BILL ANALYSIS �
AB 1507
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 1507 (Logue) - As Amended: April 21, 2014
SUBJECT : Health care coverage.
SUMMARY : Authorizes health plans and insurers to renew
individual and small group health benefit plans in effect
October 1, 2013, as specified, and requires such coverage to be
treated as "grandfathered" coverage, exempt from California
implementing provisions of the federal Patient Protection and
Affordable Care Act (ACA) (Public Law 111-148) explicitly
identified in this bill. Specifically, this bill :
1)Authorizes, but does not require, to the extent permitted
under the ACA, health plans and insurers to renew individual
and small group health benefit plans not grandfathered under
the ACA which were in effect October 1, 2013.
2)Permits the coverage to be renewed until October 1, 2014 and
to remain in effect until December 31, 2014, subject to any
applicable federal law, any other requirements imposed in
applicable state law, and any requirements imposed by the
renewing health plan or insurer.
3)Requires individual and small group health benefit plans
renewed pursuant to this bill to be treated as grandfathered
coverage, and exempts such coverage from specified ACA
implementation and pre-ACA provisions in state law, including
but not limited to:
a) Guaranteed availability: Requires health plans and
insurers to accept all individuals and small groups that
apply for coverage regardless of health status and without
any coverage limitation or exclusions because of
pre-existing health conditions;
b) Minimum benefits: Requires any individual and small
group coverage issued, amended or renewed on or after
January 1, 2014 to cover, at a minimum, essential health
benefits (EHBs) as defined in state and federal law, and to
limit the cost sharing and annual out-of-pocket costs
associated with the coverage, as specified;
AB 1507
Page 2
c) Guaranteed renewal: Requires renewal of in force
individual and small group coverage at the request of the
individual or group, regardless of the claims history or
health status of covered individuals and groups;
d) Annual and special enrollment periods: Restricts the
purchase of non-grandfathered individual coverage to an
initial open enrollment period (October 1, 2013-March 31,
2014), annual enrollment periods, and for special
enrollment circumstances such as marriage, divorce or loss
of minimum essential coverage. Requires health plans and
insurers (including health plans and insurers offering
small group coverage through the Covered California Small
Business Health Options program) to allow qualified
employers to purchase coverage at any point during the year
and to provide for special enrollment periods, as
specified;
e) Actuarial value: Limits non-grandfathered coverage that
may be offered in the individual and small group market to
five categories: four benefit levels determined by the
actuarial value of the coverage (bronze, silver, gold, and
platinum) and catastrophic coverage; and,
f) Rating factors: Limits health plans and insurers to the
following rating factors: age, geographic region and
whether the coverage is for an individual or family.
4)Notwithstanding the exemptions from other ACA implementing
provisions in this bill, maintains requirements that apply to
non-grandfathered child coverage, including that health plans
and insurers accept all applicants and not include any
coverage exclusions for pre-existing health conditions.
5)Defines "health benefit plan" for purposes of this bill to
mean any individual or group contract or policy that covers
medical, hospital, and surgical benefits, excluding
specialized health plans, such as dental-only and vision-only
coverage, and specified government programs, such as Medi-Cal
and Medicare.
EXISTING LAW :
1)Establishes the Department of Managed Health Care (DMHC) to
AB 1507
Page 3
regulate health plans and the California Department of
Insurance (CDI) to regulate health insurers.
2)Establishes the California Health Benefit Exchange (Covered
California) to arrange for and offer coverage to individuals
and small groups, consistent with state and federal
requirements, including determining eligibility for federal
premium tax credits to assist eligible low- and
moderate-income persons with the purchase of health coverage
from contracted Covered California health plans and insurers.
3) Requires health plans and insurers issuing health
benefit plans in the individual and small group markets to
comply with specific rules in the offering, sale, and scope
of that coverage, including the requirement to accept all
individual and small group applicants, unless the coverage
is grandfathered pursuant to the ACA.
4)Restricts the purchase of guaranteed individual coverage to an
initial open enrollment period (October 1, 2013-March 31,
2014), annual enrollment periods, and in special enrollment
circumstances such as marriage, divorce, or loss of minimum
essential coverage, as defined in state and federal law.
5)Limits non-grandfathered coverage that may be offered in the
individual and small group market to five categories: four
benefit levels determined by the actuarial value of the
coverage (bronze, silver, gold, and platinum), and
catastrophic coverage.
