BILL ANALYSIS �
SB 615
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 615 (Calderon) - As Amended: June 18, 2012
SENATE VOTE : Not relevant.
SUBJECT : Multiple employer welfare arrangements: benefits.
SUMMARY : Prohibits multiple employer welfare arrangements
(MEWAs) from offering, issuing, selling, or renewing health care
coverage benefits unless the MEWA discloses whether the benefits
constitute minimum essential coverage (MEC) as defined by the
federal Patient Protection and Affordable Care Act (ACA).
Specifically, this bill :
1)States that the federal ACA enacted various health care
coverage market reforms that become operative on January 1,
2014, and it is the intent of the Legislature to encourage
MEWAs regulated by this article to provide certain essential
health benefits (EHBs) to the extent not inconsistent with
Employee Retirement Income Security Act of 1974 (ERISA).
2)Prohibits, notwithstanding any other provision of law,
commencing January 1, 2014, a MEWA from offering, issuing,
selling, or renewing health care coverage benefits unless the
MEWA discloses in all marketing materials and solicitations
whether the benefits constitute MEC, as defined in the ACA.
EXISTING LAW :
1)Establishes, pursuant to federal law, ERISA, which sets
minimum standards for most voluntarily established pension and
health plans in private industry to provide protection for
individuals in these plans. Prevents under ERISA states from
regulating employer health benefits directly but does allow
states to regulate health insurance purchased by employers.
2)Provides for, pursuant to ERISA, the formation of MEWAs as an
alternative to health insurance programs, health maintenance
organizations (HMOs), and preferred provider organizations
(PPOs), and allows states to establish regulations and fiscal
standards for MEWAs, as long as those rules are not
inconsistent with ERISA.
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3)Limits states in their ability to regulate anything but the
reserve and contribution levels of fully insured plans, but
allows states to subject self-funded and partially-self funded
MEWAs to all state insurance laws not inconsistent with ERISA.
4)Provides for the regulation of health insurers by the
California Department of Insurance (CDI), and confers limited
authority to regulate MEWAs on CDI, under provisions of the
Insurance Code.
5)Requires, under the ACA, a health insurance issuer that offers
health insurance coverage in the individual or small group
market to ensure that such coverage includes the EHB package,
as specified, and that include at least the following
categories:
a) Ambulatory patient services;
b) Emergency services;
c) Hospitalization;
d) Maternity and newborn care;
e) Mental health and substance use disorder services,
including behavioral health treatment;
f) Prescription drugs;
g) Rehabilitative and habilitative services and devices;
h) Laboratory services;
i) Preventive and wellness services and chronic disease
management; and,
j) Pediatric services, including oral and vision care.
6)Requires, under the ACA, employers with at least 50 full-time
equivalent employees who do not offer MEC, and who have at
least one employee receiving a premium tax credit or cost
sharing subsidy in an exchange to pay a penalty of $2,000
annually times the number of full-time employees minus 30.
The penalty increases each year by the growth in insurance
premiums. If the employer does not offer coverage to his or
her workers that pays for at least 60% of covered health care
expenses and the employee chooses to buy coverage in a health
benefit exchange, or, if any employees have to pay more than
9.5% of family income for the employer coverage, and the
employee receives a premium tax credit, the employer must pay
a penalty of $3,000 annually for each full-time employee who
receives a tax credit, up to a maximum of $2,000 times the
number of full-time employees minus 30. The penalty is
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increased each year by the growth in insurance premiums.
7)Requires, under the ACA, individuals and their dependents to
maintain MEC or pay a penalty, unless the individuals and
their dependents are eligible for exemptions, including:
religious conscience, not lawfully present, incarcerated,
cannot afford coverage, have income below the tax filing
threshold, are members of Indian tribes, or are subject to
hardships, as specified.
8)Defines, under the ACA, MEC as coverage under government
sponsored programs, employer-sponsored plans, plans in the
individual market, grandfathered plans, and other coverage
such as state health benefits risk pool.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . The author writes that current state
law does not address whether MEWAs must offer health plans
that cover EHBs. In fact, the ACA exempted self-funded or
partially self-funded ERISA plans such as MEWA trusts. As
such, unless there is an obligation to disclose whether the
health plans offered by MEWAs cover MEC, employers who are
members of the MEWAs and who purchase health care benefits
from the MEWA will not be aware of whether the health plan
meets the MEC pursuant to the ACA. This bill seeks to
establish disclosure requirements on California regulated
MEWAs associated with MEC and EHBs.
