BILL ANALYSIS �
AB 1917
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Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 1917 (Gordon) - As Introduced: February 19, 2014
SUBJECT : Outpatient prescription drugs: cost sharing.
SUMMARY : For nongrandfathered individual and group health
coverage which cover essential health benefits (EHBs), limits
enrollee cost sharing, such as copayments and coinsurance, for
outpatient prescription drugs to no more than 1/24 of the total
annual out-of-pocket limit for all EHBs, as specified.
Specifically, this bill :
1)Limits cost sharing for outpatient prescription drugs in
nongrandfathered, individual and small group health benefit
plans required to provide EHBs, and subject to statutory
maximum annual cost sharing charges, to no more than 1/24 of
the total annual out-of-pocket limit for all EHBs, for up to a
30 day supply.
2)For a high deductible health plan (HDHP), as defined under
federal tax rules, would require the cost sharing limit be
applied once an enrollee's deductible for the plan year is
satisfied.
3)Limits the total cost sharing for individuals eligible for
cost sharing reductions (CSRs) under the federal Patient
Protection and Affordable Care Act (ACA) (Public Law 111-148)
to no more than 1/24 of the annual out-of-pocket limit in the
cost sharing reduction plan.
4)Specifies that the requirements of 1) not be construed to
affect individuals entitled to ACA CSRs and excludes Medicare
health plans from the out-of-pocket limit in this bill.
5)Defines outpatient prescription drugs for purposes of this
bill to mean, "a drug approved by the federal Food and Drug
Administration that is self-administered by a patient,
administered by licensed health care professional in an
outpatient setting, or administered in a clinical setting that
is not an outpatient setting."
EXISTING LAW :
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1)Establishes the Department of Managed Health Care (DMHC) to
regulate health plans and the California Department of
Insurance (CDI) to regulate health insurers.
2)Requires health plans and insurers providing health coverage
in the individual and small group markets to cover, at a
minimum, EHBs, including the ten EHB benefit categories in the
ACA, (one of which is prescription drugs), 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. EHB prescription drug coverage offered, sold
and renewed by health plans and insurers after January 1,
2014, is subject to specified California statutory and
regulatory standards which predated the ACA and applied to
health plans under the jurisdiction of DMHC, including the
Kaiser benchmark.
3)Requires, in 2014, non-grandfathered individual and group
coverage covering EHBs to limit annual out-of-pocket expenses
for covered EHBs (except for pediatric oral care) to $6,350
for an individual and $12,700 for family coverage. For
specialized health insurance policies or health plan contracts
covering pediatric oral care, health plans and insurers must
limit the annual maximum to $1,000 for one child and $2,000
for more than one child. In 2015 and subsequent years,
non-grandfathered individual and group coverage must limit
annual out-of-pocket expenses for covered EHBs (including
pediatric oral care) to the federal annual limit for
out-of-pocket expenses in health savings account (HSA)
coverage for 2014, adjusted annually based on the average
increase in health insurance premiums, pursuant to the ACA and
implementing federal rules.
4)Establishes in federal law the ACA which, among other
provisions:
a) Establishes federal premium tax credits and CSRs for
eligible low- and moderate-income individuals purchasing
coverage in state exchanges, and imposes specified annual
limits on consumer out-of-pocket costs unless the coverage
is specifically grandfathered in the ACA.
b) Requires issuers of individual and small group coverage
to, at a minimum, cover EHBs in the following 10
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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.
c) 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.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to information provided by
the author's office, this bill directly benefits Californians
by annualizing prescription drug cost sharing so that patients
with expensive medications will not be forced to pay high
upfront costs. Instead, Californians will be given the
opportunity to budget and plan for these costs throughout the
year and will be protected from financial ruin. Patients who
need high cost life-saving prescription drugs can reach the
limit in the first month of the plan. This bill would help
Californians who live paycheck to paycheck as well as
individuals and families who do not qualify for any cost
sharing subsidies under the ACA (those who have an annual
income at or above 250% of the Federal Poverty Level (FPL)),
$29,175 annual income for a single individual and $59,625 per
year for a family of four.
2)BACKGROUND .
a) California Health Benefits Review Program. The
California Health Benefits Review Program (CHBRP) reviewed
this bill at the request of this Committee. The key
findings of the CHBRP report are:
i) Enrollees covered. CHBRP estimates that in
2015, 11.7 million of 23.4 million Californians with
state-regulated health insurance would have coverage
that would be subject to this bill. Medi-Cal managed
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care plans and grandfathered plans and policies are not
subject to this bill.
ii) Impact on expenditures. This bill would
increase expenditures in California by an estimated
$106.1 million in the nongrandfathered group and
individual market (excluding CSRs).
iii) Premiums. Increases in per member per month
premiums are estimated to range from an average of
0.047% (for DMHC-regulated large-group plans) to an
average of 0.661% (for CDI-regulated individual market
policies).
iv) Enrollee out-of-pocket expenses. This bill
would shifts costs from enrollees to health plans and
insurers. Enrollee out-of-pocket expenses would be
reduced by an estimated $21.8 million.
v) Medical effectiveness. Overall, there is strong
evidence that persons who face higher cost sharing
reduce use of both essential and nonessential services.
