BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 2152
AUTHOR: Eng
AMENDED: April 17, 2012
HEARING DATE: June 13, 2012
CONSULTANT: Trueworthy
SUBJECT : Disability insurance.
SUMMARY : Requires health insurers to notify the California
Department of Insurance (CDI) if a termination of a contract
results in a material change to the network, affecting 800 or
more covered lives unless a higher threshold is determined by
CDI by regulation. Requires health insurers to disclose
specified information related to methods of payment and bonuses
and other disclosures currently required of the Department of
Managed Health Care (DMHC) licensees.
Existing law:
1.Provides for the regulation of health plans by DMHC under the
Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene)
and health insurers by CDI under the Insurance Code.
2.Requires every health plan to include within its disclosure
form and within its evidence of coverage a statement clearly
describing how participation in the plan may affect the choice
of physician, hospital, or other health care providers, the
basic method of reimbursement, including the scope and general
methods of payment made to its contracting providers of health
care services, and whether financial bonuses or any other
incentives are used.
3.Requires each plan to use disclosure forms or materials
containing information regarding the benefits, services, and
terms of the plan contract as the DMHC Director may require,
affording the public, subscribers, and enrollees with a full
and fair disclosure of the provisions of the plan in readily
understood language and in a clearly organized manner.
Authorizes the Director to require that the materials be
presented in a reasonably uniform manner so as to facilitate
comparisons between plan contracts of the same or other types
of plans. Establishes requirements for the disclosure.
4.Requires a health plan, at least 75 days prior to the
Continued---
AB 2152 | Page 2
termination date of its contract with provider group or a
general acute care hospital, to submit an enrollee block
transfer filing to DMHC that includes the written notice the
plan proposes to send to affected enrollees. If DMHC does not
respond within seven days of receipt, the notice is deemed
approved.
5.Requires a plan, at least 60 days prior to the termination
date of a contract between a health plan and a provider group
or general acute care hospital, to send the notice in 4)
directly above, to enrollees who are assigned to the
terminated provider group or hospital. Establishes a process
for waiver because of exigent circumstances.
6.Requires a plan, if the plan operates a preferred provider
organization (PPO) or assigns members to a provider group with
admitting privileges to hospitals in the same geographic area
as the terminated hospital, to send the written notice to all
enrollees who reside within a 15-mile radius of the terminated
hospital. Requires a health plan to send enrollees of a PPO
the written notice required in 4) above only if the terminated
provider is a general acute care hospital.
This bill:
1.Requires every health insurer, including those that contract
for alternative rates of payment, as specified, to include
within its disclosure form a statement clearly describing the
basic method of reimbursement made to its contracting
providers of health care services, including the scope and
general methods of payment, and whether financial bonuses or
any other incentives are used.
2.Requires the disclosure form to indicate that if an insured
wishes to know more about these issues, the insured may
request additional information from the insurer, the insured's
provider, or the provider's medical group or independent
practice association, as specified.
3.Requires an insurer, medical group, independent practice
association, or health care provider, if financial bonuses or
any other incentives are used or received, to provide a
written summary, in clear and simple language that enables
consumers to evaluate and compare policies, to any person who
requests it. The summary must include both of the following:
a. A general description of the bonus and any other
incentive arrangements used in its compensation agreements,
AB 2152 | Page
3
but not the disclosure of trade secrets or commercial or
financial information that is privileged or confidential,
such as payment rates, as determined by the Insurance
Commissioner, pursuant to state law; and
b. A description regarding whether, and in what manner, the
bonuses and any other incentives are related to a
provider's use of referral services.
4.Requires the statements and written information specified in
2) and 3) above to be communicated in clear and simple
language that enables consumers to evaluate and compare health
insurance policies.
5.Requires health insurers, at least 75 days prior to the
termination date of its contract with a provider group or
general acute care hospital to provide services at alternative
rates of payment, as specified, to notify CDI of the
termination and include the written notice the insurer
proposes to send to affected insureds if the termination of
the contract results in a material change to the insurer's
provider network. Defines material change as 800 or more
covered lives unless CDI establishes a higher threshold by
regulation.