2)MEWAs . According to a July 2003 California HealthCare
Foundation (CHCF) report, self-insured MEWAs were authorized
in 1995 in California. A MEWA is a type of group purchasing
arrangement for small businesses, self-employed individuals,
and people with seasonal jobs, such as agricultural workers.
The law allows only MEWAs that filed an application by
November 1995 to be eligible for licensing, which means no new
MEWAs can be licensed in California. MEWAs provide an
alternative to traditional coverage by allowing employers to
band together in order to purchase health insurance or
self-insure health benefits. Some MEWAs provide coverage to
people who might otherwise not have access to health
insurance. For example in the agriculture industry workers
tend to be seasonal and part-time and work in rural areas
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where managed care plans are less dominant. Plan coverage in
the traditional employer market is typically available for
full-time employees, not seasonal workers.
Some MEWAs that self-insure collect premiums from enrollees for
a special trust account established to pay medical claims.
Fully insured MEWAs contract with insurance companies or
health plans to provide benefits. Self-insured MEWAs avoid
premium taxes paid by commercial insurers and are subject to
less stringent solvency requirements. Self-insured MEWAs
provide a range of benefit packages. Employers can choose to
offer more comprehensive coverage to management and more basic
plans to low-wage workers. The ability to offer low-cost
options allows low-wage workers to obtain coverage with
employers covering 100% of the premium. CDI regulates both
licensed MEWAs and their coverage. Most, but not all,
consumer protections that apply to enrollees in fully insured
products also apply to MEWA enrollees. MEWAs are subject to
California's small group laws such as guaranteed access,
renewability, and rate standards.
According to the CDI, MEWAs, compared to other insurers have
lower required surplus; no Risked Based Capital requirements;
no guaranty fund coverage; and no premium tax. However, MEWAs
must have stop loss insurance and are statutorily presumed to
be subject to all insurance statutes, but that is a rebuttable
presumption for laws that are applicable and not inconsistent
with ERISA or the code. In addition, pursuant to current law,
MEWA rates are filed with the CDI for informational purposes.
According to the California Association of Small Employer
Health Plans (CASEHP), there are only four MEWAs operating in
California: Printing Industry Association of Southern
California Trust; Western Growers of California Trust;
California Society of Certified Public Accountants Trust; and,
United Agribusiness League Trust. The CHCF report indicates
that all three of the four MEWAs are both self and fully
insured in some geographic areas, depending on the needs of
their membership and the availability of policies from
insurers. Coverage offered through self-insured MEWAs is
priced to compete with carriers when options are available.
3)ACA . The ACA requires an individual and his or her dependents
to have MEC or pay a penalty unless certain exemptions apply.
The ACA requires employers with over 50 employees to provide
MEC and may assess penalties if an employee obtains a tax
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credit through a health benefit exchange. The ACA also
establishes minimum EHBs, which are health care benefits that
are required to be covered by small group and individual (not
grandfathered) plans both inside and outside a health benefit
exchange. According to the sponsor a fully insured MEWA is
not subject to ACA market reforms (no pre-existing condition
exclusions, no annual or lifetime limits, dependent coverage,
preventive services, etc.,) but the coverage purchased from
the health insurance issuer is subject to the market reforms
of the ACA including the requirement to cover EHBs in the
individual and small group markets. The sponsor indicates
that self-funded or partially self-funded MEWAs that are also
employee welfare benefit plans are subject to the ACA market
reforms as a group health plan but are not required to cover
EHBs. Additionally, self-funded or partially funded MEWAs
that are not employee welfare benefit plans are subject to the
ACA market reforms as a health insurance issuer and must
provide EHBs in the individual and small group markets. The
CDI agrees. According to CDI, the EHB statute at 42 USC
300gg-6 states: "A health insurance issuer that offers health
insurance coverage in the individual or small group market
shall ensure that such coverage includes the essential health
benefits package required under section 1302(a) of the Patient
Protection and Affordable Care Act �42 USCS � 18022(a)]."
MEWAs are not "health insurance issuers." Section
2791(b)(1)-(2) of the PHSA defines insurance coverage as
coverage "offered by a health insurance issuer" and that same
section states that a health insurance issuer "does not
include a group health plan." (2791(b)(1)-(2).) Under 2791(a)
a group health plan is an employee welfare benefit plan as
defined under ERISA. Under ERISA MEWAs are a form of employee
welfare benefit plan (29 USC 1002(40).) In addition, the
Insurance Code states that "A multiple employer welfare
arrangement shall comply with the criteria set forth for an
employee welfare benefit plan in order to qualify for a
certificate of compliance." Therefore, since MEWAs are a form
of employee welfare benefit plan, which are a group health
plan, they cannot be insurance issuers subject to the EHB
requirements under federal law. MEWAs are not subject to the
small group requirement of covering the EHBs only.
