BILL ANALYSIS �
SB 961
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 961 (Ed Hernandez) - As Amended: April 9, 2012
SENATE VOTE : 23-13
SUBJECT : Individual health care coverage.
SUMMARY : Reforms California's health insurance market for
individual purchasers and implements provisions of the Patient
Protection and Affordable Care Act (ACA) prohibiting preexisting
condition exclusions, requiring guaranteed issuance of products,
establishing statewide open and special enrollment periods, and
limiting premium rating factors to age, geography, and family
size. Specifically, this bill:
Prohibits health plans and disability insurers in the individual
market, except grandfathered plans, from imposing preexisting
condition requirements after January 1, 2014.
1)Defines "health benefit plan" to mean any individual or group
health insurance policy or health care service plan contract
that provides medical, hospital, and surgical benefits.
Specifies that the term does not include specified accident
only, credit, disability income, Medicare supplement, dental,
vision, and other contracts or insurance, as specified.
2)Prohibits a health benefit plan contract for individual
coverage that is issued, amended, or renewed on or after
January 1, 2014, and that is not a grandfathered health plan,
as specified, 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, and sunsets existing law on December 31,
2013, related to rating categories for child coverage.
Requires guaranteed issuance of health plan contracts and health
insurance policies in the individual market.
4)Requires every health plan and health insurer offering
individual health benefit plans, in addition to complying with
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the Knox-Keene Health Care Service Plan Act of 1975 and
specified provisions of the California Insurance Code and
rules adopted there under, to comply with this bill.
5)Requires on or after January 1, 2014, a plan 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.
6)Requires a plan or insurer that offers qualified health plans
through the California Health Benefit Exchange (Exchange)
deemed to be in compliance with 5) above.
Establishes open and special enrollment periods consistent with
the Exchange.
7)Requires a plan or insurer to provide an initial open
enrollment period from October 1, 2013 to March 31, 2014,
inclusive, and annual enrollment periods for plan years on or
after January 1, 2015, from October 15 to December 7,
inclusive of the preceding calendar year.
8)Requires a plan or insurer to allow an individual to enroll in
or change individual health benefit plans, subject to 7) above
as a result of the following triggering events:
a) He or she loses minimum essential coverage (MEC), as
defined in the Internal Revenue Code, as specified. Loss
of MEC does not include 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; and,
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.
9)Requires, with respect to individual health benefit plans
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offered outside the Exchange, an individual to have 63 days
from the date of a triggering event identified in 8) above to
apply for coverage from a health plan or insurer subject to
this bill. With respect to individual health benefit plans
offered through the Exchange, requires an individual to have
63 days from the date of a triggering event to select a plan
offered through the Exchange.
10)Requires, with respect to individual health benefit plans
offered outside the Exchange, after an individual submits a
completed application form for a plan, the health plan to,
within 30 days, notify the individual of the individual's
actual premium charges for that plan, as specified in 19)
below. Requires the individual to have 30 days in which to
exercise the right to buy coverage at the quoted premium
charges.
11)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 through and outside of the Exchange.
Prohibits conditioning the issuance or offering on an individual
benefit plan based on specified discriminatory factors.
12)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;
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; or,
i) Any other health status-related factor as determined by
the Department of Managed Health Care (DMHC) and the
California Department of Insurance (CDI).
13)Prohibits a health plan offering coverage in the individual
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market from rejecting the request of a subscriber during an
open enrollment period to include a dependent of the
subscriber.
14)Exempts grandfathered plans from 4) through 13) above.
Prohibits specified marketing and solicitation practices
consistent with small group requirements.
15)Prohibits, commencing January 1, 2014, a health plan, health
insurer, solicitor, agent or broker 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, commencing January 1, 2014, a health plan or
insurer 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. States that this does not apply 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)Exempts grandfathered plans from 15) and 16) above.
Requires guaranteed renewability of plans.
18)Requires all individual health benefit plans to conform to
specified requirements in existing law, and to be renewable at
the option of the enrollee except as permitted to be canceled,
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rescinded, or not renewed, as specified. Requires any plan
that ceases to offer for sale new individual health benefit
plans, as specified, to continue to be governed by existing
law, as specified.
Permits rating factors based on age, geographic region, and
family size only.
19)Requires, with respect to individual health benefit plans
issued, amended, or renewed on or after January 1, 2014, a
health plan 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 eligible dependents, 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, the regions shall be
determined by the Exchange in consultation with DMHC, CDI,
and other private and public purchasers of health care
coverage; and,
c) Family size, as described in the ACA.
20)Prohibits the rating period from varying by any factor not
described in 19) above.
21)Establishes a rating period of no less than 12 months.
22)Exempts grandfathered plans from 19) and 21) above.
EXISTING LAW :
1)Establishes DMHC to regulate health plans; CDI to regulate
health insurers; and, the Exchange to compare and make
available through selective contracting health coverage to
individuals and small businesses as authorized under the ACA.