6.Requires CDI to review and approve the notice's content prior
to the notice being sent to insureds. Specifies that if CDI
does not respond within seven days of the date of its receipt
of the filing, the notice is deemed approved.
7.Requires an insurer, at least 60 days prior to the termination
date of a contract between an insurer and a provider group or
general acute care hospital, to send the notice described in
5) above to all insureds who have obtained services from the
provider group or general acute care hospital within the
preceding six months, if the termination of the contract
results in a material change, as defined, to the insurer's
provider network, as defined by CDI regulations. Establishes a
process for waivers in special circumstances.
8.Requires a health insurer, if a terminated provider is a
hospital, to send the written notice to all insureds who
reside within a 15-mile radius of the terminated hospital.
9.Requires a health insurer to send the written notice regarding
termination of a provider contract with a hospital only if the
AB 2152 | Page 4
terminated provider is a general acute care hospital.
10.Authorizes an insurer to require a provider group to send the
notice if an individual provider terminates his or her
contract or employment with a provider group that contracts
with the health insurer.
11.Requires an insurer, if after sending the notice, an
agreement to renew or enter into a new contract is reached, to
offer each affected insured the option to return to that
provider.
12.Requires a health insurer and a provider to include in all
written, printed, or electronic communications sent to an
insured that concern the contract termination or transition
plan, the following statement in not less than 8-point type:
"If you have been receiving care from a health care provider,
you may have a right to keep your provider for a designated
time period. Please contact your insurer's customer service
department, and if you have further questions, you are
encouraged to contact the Department of Insurance, which
protects insurance consumers, by telephone at its toll-free
number, 800-927-HELP (4357), or at a TDD number for the
hearing impaired at 800-482-4833, or online at
www.insurance.ca.gov."
13.Defines "small group health insurance policy" as a group
health insurance policy issued to a small employer, as
defined.
14. Defines "provider group" to mean a medical group or similar
organization.
15.Requires all of the following disclosures for a health
insurance policy:
a. A notice on the first page of the disclosure form that
conforms with all of the following conditions:
i. States that the form discloses the terms and
conditions of coverage;
ii. States, with respect to individual health insurance
policies, small group health insurance policies, and any
group health insurance policies for which health care
services are not negotiated, that the applicant has a
right to view the disclosure form and policy prior to
beginning coverage under the policy, and, if the policy
does not accompany the disclosure form, the notice to
AB 2152 | Page
5
specify where the policy can be obtained prior to
beginning coverage;
iii. Includes a statement that the disclosure and the
policy should be read completely and carefully and that
individuals with special health care needs should
carefully read those sections that apply to them;
iv. Includes the insurer's telephone number or numbers
that may be used by an applicant to receive additional
information about the benefits of the policy, or states
where those telephone number or numbers are located in
the disclosure form;
v. For individual health insurance policies and small
group health insurance policies, states where a health
policy benefits and coverage matrix is located; and
vi. Is printed in type no smaller than that used for the
remainder of the disclosure form and is displayed
prominently on the page;
b. A statement as to when benefits will cease in the event
of nonpayment of the prepaid or periodic charge and the
effect of nonpayment upon an insured who is hospitalized or
undergoing treatment for an ongoing condition;
c. To the extent that a policy or insurer permits a free
choice of provider to its insureds, a statement disclosure,
as specified, of the nature and extent of choice permitted
and the financial liability that is, or may be, incurred by
the insured, covered dependents, or a third party by reason
of the exercise of that choice;
d. For group health insurance policies, including small
group policies, a summary of the terms and conditions under
which insureds may remain in the policy in the event the
group ceases to exist, the group policy is terminated, an
individual insured leaves the group, or the insured's
eligibility status changes;
e. If the policy utilizes arbitration to settle disputes, a
statement of that fact; if the policy requires binding
arbitration, a disclosure, as specified;
f. A description of any limitations on the insured's choice
of primary care physician, specialty care physician, or
nonphysician health care practitioner, based on service
area and limitations on the insured's choice of acute care
hospital care, subacute or transitional inpatient care, or
skilled nursing facility;
g. General authorization requirements for referral by a
primary care physician to a specialty care physician or a
nonphysician health care practitioner;
AB 2152 | Page 6
h. Conditions and procedures for disenrollment;
i. A description as to how an insured may request
continuity of care, as specified, and how to request a
second opinion, as specified;
j. Information concerning the right of an insured to
request an independent review, as specified; and
aa. A notice of insurance information practices related to
personal information about an applicant or insured as
required in existing law.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, AB 2152 has the following fiscal effect: (1) one-time
regulatory costs to CDI in the range of $50,000 to specify and
provide initial review of disclosure requirements (Insurance
Fund); and (2) ongoing costs to CDI to monitor and enforce the
new requirements on an ongoing basis should be minor and
absorbable within existing resources. CDI indicates receiving
notice of block transfers can help them anticipate and manage
workload costs related to consumer complaints.
