BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 961
AUTHOR: Hernandez
AMEDNED: April 9, 2012
HEARING DATE: April 18, 2012
CONSULTANT: Trueworthy
SUBJECT : Individual health care coverage.
SUMMARY : Reforms California's individual market in accordance
with federal health care reform and applies its provisions to
health plans and disability insurers in the individual market;
requires guaranteed issue of individual market health plans and
health insurance policies; prohibits the use of preexisting
conditions provisions; establishes open and special enrollment
periods consistent with the California Health Benefit Exchange
(Exchange); prohibits conditioning the issuance or offering
based on specified discriminatory factors; prohibits specified
marketing and solicitation practices consistent with small group
requirements; requires guaranteed renewability of plans and
permits rating factors based on age, geographic region and
family size only.
Existing federal law:
1.Establishes the Patient Protection Affordability Care Act
(ACA), which imposes various requirements, some of which take
effect on January 1, 2014, on states, carriers, employers, and
individuals regarding health care coverage.
2.Requires each health insurance issuer that offers coverage in
the individual or group market to accept every employer and
individual that applies for that coverage and to renew that
coverage at the option of the plan sponsor or the individual.
3.Prohibits a group health plan and a health insurance issuer
offering group or individual health insurance coverage from
imposing any preexisting condition exclusion with respect to
that plan or coverage.
4.Allows the premium rate charged by a health insurance issuer
offering small group or individual coverage to vary only as
specified, and prohibits discrimination against individuals
based on health status.
Continued---
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5.Defines "grandfathered plan" as any group or individual health
insurance product that was in effect on March 23, 2010.
Existing state law:
1.Provides for regulation of health insurers by the California
Department of Insurance (CDI) under the Insurance Code and
provides for the regulation of health plans by the Department
of Managed Health Care (DMHC) pursuant to the Knox-Keene
Health Care Service Plan Act of 1975.
2.Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers. This is
known as "guaranteed issue."
3.Defines a preexisting condition provision as a contract
provision that excludes coverage for charges or expenses
incurred during a specified period following the employee's
effective date of coverage, as a condition for which medical
advice, diagnosis, care, or treatment was recommended or
received during a specified period immediately preceding the
effective date of coverage.
4.Prohibits a plan contract for group coverage from imposing any
preexisting condition provision upon any child under 19 years
of age.
5.Prohibits a plan contract for individual coverage that is not
a grandfathered health plan within the meaning of the ACA from
imposing any preexisting condition provision upon any children
under 19 years of age.
6.Prohibits, with respect to the individual market child
coverage, except to the extent permitted by federal law,
carriers from conditioning the issuance or offering of
individual coverage on any of the following factors:
a) Health status;
b) Medical condition, including physical and mental
illness;
c) Claims experience;
d) Receipt of health care;
e) Medical history;
f) Genetic information;
g) Evidence of insurability, including conditions
arising out of acts of domestic violence;
h) Disability; and
i) Any other health status-related factor as determined
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by the regulators.
7.Defines a "rating period" as the period for which premium
rates established by a plan are in effect, and requires them
to be in effect no less than six months.
8.Establishes the following risk categories for rating purposes
in the small group market: age, geographic region, and family
composition, plus the health benefit plan selected by the
small employer. Specifies age categories, family size
categories, and nine geographic regions, as determined by the
carriers.
9.Prohibits a plan in the small group market from, directly or
indirectly, entering into any contract, agreement, or
arrangement with a solicitor that provides for or results in
the compensation paid to a solicitor for the sale of a health
plan contract to be varied because of the health status,
claims experience, industry, occupation, or geographic
location of the small employer.
10.Prohibits a policy or contract that covers two or more
employees from establishing rules for eligibility, including
continued eligibility, of an individual, or dependent of an
individual, to enroll under the terms of the plan based on any
of the following health status-related factors:
a) Health status;
b) Medical condition, including physical and mental
illnesses;
c) Claims experience;
d) Receipt of health care;
e) Medical history;
f) Genetic information;
g) Evidence of insurability, including conditions
arising out of acts of domestic violence; and
h) Disability.
11.Establishes and specifies the duties and authority of the
Exchange within state government in a manner that is
consistent with the ACA. Requires, as a condition of
participation in the Exchange, carriers that sell any products
outside the Exchange to fairly and affirmatively offer,
market, and sell all products made available in the Exchange
to individuals and small employers purchasing coverage outside
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of the Exchange.
This bill:
1.Applies its provisions to health plans and disability insurers
in the individual market and exempts grandfathered plans.