For prescription drugs, there is evidence that as cost
sharing increases for prescription drugs, including
specialty prescription drugs, usage decreases.
vi) Benefit coverage. This bill would apply to all
outpatient prescription drugs; however, the mandate is
estimated to have the greatest impact on high cost
and/or specialty drugs. All enrollees subject to this
bill have coverage for outpatient prescription drugs,
as broadly defined by this bill, and all have some form
of cost sharing for these drugs.
vii) Utilization. The limit on cost sharing in this
bill would increase utilization of high cost and/or
specialty drugs, both by enrollees using these
prescription drugs premandate, as well as by new users
who will being using these drugs due to the lower cost
sharing levels postmandate. Utilization would increase
2%, and there would be an estimated 947 new users
(premandate, 45,410; postmandate, 46,357).
viii) Public health. CHBRP projects no measurable
public health impact due to the small percentage of
enrollees utilizing high cost and/or specialty
prescription drugs with cost sharing that would be
lowered as a result of this bill (0.42%). However,
CHBRP recognizes that on a case-by-case basis, this
bill may yield important health and quality of life
improvements and could significantly impact disease
progression and outcomes for affected individuals.
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ix) EHBs. State rules related to cost sharing do
not meet the definition of state benefit mandates that
could exceed EHBs under the ACA; therefore, this bill
would not exceed EHBs and would not require the state
to defray the costs of this mandate for enrollees in
the exchange.
x) CSRs. Enrollees eligible for CSRs under the ACA
have incomes between 100-250% of FPL and must enroll in
a silver metal level qualified health plan in Covered
California. These products have reduced cost sharing,
including a lower annual out-of-pocket maximum. CHBRP
estimates there will be 730,000 enrollees in CSRs in
California in 2015. The monthly cost sharing limit on
all covered benefits required by this bill would change
the benefit design of these products, potentially
bringing them out of compliance with ACA requirements.
Therefore, CHBRP cannot estimate the impact of this
bill on benefit coverage, utilization, cost, and public
health for CSRs.
b) Specialty drugs and cost sharing tiers. According to
CHBRP, prescription drug benefits are a specific type of
covered benefit usually subject to cost sharing as part of
the medical benefit or a separate outpatient prescription
drug benefit. The separate drug benefit designs can be
characterized by the number of tiers (up to four) into
which drug classes and specific medications are assigned.
Each tier has a distinct cost sharing level and/or form;
the lower tiers are less costly to both the enrollee and to
the health plan or insurer. Some payers use a four-tier
system which includes life-style drugs and specialty drugs
in the fourth tier; typically these are the most costly
drugs. The four-tier design frequently results in greater
enrollee out-of-pocket expenses. CHBRP notes that there is
no standard industry definition of specialty prescription
drugs, but it is generally recognized by many payers as
prescription drugs with an average minimum monthly cost of
$1,150. Other criteria may include prescription drugs that
treat a rare disease, require special handling, or have a
limited distribution network. Most of the conditions
targeted by these specialty drugs tend to be chronic and
progressive in nature and can impact quality of life, along
with morbidity and mortality. Examples include growth
hormone disorders, rheumatoid arthritis, asthma, multiple
sclerosis, hepatitis C, hemophilia, cancer, and lupus.
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In 2013, the annual California HealthCare Foundation employer
benefits survey found that 66% of covered California
workers had a three- or four-tier cost sharing formula for
prescription drugs. Nationally, 82% of covered workers
were subject to three- or four-tier formulas.
c) CSRs. Under the ACA, CSRs reduce deductibles,
copayments, coinsurance and total out-of-pocket spending
limits for people with incomes up to 250% FPL ($59,625 for
a family of four in 2014). CSRs will be applied
automatically for consumers who qualify based on their
income, but only if they buy a silver-level plan, the ACA
benchmark for premium tax credits and CSRs. Silver plans
are one of the four levels of coverage (in addition to
catastrophic coverage), sometimes referred to as the
precious metals (bronze, silver, gold, and platinum), being
offered in the reformed individual and small group markets,
including the exchange, based on actuarial values of the
coverage at each level. A silver plan will generally pay
70% of covered medical expenses, leaving the consumer
responsible for 30% (bronze (60%), gold (80%) and, platinum
(90%)).
The federal CSRs essentially increase the insurers' share of
covered benefits, resulting in reduced out-of-pocket
spending for lower-income consumers. Insurers will be
reimbursed by the federal government for the CSRs. A
family of four whose income is between 100% and 150% FPL
($23,850 to $35,775) will be responsible for paying 6% of
covered expenses out-of-pocket compared with the 30% that a
family not getting CSRs would owe in a silver plan. A
family with an income between 150% and 200% FPL ($35,775 to
$47,700) will be responsible for 13% of expenses, and
families between 200% and 250% FPL ($47,700 to $59,625)
will be responsible for 27% of expenses.