PRIOR VOTES :
Assembly Health: 13- 5
Assembly Appropriations:12- 4
Assembly Floor: 46- 25
COMMENTS :
1.Author's statement. The Patient Protection Affordable Care
Act (ACA) enacts sweeping changes to the way health care
services will be purchased, delivered, and regulated. As one
of its core principles, the ACA seeks to make the process of
buying health insurance coverage for consumers easier and
streamlined. The alignment of Insurance Code and Knox-Keene
requirements will ensure that consumers receive equivalent,
strong consumer protections whether they purchase health
insurance coverage regulated under the Insurance Code or the
Knox-Keene Act and also provides for a level competitive
environment. By aligning Insurance Code disclosure
requirements with those of Knox-Keene, this proposal would
further streamline health insurers' disclosure requirements
with regard to health coverage. As a result, health insurers
would supply the same or similar information for CDI-regulated
coverage as they would for DMHC-regulated coverage.
Streamlining these disclosure requirements would make
compliance easier and more efficient for health insurers.
2.Background. Regulation and oversight of health insurance in
AB 2152 | Page
7
California is split between DMHC and CDI. DMHC regulates
health plans under the Knox-Keene Act in the Health and Safety
Code. DMHC health plans include health maintenance
organizations (HMOs) and some PPO plans, which for historical
and business reasons have remained with HMO licensees at DMHC
(the Department of Corporations (DOC) prior to 1999). These
PPOs have an exemption from a requirement that all services be
delivered by participating providers but are otherwise subject
to requirements to provide all basic health care services and
to establish internal quality monitoring and accessibility
standards for in-network providers. Historically, the
regulator has allowed for flexibility in copayments,
deductibles, and annual maximums, so these products can more
closely resemble other PPO products. An HMO is a managed care
arrangement that provides and arranges for health care through
contracted or employed providers and generally only covers
health services provided by network providers, except in an
emergency. HMOs contract with medical groups and independent
practice associations and can shift risk to the providers
while the health plan retains legal responsibility. According
to a November 2001 California HealthCare Foundation (CHCF)
report, the Knox-Keene Act established the basic framework for
regulation of health plans that remains today; it was heavily
influenced by the failures and inadequacies of the Medi-Cal
Prepaid Health Plan program and paralleled many provisions of
the federal HMO Act.
In 1982, the Legislature authorized (in the Insurance Code)
insurers to negotiate and enter into contracts with providers
at "alternative rates of payment," and permitted carriers to
limit claims payment to providers charging the alternative
rates. The resulting PPO model of indemnity insurance - where
individuals have reduced out-of-pocket costs if they use
providers on the insurer's preferred provider list - allowed
CDI-licensed indemnity carriers to be more price competitive
with Knox-Keene-licensed HMOs. PPOs implement utilization
review and other cost containment strategies in an effort to
compete with HMOs. CDI regulates disability insurers offering
health insurance, which includes PPO plans and traditional
indemnity insurance. In a PPO arrangement, the health insurer
contracts with a network of medical providers who agree to
accept lower fees and/or to control utilization.