2.Prohibits a health benefit plan for group coverage and a plan
contract for individual coverage (except grandfathered plans,
as specified) issued, amended, or renewed on or after January
1, 2014, from imposing any preexisting condition provision
upon any individual.
3.Repeals a provision effective January 1, 2014, that would have
required the rate for any child to be identical to the
standard risk rate.
4.Sunsets existing law, on December 31, 2013, related to rating
categories for child coverage.
5.Requires guaranteed issue of individual market health plans
and health insurance policies.
6.Requires every health plan and health insurer offering
individual health benefit plans, in addition to complying with
the Knox-Keene Act and specified provisions of the Insurance
Code and rules adopted there under, to comply with this bill.
7.Requires a plan, on or after January 1, 2014, to fairly and
affirmatively offer, market, and sell all of the plan's and
insurer's health benefit plans that are sold in the individual
market to all individuals in each service area in which the
plan or insurer provides or arranges for the provision of
health care services. Requires a plan or insurer to limit
enrollment to open enrollment periods and special enrollment
periods, as specified.
8.Requires a plan or insurer to provide an initial open
enrollment period from October 1, 2013, to March 31, 2014,
inclusive, and after January 1, 2015 annual enrollment periods
from October 15 to December 7, inclusive, of the preceding
calendar year.
9.Requires a plan or insurer to allow an individual to enroll in
or change individual health benefit plans, as a result of the
following triggering events:
a) He or she loses minimum essential coverage (MEC), as
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defined in the Internal Revenue Code, as specified. Loss
of MEC includes loss of that coverage due to the
individual's failure to pay premiums on a timely basis or
situations allowing for a rescission, as specified;
b) He or she gains a dependent or becomes a dependent
through marriage, birth, adoption, or placement for
adoption.
c) He or she becomes a resident of California.
d) He or she is mandated to be covered pursuant to a
valid state or federal court order.
e) With respect to individual health benefit plans
offered through the Exchange, the individual meets any of
the requirements listed in federal regulations, as
specified.
10.Requires an individual, with respect to individual health
benefit plans offered inside or outside the Exchange, to have
63 days from the date of a triggering event identified above
to apply for coverage from a health plan or insurer subject to
this bill.
11.Requires a health plan, with respect to individual health
plans offered outside the Exchange, after an individual
submits a completed application form for a plan, to notify,
within 30 days, the individual of the individual's actual
premium charges for that plan. Requires the individual to have
30 days in which to exercise the right to buy coverage at the
quoted premium charges.
12.Specifies effective dates associated with initial and annual
open enrollment periods depending upon when payment is
delivered or postmarked with respect to health benefit plans
offered inside and outside of the Exchange.
13.Prohibits, on or after January 1, 2014, a health plan or
health insurer from conditioning the issuance or offering of
an individual health benefit plan on any of the following
factors:
a) Health status;
a) Medical condition, including physical and mental
illness;
b) Claims experience;
c) Receipt of health care;
d) Medical history;
e) Genetic information;
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f) Evidence of insurability, including conditions
arising out of acts of domestic violence;
g) Disability; and
h) Any other health status-related factor as determined
by DMHC or CDI.
14.Prohibits a health plan offering coverage in the individual
market from rejecting the request of a subscriber during an
open enrollment period to include a dependent of the
subscriber.
15.Prohibits a health plan, health insurer, solicitor, agent or
broker, on or after January 1, 2014, from directly or
indirectly, engaging in the following activities:
a) Encouraging or directing an individual to
refrain from filing an application for individual
coverage with a plan because of the health status,
claims experience, industry, occupation, or geographic
location, provided that the location is within the
plan's approved service area; and
b) Encouraging or directing an individual to seek
individual coverage from another plan or health insurer
or the Exchange because of the health status, claims
experience, industry, occupation, or geographic
location, provided that the location is within the
plan's approved services area.
16.Prohibits a health plan or insurer, on or after January 1,
2014, from not, directly or indirectly, entering into
contracts, agreement, or arrangement with a solicitor, agent
or broker that provides for or results in the compensation
paid to a solicitor for the sale of an individual health
benefit plan to be varied because of health status, claims
experience, industry, occupation, or geographic location of
the individual. Prohibits this provision from applying to a
compensation arrangement that provides compensation to a
solicitor, agent or broker on the basis of percentage of
premium, provided that the percentage shall not vary because
of the health status, claims experience, industry, occupation,
or geographic area.
17.Requires all individual health plans to conform to specified
requirements, and to be renewable at the option of the
enrollee except as permitted to be canceled, rescinded, or not
renewed, as specified. Requires any plan that ceases to offer
for sale new individual health benefit plans, as specified, to
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continue to be governed by specified law with respect to
business conducted under the specified law.
