BILL ANALYSIS �
SB 961
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Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 961 (Hernandez) - As Amended: April 9, 2012
Policy Committee: HealthVote:12-4
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill enacts reforms in the individual health insurance
market effective January 1, 2014, mirroring provisions in
federal law. Specifically, this bill, as it applies to health
plans in the individual market:
1)Prohibits health plans from excluding coverage of preexisting
conditions.
2)Requires guaranteed renewability of health plans.
3)Prohibits health plans from conditioning the issuance of
coverage on any health-status related factor ("guaranteed
issue").
4)Specifies certain limited exemptions to guaranteed issue if a
health plan lacks the ability to provide sufficient health
care services to an individual.
5)Limits the factors to be used for calculation of premiums to
age, geography, and family size ("community rating").
6)Limits the sale of health plans to specified open enrollment
and special enrollment periods.
7)Specifies details of coverage start dates based on premium
payment.
8)Prohibits plans, agents, and brokers from encouraging
individuals to refrain from seeking coverage with a plan, or
to seek coverage through the Exchange, based on health status
and other factors ("anti-steering").
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9)Exempts grandfathered plans from most of these provisions.
FISCAL EFFECT
1)One-time special fund costs to the California Department of
Insurance (CDI) (Insurance Fund) and to the Department of
Managed Health Care (Managed Care Fund) over the next three
years in the range of $500,000 for each department. Costs
would be incurred to modify regulations, to ensure plan
licensure documentation and practices reflect compliance with
this bill's provisions, and to handle consumer inquiries.
2)Unknown, potentially significant annual state costs to the
California Department of Insurance (CDI) and the Department of
Managed Health Care to enforce the provisions of this bill
depending upon insurer compliance with the new provisions and
the volume of consumer complaints.
COMMENTS
1)Rationale . According to the author, this bill is necessary to
implement provisions of the federal Patient Protection and
Affordable Care Act (ACA) in California's individual health
insurance market. The author argues that while California has
a history of strong consumer protections in its insurance
market for small group purchasers, the state's individual
market has been referred to as the "wild west of health
insurance," with minimal restrictions on health insurers'
ability to deny coverage or charge higher rates based on
health status. The rules established in this bill will affect
individual insurance market plans operating both within and
outside the California Health Benefit Exchange.
2)Guaranteed Issue and Community Rating . State and federal
rules governing the issuance of health coverage depend on if
insurance is sought through the large-group market (mostly
larger employers and other groups), small-group market
(generally small employers), or the individual market (one
individual or family purchasing coverage directly). This bill
addresses the individual market.
The key provisions addressed in this bill are "guaranteed
issue" and "community rating" requirements. Some states
already have guaranteed issue in the individual market,
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meaning health insurance must be offered to an individual
seeking coverage regardless of medical history or health
status.
Theoretically, insurers could circumvent guarantee issue
requirements by offering only very expensive policies to
high-risk individuals. However, most guaranteed issue
requirements are coupled with requirements for community
rating, which limits the variation in premiums by only
allowing certain factors (such as age, family size, and
geography) to be used in the calculation of premiums. In
simple terms, these requirements make coverage available for
everyone seeking it, at prices that reflect the average risk
in a community. It also means the financial risk associated
with individuals with high health needs is spread among the
entire insured group. California currently has neither
community rating or guaranteed issue requirements in the
individual market, meaning an individual may be offered
coverage only at a very high cost or denied entirely. This
bill would implement both requirements, along with a related
prohibition on health plans' ability to exclude coverage for
preexisting conditions. Federal law already requires this
beginning in 2014, but this is under Supreme Court review as
discussed below.
3)Compliance with Federal Law . As stated, the provisions of this
bill largely mirror those in the federal ACA. Two policy
choices are made in this bill that are more specific or
restrictive than that allowed under the ACA.
a) Tobacco rating. The ACA limits the rating factors which
can be used to determine health insurance rates to age,
geography, family size, and tobacco-use; this bill does not
allow rating based on tobacco use.
b) Open enrollment . This bill restricts sale of all plans
in the individual market to defined open enrollment and
special enrollment periods, whereas federal rules only
require this of plans sold through the Exchange.
1)California Health Benefit Exchange. The federal ACA describes
basic responsibilities of state-based health insurance
exchanges, which are intended to function as risk-pooling
mechanisms and marketplaces that offer for sale a variety of
standardized health plans to individuals and small businesses.
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California's Exchange was established by AB 1602 (John A.
P�rez), Chapter 655, Statutes of 2010 and SB 900 (Alquist),
Chapter 659, Statues of 2010, and the five-member Exchange
Board has been meeting monthly since April 2011.
Federal subsidies for individuals under 400% of poverty will
be available only for plans purchased through the Exchange.
To ensure a balanced mix of health risk inside the Exchange by
creating a level playing field, the author is attempting to
align the open enrollment rules for the commercial market
outside the Exchange with those that apply inside the
Exchange. The anti-steering provisions also are intended to
protect the Exchange's health risk pool.
2)Opposition . Health plan trade groups are opposed to the
imposition of guaranteed issue and community rating without an
individual mandate to purchase coverage, which they maintain
could be extremely disruptive to the market if the federal
mandate is struck down. They indicate studies of other
"guaranteed-issue" states that do not have a coverage mandate
have found this requirement increased health insurance
premiums in the individual market significantly. In addition,
Blue Shield of California favors the inclusion of tobacco use
as a rating factor in setting premiums.
3)Related Legislation . AB 1461 (Monning) pending in Senate
Appropriations, is a companion bill to this bill, containing
identical provisions.
AB 1083 (Monning), pending on the Senate Floor, establishes
reforms in the small group health insurance market to
implement the ACA.
4)Previous Legislation . AB 1 X1 (Nunez) of 2007, which failed
passage in the Senate Health Committee, enacted the Health
Care Security and Cost Reduction Act, a comprehensive health
care reform proposal that included an individual mandate,
community rating, and guaranteed issue requirements.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081
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