3.California HealthCare Foundation report. In June 2011, CHCF
issued a report entitled, "Ready for Reform? Health Insurance
AB 2152 | Page 8
Regulation in California Under the ACA," which focused on the
policies and structures possibly needed to implement the ACA.
The report identified considerations and options for updating
and strengthening California's regulatory context in light of
ACA requirements. One of the recommendations was to align
statutes and regulations between CDI and DMHC. Specifically,
the report found a number of instances in California law where
DMHC statutory requirements were potentially more protective
or beneficial to consumers than those authorized for CDI under
the Insurance Code. The report states that if California
continues to have two separate health insurance regulators,
policymakers should consider policies and strategies that
promote greater consistency and cooperation between CDI and
DMHC.
4.Prior legislation. AB 1286 (Frommer), Chapter 591, Statutes of
2003, and SB 2003 (Speier), Chapter 590, Statutes of 2003,
revised and expanded existing "continuity of care" laws under
which a health plan is required, under certain circumstances,
to allow an enrollee to continue to see a health care provider
who is no longer contracting with the plan, requires the
notice to be filed with the DMHC at least 75 days prior to the
contract termination and specifies language that must be
included in the notice regarding an enrollee's right to
continue seeing a health care provider.
AB 939 (Cohn), Chapter 817, Statutes of 2001, required,
effective July 1, 2002, that a health plan disclosure form
include any limitations on a patient's choice of non-physician
health care practitioners, in addition to primary care and
specialty care physicians, and requires a plan disclosure form
to include authorization requirements for referral to a
non-physician health care practitioner, in addition to a
specialty care physician.
AB 2903 (Committee on Health), Chapter 857, Statutes of 2000,
provided technical clean-up language to managed care reform
bills including renaming the Department of Managed Care (DMC)
as the DMHC and clarifies provisions relating to telephone
medical advice services.
AB 78 (Gallegos), Chapter 525, Statutes of 1999, establishes a
new DMC and transferred the regulation of health plans from
the DOC to DMC.
SB 1547 (Peace), Chapter 1024, Statutes of 1996, requires
AB 2152 | Page
9
health plans and disability insurers to disclose the process
the plan or insurer uses to authorize or deny subacute care,
transitional inpatient care or skilled nursing facility care
and the basic method of reimbursement, and whether financial
bonuses or incentives are used.
5.Support. CDI writes that AB 2152 will further strengthen
consumer protections in California's regulation of health
insurance by aligning the Insurance Code and sections of the
Knox-Keene Act, specifically in regards to disclosure
requirements to consumers. Further, this proposal would also
ensure that consumers receive equivalent strong consumer
protections by requiring improved benefit disclosure forms,
disclosure of incentive arrangements between carriers and
providers, and transition plans if provider contracts are
terminated. Doing so would improve the consumer experience
and build upon the strengths of the existing regulators.
Health Access writes in support of AB 2152 that the bill will
create additional consumer protections in health insurance
regulated by CDI that already exist for consumers with
coverage regulated by DMHC. American Federation of State,
County and Municipal Employees writes in support that AB 2152
will require improved benefit disclosure forms by including
additional information which will help align the Insurance
Code with Knox-Keene requirements. The California Healthcare
Institute writes that by providing similar consumer
protections to carriers regulated by the Insurance Code,
consumers will be able to make more informed decisions about
healthcare coverage options.
6.Opposition. The Association of California Life and Health
Insurance Companies (ACLHIC) opposes AB 2152 writing it will
impose several new reporting and disclosure requirements on
health insurers regulated under CDI. ACLHIC writes that
rather forcing a block transfer process that is only relevant
in a closed-network HMO system, the bill should create a
notification process through which insurers are required to
notify CDI and insureds within five days of a contract
termination. ACLHIC contends this is the process the DMHC
requires of PPOs under its jurisdiction. ACLHIC writes that
while this bill purports to impose "parity" with the block
transfer requirements in the Knox-Keene Act, it actually goes
far beyond what is required of HMOs and places a much higher
regulatory burden on insurance products regulated under CDI.
AB 2152 | Page 10
ACLHIC states the Commissioner currently has the authority to
ensure that a health insurer's provider network is adequate,
and in addition, there are existing continuity of care
protections that apply to consumers when a provider contract
is terminated.