6)Requires issuers providing a health benefit plan in the
individual and small group markets to cover, at a minimum,
EHBs, including the 10 EHB benefit categories in the ACA, and
consistent with California's EHB benchmark plan, the Kaiser
Foundation Health Plan Small Group HMO 30 plan (Kaiser
benchmark), as specified in state law. Prohibits annual and
lifetime dollar limits on EHBs.
7)Establishes in federal law the ACA which, among other
provisions:
a) Requires issuers offering individual and small group
coverage to offer all products and accept every individual
or group that applies, except for grandfathered coverage,
and authorizes health plans and insurers to restrict the
AB 1507
Page 4
offer of coverage to open enrollment periods, if the health
plan and insurer provides special enrollment periods for
changes in coverage or life circumstances, as specified in
federal law;
b) Defines as "grandfathered" individual and small group
coverage in effect on March 23, 2010, providing the
coverage continues to meet specific federal requirements
limiting benefit and coverage changes, and exempts such
grandfathered coverage from many ACA requirements otherwise
applicable to individual and small group coverage;
c) Requires issuers of non-grandfathered individual and
small group coverage to, at a minimum, cover EHBs in the
following 10 categories: ambulatory patient services,
emergency services, hospitalization, maternity and newborn
care, mental health and substance use disorder services,
including behavioral health treatment, prescription drugs,
rehabilitative and habilitative services and devices,
laboratory services, preventive and wellness services and
chronic disease management, and pediatric services,
including oral and vision care; and,
d) Requires states to select a "benchmark plan" to serve as
the minimum coverage standard for EHBs, choosing from among
specified employer plans offered in the state, and
prohibits annual and lifetime dollar limits on coverage for
EHBs.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . This bill will allow individuals and
small groups with coverage in effect on October 1, 2013, if
not qualified as grandfathered under the ACA, to be renewed
until October 1, 2013 and to continue in force until December
31, 2014. According to the author, by October 1, 2013 an
estimated 279,000 Californians were expected to lose coverage
as a direct result of the ACA. The author states that in
November 2013, the Covered California Board chose to not allow
individuals to reclaim the cancelled contracts and policies
offered by health plans and insurers under contract with the
Exchange. The author argues allowing Californians to reclaim
AB 1507
Page 5
the cancelled coverage will give them an opportunity to
prepare for their future health benefit plan and keep the
coverage they had for an additional period of time.
2)BACKGROUND .
a) California ACA implementation laws. California adopted
in state law provisions of the ACA affecting the offer and
sale of individual and small group coverage to reconcile
the federal provisions with prior California law and to
facilitate state enforcement by CDI and DMHC. California
law requires health plans and insurers, starting October 1,
2013 for coverage effective January 1, 2014, to offer
individual and small group coverage on a guaranteed
availability basis, subject to open and special enrollment
periods. Coverage issued, amended, or renewed on and after
January 1, 2014 must comply with EHB minimum benefits,
limited rating factors, and other ACA implementing
provisions. Under current state law, any coverage that was
in effect as of October 1, 2013 would have to be made
compliant with ACA provisions, such as EHBs and limits on
cost sharing, upon renewal.
In late 2013, some health plans and insurers voluntarily
cancelled existing policies that were non-ACA compliant
prior to the renewal date in anticipation of the need to
comply with specified ACA standards. In addition, Covered
California required health plans and insurers participating
in the individual exchange by contract to cancel any
non-ACA compliant individual coverage by December 31, 2013.
This bill would postpone the requirement to comply with
specified provisions of the ACA for coverage that was in
effect October 1, 2013, by allowing health plans and
insurers, at their option, to renew the coverage until
October 1, 2014, and to keep it in force until December 31,
2014, without complying with ACA provisions. Under this
bill, the renewed coverage would need to be ACA-compliant
as of January 1, 2015.
b) Federal Center for Medicare and Medicaid Services (CMS)
transitional policy. On November 14, 2013, CMS issued a
letter to the State Insurance Commissioners outlining a
transitional policy for non-grandfathered coverage in the
small group and individual health insurance markets. CMS
announced that, if permitted by applicable State
AB 1507
Page 6
authorities , health insurance issuers may choose to
continue certain coverage that would otherwise be
cancelled, and affected individuals and small businesses
may choose to re-enroll in such coverage. CMS further
stated that, under the transitional policy,
non-grandfathered health insurance coverage in the
individual or small group market that is renewed for a
policy year starting between January 1, 2014 and October 1,
2014 will not be considered to be out of compliance with
specified ACA market reforms.
