BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 757 (Lieu)
As Amended April 28, 2011
Hearing Date: May 3, 2011
Fiscal: Yes
Urgency: No
EDO
SUBJECT
Discrimination
DESCRIPTION
Existing law requires health care service plans, health insurers
and all other insurers regulated by the California Department of
Insurance to provide coverage to the registered domestic partner
of an employee that is equal to the coverage it provides to the
spouse of those persons. Existing law also requires that every
policy marketed, issued, or delivered to a resident of this
state, regardless of the situs of the contract must comply with
the laws of California, but provides for an exemption from this
rule for policies which are issued outside of California to an
employer whose principal place of business and majority of
employees are located outside of California.
This bill would require that every policy or certificate for
health insurance that is marketed, issued, or delivered to a
resident of California, regardless of the situs of the contract
or master group policy holder must offer or provide coverage for
a registered domestic partner that is equal to the coverage
provided to the spouse of an employee, insured, or policyholder.
BACKGROUND
In 1993, AB 1100 (Brown, Chapter 1210, Statutes of 1993) and SB
590 (Torres, Chapter 1209, Statutes of 1993) passed by the
Legislature and signed by the Governor. These bills were
identical. Both bills required that every policy and
certificate for disability insurance be subject to the laws of
California. Both bills also exempted policies issued outside of
(more)
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California to an employer whose principal place of business and
majority of employees are outside of California.
In 2004, AB 2208 created the California Insurance Equality Act
(Kehoe, Chapter 488, Statutes of 2004) which prohibited
insurance providers from issuing policies or plans that
discriminate against domestic partners and required insurance
plans that include coverage of spouses to include the same
coverage for domestic partners.
The California Department of Insurance (CDI) only has
jurisdiction to regulate insurance providers that are licensed
with the state. In order to become licensed with the state, the
insurance company must apply for the license with the CDI. This
application is specifically for insurance companies seeking to
do business within the State of California. If a company
contracts with an insurance provider that is based in
California, or markets to California residents, that insurance
provider must abide by California law.
There are, however, California residents who are employed by an
employer out of state. The out-of-state employer generally
contracts with one insurance company for all of their employees.
Presumably, the insurance company is most likely located within
the state that the business is incorporated, or the state where
most of its employees reside. In the majority of states, the
laws of the state where the insurance company is licensed will
dictate. However, there are currently twelve states that
exercise extraterritorial jurisdiction of health insurance law
for health insurance policies. The twelve states are Alaska,
Arkansas, Connecticut, Delaware, Indiana, Kansas, Mississippi,
Montana, North Carolina, Oklahoma, Utah and Washington. In
these states, health insurers are required to provide benefits
consistent with the state law in which an employee resides.
This bill would make California one of these extraterritorial
states by requiring that every policy or certificate for health
insurance that is marketed, issued, or delivered to a resident
of California, regardless of the situs of the contract or master
group policy holder must offer or provide coverage for a
registered domestic partner that is equal to the coverage
provided to the spouse of an employee, insured, or policyholder.
CHANGES TO EXISTING LAW
Existing law provides that every policy or certificate of
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disability insurance covering hospital, medical, or surgical
expenses marketed, issued, or delivered to a resident of this
state, regardless of the situs of the contract shall comply with
the laws of California. Existing law also provides for an
exemption from this rule for policies of disability insurance
which are issued outside of California to an employer whose
principal place of business and majority of employees are
located outside of California. (Ins. Code Sec. 10112.5.)
Existing law provides that any policy of group health insurance
may not offer or provide coverage for a registered domestic
partner that is not equal to the coverage provided to the spouse
of an employee, insured, or policyholder. (Ins. Code Sec.
10121.7.)
This bill would require that every policy or certificate for
health insurance that is marketed, issued, or delivered to a
resident of California, regardless of the situs of the contract
or master group policy holder must offer or provide coverage for
a registered domestic partner that is equal to the coverage
provided to the spouse of an employee, insured, or policyholder.
COMMENT
1. Stated need for the bill
The sponsor, Equality California, writes:
Equality California is proud to sponsor your bill, SB 757, the
Insurance Nondiscrimination Act. This bill would provide that
any health insurance policy issued to or intended to cover any
person residing in California shall provide coverage for
registered domestic partners that is equal to the coverage
provided to a spouse and comply with the nondiscrimination
requirements of California law.
California has established strong laws prohibiting
discrimination in the issuance of insurance policies in the
state. Existing laws require California-based insurers to
provide the same coverage to domestic partners that they
provide to spouses.