7.Suggested amendments:
a. Notice timeline. The author is proposing to change the
number of days required for the notices to be sent to the
department from 75 days to 30 days. On Page 4, Line 13:
strike 75 and insert 30. To reduce consumer confusion, the
Committee suggests changing the number of days required for
the notices to be sent to the insured from 60 days to 10
days. On Page 4, Line 29: strike 60 and insert 10.
b. Material change definition. Regulations issued by the
DMHC define "block transfer" as a transfer or redirection
of 2,000 or more enrollees by a plan from a terminated
provider group or terminated hospital to one or more
contracting providers that takes place as a result of the
termination or non-renewal of a provider contract. This
bill does not use the term "block transfer" because PPO
subscribers are not assigned primary care providers to
which a contract change would necessitate a transfer to
another primary care provider group. AB 2152 as currently
drafted would define material change as 800 or more
enrollees, creating a disparity between the two regulators.
Committee staff proposes to align the Insurance Code with
the DMHC regulations for purposes of defining who receives
the notice. On Page 4, Line 26, strike 800 and insert
2,000.
c. Conformity. While DMHC currently has authority on block
transfer requirements, the regulations appear to be limited
to enrollees who are "assigned" to a terminated hospital.
Committee staff recommends clarifying that Section 2 of AB
2152 also applies to PPOs regulated by DMHC. This will
ensure PPO enrollees receive the same notice information.
d. Contract terminations. The Health and Safety Code
requires enrollees of a PPO organization to be sent the
written notification only if the terminated provider is a
general acute care hospital. AB 2152 currently requires a
notice be sent to both a general acute care hospital and a
provider group. Committee staff recommends conforming the
Health and Safety Code to the Insurance Code and require
the notice be sent to PPO enrollees regulated under DMHC
when an insurer and a provider group terminate a contract.
e. Provider group definition. Committee staff recommends
AB 2152 | Page
11
defining provider group as a group of 20 or more physicians
or surgeons, who are employees, partners or shareholders of
the group practicing substantially full-time as part of the
group.
f. Notice.
i. Committee staff recommends strengthening the notice
requirements set forth on Page 5, Lines 23-34 sent to
affected insureds of the contract termination and
deleting the requirement that the notice be reviewed and
approved.
ii. Committee staff recommends only sending the notice
required to an insured who has received services from the
hospital or provider group in the preceding six months
and not also living in a 15-mile radius. On Page 5,
strike lines 4-6.
iii. On Page 5, Line 25, committee staff recommends
striking "transition plan" as the term transition plan
does not apply in a PPO setting.
iv. On Page 5, Line 25, committee staff recommends
adding the additional language to the notice requirement:
1. The name of the terminated provider group or
general acute care hospital;
2. The date of the pending contract termination;
3. A brief explanation explaining the cause of
the termination and whether the contract termination
or non-renewal was initiated by the plan, the
hospital, or by the contracting provider group;
4. How to access a list of contracted providers
in the provider network;
5. A statement that the insured may contact the
plan's customer service department to request
completion of care for an ongoing course of treatment
from a terminated provider and a telephone number for
further explanation; and
6. A statement informing the insured that they
may be required to pay a larger portion of costs if he
or she continues to use the terminated provider;
g. Delayed implementation. In order to allow for
information technology system changes and the development
of the termination notices, committee staff recommends
delaying implementation by six months.
h. Technical amendments. On P age 4, L ine 35 , strike
"professional or institutional" and a fter " provider ",
i nsert "group or a general acute care hospital". On P age 5,
AB 2152 | Page 12
L ine 5 , insert "also" between " shall " and " send " .
SUPPORT AND OPPOSITION :
Support: California Department of Insurance (sponsor)
American Federation of State, County and Municipal
Employees, AFL-CIO
BayBio
California Council of Community Mental Health Agencies
California Healthcare Institute
Congress of California Seniors
Health Access California
Oppose: Association of California Life and Health Insurance
Companies
Blue Shield
California Chamber of Commerce
-- END --