On March 5, 2014, CMS extended the transitional policy for
two years, through October 1, 2016. CMS announced that, at
the option of the states, health insurance issuers that
issued or will issue coverage under the transitional policy
anytime in 2014 may renew such policies through October 1,
2016, and affected individuals and small businesses may
choose to re-enroll in such coverage through October 1,
2016. States that did not adopt the transitional policy,
and that regulate issuers whose 2013 policies renew anytime
before December 31, 2014, including any coverage states
allowed to be renewed before the scheduled renewal date in
late 2013, may choose to implement the transitional policy
for any remaining portion of the 2014 policy year (i.e.,
this policy could apply to "early renewals" from late
2013). Moreover, states can elect to extend the
transitional policy for a shorter period but may not extend
it to policy years beginning after October 1, 2016.
In addition, on December 19, 2013, CMS issued guidance
indicating that individuals whose policies were cancelled
because the coverage is not compliant with ACA qualify for
a hardship exemption if they find other options to be more
expensive, and are then able to purchase catastrophic
coverage. In the March 2014 guidance, CMS announced that
this hardship exemption will continue to be available until
October 1, 2016, for those individuals whose non-compliant
coverage was cancelled and who meet the requirements
specified in the guidance.
3)OPPOSITION . Health Access California opposes this bill
because it would undo numerous consumer protections in place
since November 2013, including allowing health plans and
insurers to sell substandard coverage, deny coverage to
individuals with pre-existing health conditions, and expose
AB 1507
Page 7
consumers to potentially hundreds of thousands of dollars in
out-of-pocket health care costs. Consumers Union also points
out that this bill would create different rules for policies
sold outside and within the Exchange, increasing the potential
for adverse selection against the Exchange. Small Business
Majority opposes this bill because it would undo protections
already in place for small businesses, such as guaranteed
coverage and minimum benefit standards, and impose different
rules for coverage outside of the Exchange, leading to premium
increases and anemic enrollment in Covered California. The
California Optometric Association writes in opposition that
coverage renewed pursuant to this bill would not be subject to
the federal prohibition of discrimination, with respect to
provider participation or coverage under a plan or policy,
against any health care provider who is acting within the
scope of that provider's license or certification.
4)RELATED LEGISLATION . AB 2433 (Mansoor) requires, to the
extent permitted by the federal ACA, an individual whose
health benefit plan was cancelled between December 1, 2013 and
March 31, 2014, to be deemed to face hardship, making them
eligible to purchase individual catastrophic coverage. AB
2433 failed in Assembly Health Committee.
5)PREVIOUS LEGISLATION . AB 2 X1 (Pan), Chapter 1, Statutes of
2013-14 First Extraordinary Session/SB 2 X1 (Ed Hernandez),
Chapter 2, Statutes of 2013-14 First Extraordinary Session,
enacted ACA reforms of the individual health insurance market,
and AB 1083 (Monning), Chapter 852, Statutes of 2012, enacted
ACA reforms for the small employer market, including the
provisions being extended to large group disease and hospital
indemnity insurance in this bill.
6)POLICY COMMENTS .
a) Health plan option. This bill does not accomplish the
author's intent as stated to allow individuals to reclaim
cancelled coverage. First, this bill allows, but does not
require, health plans and insurers, at their option, to
renew coverage that was in effect October 1, 2013 and is
still in force, until October 1, 2014, and to continue the
coverage until December 31, 2014, but does not allow health
plans and insurers to reissue cancelled coverage. Second,
the renewal of in force coverage is voluntary on the part
of health plans and insurers who can choose to renew some
AB 1507
Page 8
in force coverage and not others or choose not to renew any
in force coverage. In addition, this bill makes the
continuation of in-force coverage subject to any [other]
requirements "imposed by the health benefit plan." Because
this bill exempts renewed coverage from most ACA
requirements, such unspecified provisions could allow
health plans to impose conditions on renewal that would
leave some individuals and groups unable to maintain the
coverage.
b) Potential impact on Covered California. Since this bill
leaves the decision on whether to renew in force coverage
to health plans and insurers, they will be able to renew
only the healthiest individuals in non-ACA compliant
policies, leaving more high risk and potentially more
costly individuals in the Exchange and outside market,
potentially undermining the Exchange risk mix which could
lead to higher 2015 premiums in Covered California.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
American Federation of State, County and Municipal Employees,
AFL-CIO
California Optometric Association
Consumers Union
Health Access California
Small Business Majority
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097
AB 1507
Page 9