18.Requires health plans issued, amended, or renewed on or after
January 1, 2014, to use only the following characteristics of
an individual, and any dependent thereof, for purposes of
establishing the rate of the individual health benefit plan
covering the individual and the eligible dependents thereof,
along with the health benefit plan selected by the individual:
a) Age, as described in regulations adopted by DMHC and
CDI that do not prevent the application of the ACA.
Requires the rates to be determined based on the
individual's birthday and requires them not to vary by
more than three to one for adults.
b) Geographic region. Requires, with respect to the
2014 plan year, the regions to be the same as those used
by a health benefit plan or contract entered into with
the Board of Administration of the Public Employees'
Retirement System. For subsequent plan years, requires
the regions to be determined by the Exchange in
consultation with DMHC, CDI, and other private and public
purchasers of health care coverage.
c) Family size, as described in the ACA.
19.Requires the rating period for rates not to vary by any
factor not described above.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. According to the author, the ACA includes
several significant reforms to the health insurance markets,
and this bill is necessary to implement those provisions and
reform California's individual insurance market. While
California has a history of strong consumer protections in the
group market, these protections have largely been absent in
the individual market. The ACA creates new market rules that
limit which factors plans can use to determine premium rates,
eliminate the use of preexisting condition exclusions and
require plans to issue and renew policies for anyone willing
to purchase. The market rules established in this bill will
affect plans operating in the Exchange and in the outside
market in order to be consistent and ensure an equitable mix
of health risk. The author states that current law has few
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protections for consumers in the individual market and this
bill is needed to reform the individual health insurance
market to include the ACA requirements and improve access and
affordability to health insurance for Californians.
2.Individual market. California's individual and small group
health insurance markets together currently serve just fewer
than 15 percent of the state's population, with approximately
2 million people being covered through individually purchased
health insurance. According to the California HealthCare
Foundation, under the ACA, these market segments will assume
importance beyond their numbers. In 2014, new requirements to
obtain coverage and financial assistance available through the
Exchange will increase the size of the individual market. New
market rules will change the types of products sold and the
way coverage is priced. Under the ACA, it is expected that two
to three million Californians will be eligible for private
health care coverage.
Currently, individual premiums vary by age as much as
five-fold, meaning a 60-year-old would pay five times what a
25-year-old might pay. Premiums range from $113 to $777 a
month. Individual market insurance provides less
comprehensive coverage, paying an average of 55 percent of
medical expenses, compared to 80 to 90 percent of expenses for
group coverage. Currently purchasers in the individual market
pay 100 percent of their coverage; the market is very price
sensitive and purchasers are medically screened by insurers
concerned about high-risk consumers buying and keeping
coverage. In California, three carriers serve over 75 percent
of the market: Anthem Blue Cross PPO, Blue Shield PPO, and
Kaiser HMO. California's two regulators allow variation in
product design. Plans under DMHC must provide a defined set of
basic health care services, while plans under CDI have more
flexibility and may offer slimmer benefits. CDI-regulated
products are far more prevalent in the individual market.
3.Federal health care reform. 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. Beginning in 2014,
individuals will be required to maintain health insurance or
pay a penalty, with exceptions for financial hardship (if
health insurance premiums exceed 8 percent of household
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adjusted gross income), religion, incarceration, and
immigration status. Several insurance market reforms are
required such as prohibitions against health insurers imposing
lifetime benefit limits and preexisting health condition
exclusions. These reforms impose new requirements on states
related to the allocation of insurance risk, prohibit insurers
from basing eligibility for coverage on health status-related
factors, allow the offering of premium discounts or rewards
based on enrollee participation in wellness programs, impose
nondiscrimination requirements, require insurers to offer
coverage on a guaranteed issue and renewal basis, determine
premiums based on adjusted community rating (age, family,
geography and tobacco use).
Additionally, by 2014, either a state will establish separate
exchanges to offer individual and small group coverage, or the
federal government will establish one. Exchanges will not be
insurers but will provide eligible individuals and small
businesses with access to private plans in a comparable way.
In 2014, some individuals with income below 400 percent of the
federal poverty level (FPL) will qualify for credits toward
their premium costs and for subsidies toward their cost
sharing. California has established an Exchange that is
operating as an independent government entity with a
five-member Board of Directors. The ACA also expands the
Medicaid program to cover adults without children and expands
the income requirements to 138 percent of FPL based on
modified adjusted gross income rules.