SB 757 would clarify that any health care service plan
contract, health insurance policy, or any other insurance
policy that is issued to or intended to cover any person
residing in California must provide coverage for domestic
partners that is equal to the coverage provided to a spouse
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and comply with all nondiscrimination requirements in
California law. While California based insurers must already
comply with this requirement, this bill would apply to any
out-of-state insurance company providing policies to
California residents.
2. Out-of-state insurers required to comply with California law
Under existing law, if a policy for disability insurance is
issued outside of California to an employer whose principal
place of business and majority of employees are located outside
of California, the CDI does not require those policies to comply
with state insurance law. As a result, the insurers are not
required to offer equal coverage for a registered domestic
partner that is equal to the coverage provided to the spouse of
an employee, as is required of insurance companies licensed in
this state. This bill would require that every health insurance
policy that is marketed, issued, or delivered to a resident of
California must comply with the California requirement of
offering equal coverage for a registered domestic partner as
provided to the spouse of an employee.
The sponsor of this bill, Equality California, notes
"multi-state companies that do business in California often
contract with out-of-state health insurance companies to provide
benefits to employees. Those employees that live in California
and who are in a domestic partnership are often the victims of
discrimination because those out-of-state insurers do not
provide equal benefits to domestic partners. Because of this
practice, domestic partners and employers are often forced to
switch insurers to purchase coverage that treats spouses and
domestic partners equally." This is a potential loop-hole in
the law which this bill seeks to fix by requiring that any
policy delivered to a resident of this state must comply with
California's nondiscrimination laws.
In 2003, the Legislature provided that registered domestic
partners should have the same rights, protections, and benefits
as are granted to spouses. (AB 205 (Goldberg) Chapter 421,
Statutes of 2003.) The following year, the California
Legislature enacted the California Insurance Equality Act which
required all insurance plans to provide equal coverage to
registered domestic partners as to spouses. (AB 2208 (Kehoe)
Chapter 488, Statutes of 2004.) However, because of the
exemption for insurance policies issued outside of California to
businesses whose principal place of business and the majority of
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its employees reside, the California Insurance Equality Act is
unenforceable against these policies. As a result, some
residents of California who are in a domestic partnership may be
discriminated against in the provision of benefits if they are
employed by an out-of-state company who contracts for insurance
benefits with another out-of-state company. Rather than allowing
companies to profit from this type of discrimination,
out-of-state insurers should be held to the same standard as
in-state insurers when offering benefits to California
residents.
3. Potential enforcement issues
Existing law provides for the regulation of insurance companies
licensed with the California Department of Insurance (CDI). If
an insurance company is licensed with the state and they are not
complying with state law, CDI is authorized to take enforcement
action against the insurer, including rescinding their license
with the state. This bill seeks to require out-of-state
insurers, not licensed in the state, to comply with California's
anti-discrimination laws. The courts have found that California
may constitutionally regulate an out-of-state insurer marketing
directly to a California resident (People v. United Nat'l Life
Ins. Co. (1967) 66 Cal.2d 577), however regulating an
out-of-state insurer who has contracted with an out-of-state
company who happens to have employees in California is a novel
question. In response to staff inquires on this issue, the CDI
responds with "the Department could bring an injunction against
an insurer under �Insurance Code Section] 12928.6. . . we
estimate about a really small universe of circumstances here."
4. Federal ERISA preemption
The Employee Retirement Income Security Act of 1974 (ERISA) is a
federal law that, among other things, sets minimum standards for
private companies that voluntarily establish health plans. The
purpose is to provide protection for individuals in these plans.
ERISA does not regulate group insurance established or
maintained by government entities. It is estimated that ERISA
governs approximately 2.5 million health benefit plans sponsored
by private employers nationwide, covering approximately 134
million Americans. Section 514 (a) of ERISA specifically
provides for preemption of any state law in conflict with the
ERISA provision of benefits. There are two major limitations on
state insurance law under ERISA. The first is the "deemer
clause" which preempts state law for employer self-funded
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benefit plans. The second limitation relates to the available
remedies. Specifically if state law provides for a remedy that
ERISA does not include, the state law is preempted. Based on
this specific preemption this bill may raise questions as to its
application to an ERISA-sponsored health insurance plan.
Support : None Known
Opposition : None Known
HISTORY
Source : Equality California
Related Pending Legislation : None Known
Prior Legislation :
AB 2208 (Kehoe, Chapter 488, Statutes of 2004) required a health
care service plan and a health insurer to provide coverage to
the registered domestic partner of an employee that is equal to
the coverage it provides to the spouse of those persons and
extended those requirements to all other forms of insurance
regulated by the Department of Insurance.
SB 590 (Torres, Chapter 1209, Statutes of 1993.) See Background.
AB 1100 (Brown, Chapter 1210, Statutes of 1993.) See
Background.
Prior Vote : Senate Committee on Health (Ayes 6, Noes 3)
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