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2)Requires health plans and health insurers to fairly and
affirmatively offer, market, and sell all of the plan's
contracts that are sold to small employers to all small
employers in the state.
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 to 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 for 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 by
the regulators.
7)Defines a rating period in the small group market 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.
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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)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 of the Exchange.
12)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; limits the rating factors which
can be used to determine health insurance rates to age,
geography, family size, and tobacco-use; and, provides
financial assistance to certain individuals and small
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employers.
FISCAL EFFECT : According to the Senate Appropriations
Committee, one-time costs in the low hundreds of thousands to
adopt regulations and review health plan and insurance plan
filings (Insurance Fund and Managed Care Fund). Unknown ongoing
enforcement costs (Insurance Fund and Managed Care Fund).
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
necessary to implement provisions of the ACA 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. This bill reforms California's individual
health insurance market to include ACA requirements and
improve access and affordability to health insurance for
Californians.
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. 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% of household 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
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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, and 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% 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% of FPL based on modified adjusted gross income rules.
3)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 (2011) 11th Cir., Nos. 11-11021 &
11-11067. The two provisions under review are the individual
mandate and the Medicaid expansion. With regard to the
individual mandate, the ACA requires most people to maintain
MEC for themselves and their dependents. The mandate can be
satisfied by obtaining coverage through employer-sponsored
insurance, and individual insurance plan, 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 would not work
effectively due to the adverse selection effect of healthy
people choosing to forego insurance.
On June 28, 2012, the U.S. Supreme Court, in a 5 - 4 decision
upheld the individual mandate provisions of the ACA, but ruled
unconstitutional the mandatory nature of the Medicaid
expansion provisions. With regard to the individual mandate,
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the Court determined that it must be construed as imposing a
tax on those who do not have health insurance and as such may
be upheld as within Congress's power under the Taxing Clause.
The Court also determined the Medicaid expansion violates the
Constitution by threatening states with the loss of their
existing Medicaid funding if they decline to comply with the
expansion. However, because of the Severability Clause in
Medicaid, the constitutional violation is fully remedied by
precluding the federal Secretary of the Department of Health
and Human Services from applying the provision to withdraw
existing Medicaid funds for failure to comply with the
expansion requirements, but instead allowing the expansion as
a state option.
4)INDIVIDUAL MARKET . According to a 2011 report published by
the California HealthCare Foundation, approximately 2 million
Californians are covered through individually purchased health
insurance. 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% of medical
expenses, compared to 80-90% of expenses for group coverage.
Currently purchasers in the individual market pay 100% 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. Three
carriers serve over 75% 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.
5)CALIFORNIA SIMULATION OF INSURANCE MODELS . Based on economic
simulations conducted by the University of California, Los
Angeles and University of California, Berkely (CalSIM), when
fully implemented, the law will expand affordable coverage to
nearly 5 million Californians: 3.1 million will be eligible
for subsidized coverage through the Exchange, and 1.5 million
will be newly eligible for expanded Medicaid coverage. An
additional 2.1 million Californians are expected to purchase
guaranteed issue coverage without subsidies through the
Exchange or in the individual market.
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6)TOBACCO RATING . According to a recent June 2012 report of the
Institute for Health Policy Solutions (IHPS), there are no
current state limits on the rating factors health plans can
use in pricing most individual health coverage in California.
Health plans can generally deny coverage to someone seeking to
purchase new individual coverage because of that individual's
pre-existing health conditions or other potential health
risks. If they accept someone for coverage, health plans can
and typically do base premiums on specific characteristics of
the individual and family such as a person's age (charging
higher rates for older persons), geographic region, and health
status or health risk. Tobacco use is among the factors health
plans use to decide who to cover and how much to charge them
in the current California market. According to IHPS, while
California's smoking rates are below national rates, lower
income Californians are much more likely to smoke than higher
income Californians, and may smoke at rates closer to national
rates for low-income. In 2008, 19.8% of Californians with
household incomes under $20,000 were smokers, while only 7.8%
of those with incomes over $150,000 were smokers.
Provisions of the ACA are intended to address affordability of
health care coverage. Subsidies for purchasing health
insurance will be available in the Exchange for some
individuals whose coverage costs exceed a certain percentage
of their income, and other individuals will be exempt from the
individual mandate if costs exceed a specified percentage of
their income (8%). Surcharges associated with tobacco use and
standards-based wellness incentive programs could make
coverage unaffordable for some populations and take them out
of the health insurance market altogether. Alternatively,
such programs could drive unhealthy individuals into the
Exchange where subsidies may be available. Taking tobacco
rating as an example, a non-smoker with income of $17,700
would be charged a $5,200 premium for a tax-credit benchmark
plan in the Exchange. With federal subsidies available
through the Exchange, this individual would pay a $708 premium
per year. A similarly situated smoker user would have to pay
a tobacco surcharge (50% of premium or $2,600) in addition to
the $708 for a total premium (minus the subsidies) of $3,308
which represents 18.7% of his or her income. In this example,
the smoker could opt out of the mandate to purchase health
insurance because the product is no longer affordable.
