacated
midterm due to death, resignation, or removal; and
(6) A 2/3 majority of the voting directors on
the operational board shall be members of the
CO-OP.
B. Have an operational board of directors that meets
the following requirements:
(1) Each director is required to have one vote
unless he/she is a nonvoting director;
(2) Positions on the board of directors are
permitted to be designated for individuals with
specialized expertise, experience, or affiliation
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and prohibit those positions from constituting a
majority of the operational board;
(3) Representatives of any federal, state, or
local government, are prohibited from serving as
staff of the CO-OP or on the CO-OP's formation
board or operational board, prohibits a board
member or staff of the CO-OP from entering into an
agreement or transaction which would jeopardize
member control, but allows them to enter into
arm's length transactions as specified; and
(4) Each member of the formation or operational
board of a CO-OP is required to publicly disclose
on the website of the CO-OP his/her financial
interest in any health-related entity in excess of
$1,000, including, but not limited to, his or her
ownership of stocks or bonds of a health-related
entity in excess of $1,000.
C. Have governing documents that incorporate ethics,
conflict of interest, and disclosure standards.
Requires at a minimum, these standards to include the
following:
(1) A mechanism to identify potential ethical or
other conflicts of interest;
(2) A duty on the CO-OP's executive officers and
directors to publicly disclose all potential
conflicts of interest pursuant to the same
standards required for state boards or
commissions;
(3) A process to determine the extent to which a
conflict exists;
(4) A process to address any conflict of
interest; and
(5) A process to be followed in the event a
director or executive officer of the CO-OP
violates the standards described in this
paragraph.
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9. Requires a CO-OP to at all times be in full compliance
with the requirements of the ACA governing CO-OPs.
10.Authorizes DMHC and CDI to request the federal
government's certification that a CO-OP is in compliance
as well as the status of the CO-OP's compliance with its
obligations under any loan or loan modification
agreement.
11.Authorizes DMHC and CDI to develop regulations to
implement this bill.
12.Establishes definitions including that a CO-OP means a
nonprofit member organization or corporation consistent
with the ACA and remains in full compliance of the ACA
requirements.
Background
ACA . The ACA anticipates the establishment of consumer
driven health coverage. Section 1322 of the ACA
anticipates the licensing of at least one CO-OP in each
state as a health issuer (either as an insurer or an HMO).
CO-OPs may operate locally, statewide, or in multiple
states, but must be licensed as issuers in each state in
which they operate and are subject to state laws and
regulations that apply to all similarly-situated issuers.
Federal Financial Assistance . According to the author's
office, the CO-OP loan program has a one-time $3.8 billion
appropriation to support low-interest start-up and solvency
loans which must be repaid over five and 15 years,
respectively. Applicants can include small business
coalitions, physician and hospital providers and
associations, agricultural organizations, unions, and
community-based sponsors. Nearly $1 billion has been
awarded in loans so far to CO-OPs in 10 states. Existing
insurers and government entities are barred from applying.
To apply for a loan under the CO-OP program, a group must
first form a nonprofit, not-for-profit, or public benefit
member organization that is organized under state law and
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intends to become a CO-OP.
Non-profit organizations may apply for two types of
low-interest loans:
1. Start-up Loans: Funding to assist with the start-up
activities associated with developing a CO-OP. Start-up
Loans are intended to be repaid in five years.
2. Solvency Loans: Funding to assist with state reserve
requirements. Solvency loans are intended to be repaid,
with interest, in 15 years from the date of
disbursement. (This bill provides that a solvency loan
shall be treated as a surplus note and subject to the
same requirements imposed on mutual insurers, that is,
insurers owned by the policyholders).
Prior/Related Legislation
AB 1602 (John a. P�rez), Chapter 655, Statutes of 2010,
established the powers and duties of the Exchange with
respect to eligibility, enrollment, administration, and
arranging for coverage under qualified carriers.
SB 900 (Alquist), Chapter 659, Statues of 2010, established
the Exchange as an independent public entity and requires
the Exchange to be governed by a five-member board.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
One-time costs to the DMHC to develop policies and
adopt regulations of about $90,000 (Managed Care Fund).
One-time costs to the CDI to develop policies and adopt
regulations of about $80,000 (Insurance Fund).
Minor ongoing costs for enforcement (Managed Care Fund
and Insurance Fund) as the number of CO-OPs seeking
licensure in the state is likely to be small.
SUPPORT : (Verified 8/7/12)
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Department of Insurance (source)
California Asian Pacific Chamber of Commerce
ASSEMBLY FLOOR : 51-26, 5/29/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Hayashi, Roger Hern�ndez, Hill, Huber,
Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza,
Mitchell, Monning, Nestande, Pan, Perea, V. Manuel P�rez,
Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nielsen, Norby, Olsen, Silva, Smyth, Valadao,
Wagner
NO VOTE RECORDED: Cedillo, Fletcher, Hall
JJA:k 8/7/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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