BILL ANALYSIS �
AB 1921
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Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1921 (Hill) - As Amended: April 10, 2012
SUBJECT : Health insurance: transitional reinsurance program.
SUMMARY : Establishes the California Transitional Reinsurance
Program (CTRP), as required in the federal Patient Protection
and Affordable Care Act (ACA), effective January 1, 2013, with
contributing entities remitting payment on or after October 1,
2013, and payment to eligible recipients occurring on or after
January 1, 2014. Terminates CTRP on January 1, 2018.
Specifically, this bill :
1)Establishes the CTRP in which "contributing entities," defined
as licensed health plans, and insurers licensed by the
Insurance Commissioner (IC) to offer individual or group
disability coverage providing hospital, medical, or surgical
benefits, as specified, but not insurance coverage that
consists solely of excepted benefits, as defined, are required
to make payments to the "applicable reinsurance entity,"
defined as a nonprofit entity that carries out specified
duties. Under the CTRP, "reinsurance-eligible recipients,"
defined as issuers of any health plan or health insurance
coverage offered in the California individual market that are
not grandfathered plans, will receive reinsurance payments for
covered individual claims.
2)Requires the IC of the California Department of Insurance
(CDI) to select the applicable reinsurance entity based upon a
competitive process.
3)Requires the Department of Managed Health Care (DMHC) Director
and the IC to jointly modify the federal reinsurance benefits
and payment parameters by issuing a California-specific notice
of benefits and payment parameters by March 1 of the year
prior to the benefit year.
4)Requires the notice to contain, at least, the data
requirements and data collection frequency for
reinsurance-eligible recipients and the reinsurance attachment
point, reinsurance cap, and coinsurance rate, if different
from the corresponding parameters specified in the federal
notice of benefit and payment parameters. Exempts the DMHC
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Director's and IC's notice from the Administrative Procedure
Act.
5)Establishes specified duties of the applicable reinsurance
entity, including collecting reinsurance contributions from
contributing entities, remitting a portion of payments
collected from contributing entities to the United States
Treasury, receiving and maintaining required claims data on
all covered individual claims submitted by
reinsurance-eligible recipients, coordinating the reinsurance
program with state high-risk pools to the extent necessary as
may be required by state or federal law, and any other duties
as further defined by the ACA, state regulations or any
California-specific reinsurance and benefit payment
parameters.
6)Requires a contributing entity to make payments to the
reinsurance entity according to the ACA or state regulations,
comply with all reasonable requests for appropriate
documentation, and comply with any additional requirements
established by state and federal regulations.
7)Authorizes the Director of DMHC and the IC to issue orders to
a contributing entity licensed by their respective departments
whenever there is a determination that it is reasonably
necessary to ensure compliance with 6) above. A licensee may
request a hearing to challenge the order within 15 days of
receipt of that order.
8)Requires a reinsurance-eligible recipient to submit
documentation on covered individual claims to the applicable
reinsurance entity in a form as established by any federal
benefit or payment parameters or any California-specific
benefit and payment parameters, remit overpayments following
an audit or reconciliation of collections and payments, and
comply with any additional requirements as established by the
ACA, state regulations, or any California-specific benefit and
payment parameters.
9)Permits the DMHC and CDI to adopt regulations, and requires
consultation between DMHC and CDI in adopting necessary
regulations. Provides that the adoption or amendment of the
regulations is an emergency.
10)Sunsets this bill's provisions on January 1, 2018, unless a
later enacted statute delete or extend that date.
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11)Establishes definitions for a variety of terms including
"California-specific reinsurance benefit and payment
parameters," which means any notice issued by the Director/IC
describing procedures for collecting funds from contributing
entities and making payments to reinsurance-eligible
recipients.
EXISTING LAW :
1)Provides for the regulation of health plans at the DMHC under
the Knox-Keene Health Care Service Plan Act of 1975 and of
health insurers at the CDI, under an elected IC, and
establishes the California Health Benefit Exchange (Exchange).
2)Establishes the ACA, which among other provisions, imposes new
requirements on individuals, employers, and health plans;
restructures the private health insurance market; sets minimum
standards for health coverage; establishes health benefit
exchanges and provides financial assistance to certain
individuals, and small employers.
3)Requires, under the ACA, each health insurance issuer that
offers health insurance coverage in the individual or group
market in a state to accept every employer and individual in
the state that applies for such coverage. This is known as
"guaranteed issue." Authorizes a health insurance issuer to
restrict enrollment to open and special enrollment periods.
4)Requires, under the ACA, each state, not later than January 1,
2014, to establish, or enter into a contract with one or more
applicable reinsurance entities to carry out the reinsurance
program, as specified, including that health insurance
issuers, and third party administrators on behalf of group
health plans make payments to an applicable reinsurance entity
for any plan year beginning in the 3-year period beginning
January 1, 2014. Requires amounts collected to be used to
make reinsurance payments to health insurance issuers that
cover high risk individuals in the individual market (except
grandfathered plans) .