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7)SUPPORT . Health Access California (HAC) writes in support
that this bill requires guaranteed issue of coverage, ending
the practice of denying Californians coverage based on
pre-existing conditions, prohibits basing premiums on health
status, and ends lock-in so that individuals will be able to
change carriers and products. HAC raises concern about the
limitations on guaranteed issue related to the open enrollment
period but reluctantly accepts these limits given the federal
rule on exchanges which imposes the same rule on California's
Exchange. HAC also raises concerns about not applying the
bill's provisions to grandfathered plans because it will allow
the continuation of substandard plans with increasing
premiums. In response to the issues about the individual
mandate, HAC points out that Maine has guaranteed issue,
guaranteed renewability, and community rating without an
individual mandate. The percent of the uninsured is low, the
market has stabilized and it is no longer a monopoly market
with a single carrier with over 90% of the market. HAC
supports the provisions that limits rate increases to once
annually. Consumers should be able to budget and plan.
The Greenlining Institute believes this bill will establish
parity in California with federal regulations. According to
the Greenlining Institute these measures are of critical
importance to communities of color, who experience health
disparities resulting from factors such as environmental
hazards, poverty, and various forms of discrimination. The
California Primary Care Association indicates that this bill
provides numerous consumer protections. The California
Pan-Ethnic Health Network contends that this bill will ensure
that Californians regardless of health status will be able to
get the coverage they need. The California Chiropractic
Association (CCA) strongly believes that having access to
cost-effective health care coverage is essential in creating
and maintaining long-term health and wellness. CCA is pleased
that this bill, in compliance with the ACA, will prohibit
discriminatory premium and denial policies related to health
status and pre-existing conditions.
8)OPPOSITION UNLESS AMENDED . The California Association of
Health Plans (CAHP) believes this bill is missing key
components, such as tying some individual market and
underwriting changes of the ACA to an individual coverage
requirement that was designed to help mitigate the cost
impacts of adverse selection. CAHP believes the ACA changes
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can only work when its central provisions are working in
harmony. Such provisions are the guaranteed issuance of
coverage regardless of preexisting conditions, a community
rating structure that limits premium variance, and an
individual mandate that requires broad participation in the
insurance market. According to CAHP, states that have
instituted guaranteed issue and community rating without a
mandate have experienced incredible market disruption. CAHP
would also require charging higher premium rates based on
tobacco use because they cause $96 billion in health care
expenditures per year in the United States. CAHP also
believes many laws will be obsolete under the ACA and should
be repealed.
9)CONCERNS . Blue Shield of California has concerns because Blue
Shield believes any attempt to enact guaranteed issue and
community rating in California law must be coupled with a
corresponding coverage requirement (individual mandate).
According to Blue Shield experience in other states has
conclusively demonstrated that premiums will skyrocket if
carriers are forced to take the sick at any time without any
encouragement to bring in the healthy. Blue Shield also has
concerns with other provisions and omissions from this bill,
such as the ACA allows health plans to charge higher premiums
for tobacco users; according to Blue Shield this is an
important factor influencing premiums and should be included
in this bill. Blue Shield urges the author to seek to
minimize the disruption in rates that will be caused by a
shift to uniform geographic rating regions and recommends the
establishment of small regions
10)RELATED LEGISLATION .
a) AB 1083 (Monning), pending on the Senate Floor,
establishes reforms in the small group health insurance
market to implement the ACA.
b) AB 1636 (Monning) requires the DMHC, in collaboration
with the CDI, the Exchange, and the California Department
of Public Health to convene a special committee to review
and evaluate health and wellness incentive and rewards
programs offered by health plans, health insurers, and
employers. Requires the first meeting of the committee to
be conducted by March 30, 2013 and a report to the
Legislature by March 30, 2014. AB 1636 is pending in the
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Senate Appropriations Committee.
c) AB 1461 (Monning) is a companion bill to this bill and
has been introduced to establish standards in the
individual health insurance market to update California
laws and implement the ACA. AB 1461 is pending in the
Senate Appropriations Committee.
11)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 FPL, 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.
c) AB 1 X1 (Nu�ez) of 2007 would have enacted the Health
Care Security and Cost Reduction Act, a comprehensive
health reform proposal including provisions to require
Health Action Incentive Rewards programs in group health
coverage and the Medi-Cal program. AB 1 X1 failed passage
in the Senate Health Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Cancer Society
American Federation of State, County and Municipal Employees,
AFL-CIO
California Chiropractic Association
California Commission on Aging
California Optometric Association
California Pan-Ethnic Health Network
California Primary Care Association
Consumers Union
Health Access California
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Managed Risk Medical Insurance Board
National Association of Social Workers
The Greenlining Institute
United Nurses Associations of California/Union of Health Care
Professionals
Opposition
America's Health Insurance Plans
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097