4)EHB . On December 16, 2011, the federal Department of Health
and Human Services Center for Consumer Information and
Insurance Oversight released an EHB Bulletin proposing that
EHBs be defined using a benchmark approach. This gives states
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the flexibility to select a benchmark plan that reflects the
scope of services offered by a "typical employer plan." If a
state does not choose a benchmark health plan, the default
benchmark plan for the state would be the largest plan by
enrollment in the largest product in the small group market,
which is also the Kaiser HMO. EHBs must include coverage of
services and items in all 10 statutory categories, but states
can choose among the following benchmark health insurance
plans:
a) One of the three largest small group plans in the state
by enrollment, in California these options are Anthem PPO
licensed by CDI, Kaiser HMO licensed by the Department of
Managed Health Care (DMHC), or Anthem PPO licensed by DMHC;
b) One of the three largest state employee health plans by
enrollment, in California these options are the California
Public Employees' Retirement System (CalPERS) Blue Shield
Basic HMO, CalPERS Choice, or CalPERS Kaiser HMO;
c) One of the three largest federal employee health plan
options by enrollment, which are Government Employee Health
Association, Blue Cross Blue Shield (BCBS) Basic, or BCBS
Standard; or,
d) The largest HMO plan offered in the state's commercial
market by enrollment, which is the Kaiser Large Group
Commercial HMO.
5)SUPPORT . This bill is sponsored by CASEHP, which is an
association of California MEWAs. According to CASEHP,
together those ERISA trust plans provide health care benefits
to over 100,000 employees and their dependents. Members of
the CASEHP have provided health care benefits to their
employer members for several decades. As such, it is
important to their continued operation to be transparent by
providing full disclosure of whether health care benefits
provided by these trusts meet the coverage requirement of the
ACA.
6)RELATED LEGISLATION .
a) SB 951 (Ed Hernandez) selects the Kaiser Small Group HMO
as California's benchmark plan to serve as the EHB
standard, as required by federal law. SB 951 is pending
before the Assembly Health Committee.
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b) AB 1453 (Monning) selects the Kaiser Small Group HMO as
California's benchmark plan to serve as the EHB standard,
as required by federal law. AB 1453 is pending in the
Senate Appropriations Committee. SB 951 and AB 1453 are
companion measures.
7)PREVIOUS LEGISLATION .
a) SB 1430 (Johnston), Chapter 1082, Statutes of 1994,
requires MEWAs to obtain a certificate of compliance from
CDI by December 1, 1995, and authorizes CDI to set fiscal
solvency standards, imposes upon MEWAs the same mandated
benefits imposed upon health insurers. SB 1430 also limits
MEWAs to covering only employers in a similar trade,
profession, or industrial association.
b) SB 1465 (Machado), Chapter 317, Statutes of 1999,
extends the sunset to December 31, 2004 and requires CDI to
evaluate and report on MEWAs.
c) SB 1880 (Machado), Chapter 357, Statutes of 2002, made
permanent the original MEWA regulatory program in 2002.
d) SB 212 (Machado), Chapter 320, Statutes of 2003,
authorizes MEWAs to utilize mutual funds to invest excess
funds. The intent of SB 212 was to allow MEWAs to earn a
higher return on investments but to limit mutual fund
investing to excess funds.
e) AB 493 (Frommer), Chapter 218, Statutes of 2005, allows
for limited investment by MEWAs, using specified limited
proportions of MEWA assets, in bond mutual funds subject to
strict criteria.
f) AB 1188 (Coto), Chapter 428, Statutes of 2008,
authorizes a self-funded or partially self-funded MEWA to
use the excess assets of the MEWA to purchase an office
building or buildings that are used for its principal
operations and business, as specified.
1)SUGGESTED AMENDMENTS . To address the sponsor's intent the
committee may wish to suggest amendments to delete confusing
intent language and replace section 742.40 (c) with the
following:
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Commencing January 1, 2014, a multiple employer welfare
arrangement shall not offer, market, represent or sell
any product, contract or discount arrangement as minimum
essential coverage or as compliant with the essential
health benefits requirement in federal law, unless it
meets those requirements of the Patient Protection and
Affordable Care Act.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Small Employer Health Plans (sponsor)
Opposition
None on file.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097