4.U.S. Supreme Court. In March of 2012, the U.S. Supreme court
held three days of testimony on the constitutionality of two
major provision of the ACA arising out of two cases in the
11th Circuit Court of Appeals, National Federation of
Independent Business v. Sebelius and Florida v. Department of
Health and Human Services. The two provisions are the
individual mandate and the Medicaid expansion. With regard to
the individual mandate, the ACA requires most people to
maintain minimum essential coverage for themselves and their
dependents. The mandate can be satisfied by obtaining coverage
through employer-sponsored insurance, individual insurance
plans, including those offered through the Exchange, a
grandfathered health plan, or government-sponsored coverage.
According to a January 2012 Kaiser Family Foundation brief,
the authors of the ACA believed that without the individual
mandate, the exchanges and private insurance market reforms
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would not work effectively due to the adverse selection effect
of healthy people choosing to forego insurance.
If the Court determines that the individual mandate is
unconstitutional, it must also decide whether the mandate is
severable from the rest of the ACA. If it is found to be
unconstitutional and not severable, the entire ACA could be
struck down. The Court could invalidate some provisions of
the law, but would have to determine whether the rest of the
law can function independently of the individual mandate
provision and whether Congress would have enacted the ACA's
other provisions without the mandate. The Court's decision is
expected in June of 2012.
5.Related legislation. AB 1461 (Monning) is identical to SB
961. AB 1461 is pending in the Assembly Health Committee.
SB 951 (Hernandez) would designate the Kaiser Small Group HMO
as California's benchmark plan to serve as the essential
health benefit (EHB) standard, as required by federal health
care reform. SB 951 passed the Senate Health Committee on
April 11, 2012 by a vote of 6-3 and is now pending before the
Senate Appropriations Committee.
SB 1321 (Harman) would require the Exchange to select the plan
with the lowest EHB cost to be the set benchmark for the
definition of EHBs. SB 1321 is pending before the Senate
Health Committee.
AB 1453 (Monning) is identical to SB 951. AB 1453 passed the
Assembly Health Committee on April 10, 2012 by a vote of 13-4
and is now pending before the Assembly Appropriations
Committee.
6.Prior legislation. SB 51 (Alquist), Chapter 644, Statutes of
2011, established enforcement authority in California law to
implement provisions of the ACA related to medical loss ratio
requirements on health plans and health insurers and enacted
prohibitions on annual and lifetime benefits.
AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires
guaranteed issue of health plan and health insurance products
for children beginning in January 1, 2011.
SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602
(Perez), Chapter 655, Statutes of 2010, established the
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California Health Benefit Exchange.
AB 1X 1 (Nunez) of 2008 would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health reform
proposal. AB 1X 1 died in the Senate Health Committee.
7.Support. The California Commission on Aging writes in support
of the bill that by requiring health plans to offer guaranteed
coverage, portability, and prohibiting discriminatory premiums
based on health status, SB 961 helps assure that all
Californians can access the health care they need. The
National Association of Social Workers writes SB 961 provides
a smooth transition to meeting federal health care law
requirements. The California Chiropractic Association writes
in support that having access to cost-effective health care
coverage is essential in creating and maintaining long-term
health and wellness. The California Primary Care Association
writes that California's leading role in implementing the
provisions of the ACA is essential to its success. The ACA
provides for numerous consumer protections and it is important
that these are codified into state statute. SB 961 would
ensure that state statute reflects the protections provided
for in the ACA.
8.Concern. Health Access California writes that while they
support the spirit of SB 961 reforming California's individual
insurance market to provide guaranteed issue and modified
community rating, as required under the ACA but are concerned
by the continued existence of grandfathered plans and closed
blocks of business. Grandfathered plans do not provide many of
the consumer protections provided under the ACA. Keeping a
substandard plan with an ever increasing premium was not the
point of federal health reform.
9.Oppose. The California Association of Health Plans (CAHP)
writes that this bill would place some of the individual
market and underwriting changes of the ACA into state law
without tying those changes to an individual coverage
requirement. CAHP argues that the individual coverage
requirement was designed to help mitigate the cost impacts of
adverse selection. CAHP and Blue Shield of California are
also opposed to SB 961 not including tobacco use in rate
development as allowed under the ACA. Blue Shield writes in
opposition to SB 961 stating that if guaranteed issue and
community rating are placed into state law, they must be tied
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to an effective and enforceable individual coverage
requirement.
SUPPORT AND OPPOSITION :
Support: California Chiropractic Association
California Commission on Aging
California Pan-Ethnic Health Network
California Primary Care Association
The Greenlining Institute
Health Access California
National Association of Social Workers
Oppose: California Association of Health Plans
Blue Shield of California
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