5)Defines, under the ACA, grandfathered plans as health plans or
health insurance coverage in which an individual is enrolled
in on March 23, 2010 (ACA enactment date).
FISCAL EFFECT : This bill has not been analyzed yet by a fiscal
committee.
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COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, the ACA
requires each state operating a health benefit exchange to
establish a transitional reinsurance program for the period
2014-16 (Section 1341 of ACA). The purpose of this program is
to help stabilize premiums for coverage in the individual
market during the first three years after guaranteed issue
goes into effect. This bill protects against the effects of
potential adverse selection in the individual market. This
legislation must be effective in 2013 to allow time for the
selection of and contracting with a nonprofit entity (per ACA
requirements) which must be fully operational and ready to
implement the program in the last quarter of 2013.
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).
Among other provisions, the new law makes statutory changes
affecting the regulation of and payment for certain types of
private health insurance. The ACA creates three programs to
eliminate incentives for health insurance plans to avoid
insuring people with pre-existing conditions or those who are
in poor health, and to reduce uncertainty that could increase
premiums in 2014. This risk will likely be greatest in the
first three years of the Exchange; however, risk should
decrease as the new market matures and issuers gain actual
claims experience with this new population. Final rules were
issued by the federal Health and Human Services Agency (HHS)
on March 16, 2012. The three programs are risk adjustment,
reinsurance, and risk corridors. Risk adjustment is a
permanent program to spread the financial risk borne by health
insurance issuers. Risk adjustment provides payments to
health insurance issuers who attract higher risk populations
by transferring funds from plans that enroll the lowest risk
individuals to plans with higher risk populations. It is
intended to reduce or eliminate premium differences among
plans based solely on favorable or unfavorable risk selection
in the individual and small group markets. All
non-grandfathered plans in the individual and small group
markets are subject to risk adjustment, inside and outside the
Exchange. States have the option to establish a risk
adjustment program, but are not required to do so.
The risk corridor program provides additional protection for
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issuers of qualified health plans in the Exchange. Risk
corridors protect against uncertainty in rate-setting in the
first several years of the exchanges by creating a mechanism
for sharing risk between the federal government and qualified
health plan issuers. Qualified health plans with costs that
are at least 3% less than the plans' costs projections will
remit charges for a percentage of those savings to HHS, while
qualified plans with costs at least 3% higher than cost
projections will receive payments from HHS to offset a
percentage of those losses. The ACA directs HHS to administer
the risk corridors program from 2014 through 2016.
The transitional reinsurance program is intended to help
stabilize premiums for coverage in the individual market due
to individuals with higher cost needs gaining insurance
coverage during the first three years of Exchange operation.
All health insurance issuers, self-insured group health plans,
and third party administrators on their behalf, will make
contributions to support reinsurance payments to individual
market issuers that cover individuals with high medical costs.
Under the final rules, states now have the option to
establish a reinsurance program. If a state elects not to
establish a program, HHS will establish the program and
perform the reinsurance functions for the state. Payments
will be based on a portion of costs per enrollee paid once
claims costs reach a certain level or "attachment point" and
until a payment limit or "cap" is reached.
-------------------------------------------------------------
|Program |Reinsurance |Risk Corridors |Risk Adjustment |
|---------+----------------+-----------------+----------------|
|Purpose |Provides |Limits issuer |Transfers funds |
| |funding to |losses (and |from lower risk |
| |issuers that |gains) to |plans to higher |
| |incur high |protect against |risk plans to |
| |claims costs |inaccurate rate |protect against |
| |for enrollees |setting |adverse |
| |to offset high | |selection |
| |cost outliers | | |
|---------+----------------+-----------------+----------------|
|Administr|State option to |HHS |State option to |
|ation |operate, | |operate if the |
| |regardless of | |state |
| |whether the | |establishes an |
| |state | |exchange |
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| |establishes an | | |
| |Exchange | | |
|---------+----------------+-----------------+----------------|
|Participa|All issuers and |Qualified health |Non-grandfathere|
|nts |third party |plans |d individual |
| |administrators | |and small group |
| |on behalf of | |market plans, |
| |group health | |inside and |
| |plans | |outside the |
| |contribute; | |Exchange |
| |non-grandfathere| | |
| |d individual | | |
| |market plans | | |
| |(inside and | | |
| |outside the | | |
| |Exchange) are | | |
| |eligible for | | |
| |payments | | |
|---------+----------------+-----------------+----------------|
|Duration |Three years |Three years |Permanent |
| |(2014-16) |(2014-16) | |
-------------------------------------------------------------
3)SUPPORT . According to the sponsor, CDI, legislation is
required to establish the state's transitional reinsurance
program, and must be in effect by 2013 in order to allow time
for the selection of a contracting nonprofit entity that would
implement the program by the last quarter of 2013. CDI states
that this bill would create a fund that would be used to pay
health insurers and HMOs writing in the individual market that
incur large claims and a portion of the funds would help make
payments to the United States Treasury to offset some of the
costs of health care reform. CDI indicates that one of the
goals of this program is to prevent adverse selection and help
stabilize the market. Health Access California (HAC) supports
this bill because the information gained from running a
reinsurance program about the market impacts and shifts will
prove valuable to regulators and policy makers. HAC requests
amendments that would also give the DMHC this responsibility.
4)OPPOSITION . The California Association of Health Plans (CAHP)
writes in opposition that the influx of new lives into the
market is important but has the potential of causing
uncertainty and financial risk at the outset. CAHP opposes
this bill because it presupposes that it is in California's
best interest to operate its own reinsurance program versus
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utilizing the federal option. CAHP believes it is impossible
to know which option is best for the state because federal
final notice and parameters will not be known until the fall.
CAHP is also concerned about placing authority for selecting a
reinsurance entity solely in the hands of the IC despite the
fact that CDI regulates only a fraction of California's
diverse insurance market. The Association of California Life
& Health Insurance Companies believes this bill is premature
and removes the option for California to allow the federal
government to run this short-lived reinsurance program.
America's Health Insurance Plans supports the goals of the
reinsurance program but respectfully opposes this bill because
it gives unchecked control to the IC for selecting a
reinsurance entity and rushes to judgment that a
California-specific transitional reinsurance program under the
ACA is the best option for the state.
5)RELATED LEGISLATION . SB 728 (Ed Hernandez), pending in the
Assembly Health Committee, requires the Exchange Board to
develop a risk adjustment system for health insurance products
sold by health care service plans and insurers in the
individual and small group markets within and outside of the
Exchange.
6)PREVIOUS LEGISLATION .
a) AB 1602 (John A. Perez), Chapter 655, Statutes of 2010,
establishes the Exchange as an independent public entity to
purchase health insurance on behalf of Californians,
including those with incomes of between 100% and 400% of
the federal poverty level, and small businesses. Clarifies
the powers and duties of the board governing the Exchange
relative to the administration of the Exchange, determining
eligibility and enrollment in the Exchange, and arranging
for coverage under qualified carriers.
b) SB 900 (Alquist), Chapter 659, Statues of 2010,
establishes the Exchange and requires the Exchange to be
governed by a five-member board, as specified.
7)POLICY QUESTIONS .
a) Does California have adequate information to determine
if California should have a state reinsurance program or if
the federal program is sufficient? California is a unique
health insurance market place with dual regulators and a
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long history of managed care, capitation, and delegated
models. Because of this it may make sense for
California-specific program but without a better
understanding of the final federal rules it may be
difficult to determine what is in the best interest of
Californians at this time. The committee may wish to
request amendments that leave open the possibility of
letting the federal government run the program.
b) Is the CDI best positioned to choose the reinsurance
entity and direct its responsibilities? As drafted this
bill gives both the IC and Director of DMHC joint authority
to modify the federal reinsurance payment parameters and
allows for timely reports of accounting to be made to the
IC and the DMHC in a format and on a schedule to be
established by CDI regulation. This bill also gives both
CDI and DMHC authority to adopt regulations, and requires
consultation with each other. More Californians (21
million) are in products licensed by the DMHC but with
regard to the individual market, more individuals are in
products licensed by the CDI (1.3 million) compared to DMHC
(695,000). The DMHC has no position on this bill and the
Brown Administration has not weighed in yet on this issue.
The committee may wish to request amendments to ensure
joint control over the reinsurance program by both
regulators.
8)DRAFTING CONCERNS .
a) The sponsor's letter indicates that this bill creates a
fund but provisions in this bill do not include the
establishment of any such fund. The author may wish to
clarify whether or not establishment of a fund should be
included in this bill.
b) There are several references throughout the bill that
reference "requirements as established by the ACA, state
regulations?" The author may wish to replace this with
"requirements as established by the ACA, or any state or
federal regulations, rules or guidance issued consistent
with that law."
c) There are several inappropriate references in the
Insurance Code to "health plans" rather than health
insurance coverage.
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d) Page 8, lines 37-39 refers to procedures pursuant to
Insurance Code 10760.5 for selecting the applicable
reinsurance entity. However, Insurance Code 10760.5 does
not establish procedures for selecting the applicable
reinsurance entity other than the following statement
"Based upon a competitive bidding process, the IC shall
select the applicable reinsurance entity." Is this the
author's intent?
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (sponsor)
Health Access California
Opposition
California Association of Health Plans
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097