In addition, people who earn 250% FPL eligible for CSRs will
have their maximum out-of-pocket spending capped at lower
levels than will be the case for others who buy plans on
the exchange. In 2014, the out-of-pocket limits for most
plans will be $6,350 for an individual and $12,700 for a
family but people who qualify for CSRs will see their
maximum out-of-pocket spending capped at $2,250 or $4,500
for single or family coverage, respectively, if their
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incomes are less than 200% FPL, and $5,200 or $10,400 if
their incomes are between 200% to 250% FPL.
In Covered California, in 2014, a standard silver plan has a
$2,000 deductible, a $6,400 maximum out-of-pocket limit and
a $45 copayment for a primary care office visit. CSR
eligible individuals whose income is between 150% and 200%
FPL, on the other hand, has a silver plan with a $500
deductible, a $2,250 maximum out-of-pocket limit and $15
copays for primary care doctor visits. This bill would
reduce the monthly out-of-pocket limit for individuals on
CSR plans to 1/24 of the cost sharing limit.
d) High deductible health plan. An HDHP is a health plan
product that combines an HSA or a Health Reimbursement
Arrangement with traditional medical coverage, providing a
tax benefit for covered individuals. The Internal Revenue
Service announced that for calendar year 2014, a "high
deductible health plan" is defined as a health plan with an
annual deductible that is not less than $1,250 for
self-only coverage or; $2,500 for family coverage; and,
annual out-of-pocket expenses (deductibles, co-payments,
and other amounts, but not premiums) do not exceed $6,350
for self-only coverage or $12,700 for family coverage.
HDHP coverage levels are adjusted annually by the IRS.
3)SUPPORT . Health Access California, sponsor of this bill,
offers that the emergence of very high cost specialty drugs
which are increasingly offered on an outpatient basis, such as
chemotherapy, has led health plans and insurers to impose high
copayments and coinsurance on the necessary medications.
Californians with HIV/AIDS, hepatitis, cancer, multiple
sclerosis, or other serious conditions often face costs of
thousands of dollars where fourth-tier drug coinsurance can be
10%-20% of the drug costs. Under these conditions, patients
must exhaust their entire annual out-of-pocket limit in the
first month. According to Health Access, asking someone to
spend $6,000 for a single prescription upfront is unrealistic.
This is particularly true for those who make less than
$45,000, the median income in California. Spreading these
costs out over the course of a year is reasonable and allows
Californians to budget and plan for the cost of their care,
and will prevent financial hardship and bankruptcy, the intent
of the ACA and the out-of-pocket limit provision. Patient
advocacy groups support this bill stating that the cost burden
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for specialty drugs adds to the challenges of dealing with
life threatening and chronic diseases. These organizations
point out that people with serious and chronic diseases have
very high medical expenses and make frequent health care
visits. For example, there are 10 injectables and three oral
medications used to help manage multiple sclerosis. The
medications have no generic substitutes and are typically
placed on specialty drug tiers with higher cost sharing.
Western Center on Law and Poverty writes in support of this
bill that sometimes individuals can work out payment plans
with health plans or providers but in many cases they do not
have the money to purchase the medication and must go without.
4)SUPPORT IN CONCEPT . The California Chronic Care Coalition
(Coalition) has adopted a position of support in concept on
this bill. The Coalition agrees with the basic premise of
this bill that many specialty medications are so expensive
that the average patient either cannot afford to purchase the
medications or does purchase them at the exclusion of other
needs such as rent, the mortgage, or even food. These life or
death issues are made by thousands of Californians every day.
The Coalition states that this bill deals with the most
visible part of the problem - the cost to the patient - but
just as important are the resulting potential added costs to
health plans, insurance companies, the Medi-Cal program,
employers, employees, pharmacists, providers, medical groups,
pharmaceutical companies, HR managers, labor unions (which
represent employees in bargaining for health and wage
benefits), and the taxpayer. The Coalition is also concerned
that the proposed maximum monthly in this bill, $250 to $265 a
month for a single prescription, is too high. The Coalition
cites a Prime Therapeutics study released on April 2, 2014
which found that pharmacy plan members with specialty drug
out-of-pocket costs less that $250 are more likely to start
taking their medication than those with higher out-of-pocket
expenses. As costs rise, the study found consumers are more
likely to abandon taking their medication as prescribed
leaving them at risk. The Coalition would like to see this
bill kept alive in the legislative process so it can be used
as a vehicle for major reforms after a Coalition- sponsored
stakeholder forum on specialty medications scheduled for May
29, 2014.
5)OPPOSITION . Health plans and insurers oppose this bill
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arguing it will increase health insurance premiums,
arbitrarily require changes in the Covered California standard
benefit designs and do nothing to control the dramatic rise in
prescription drug costs. The California Association of Health
Plans (CAHP) writes in opposition to this bill because it
legislatively sets a per-prescription cap for all outpatient
drugs. This across-the-board price regulation is not related
to the underlying cost of health care and is unreasonable
considering the very high cost of many drugs and services.
CAHP points out that prescription drugs represent a
significant 16% of the health care premium dollar and the
underlying cost of drugs deserves immediate attention.
According to CAHP, drug spending in California nearly doubled
from 1991 to 2009, reaching $24.4 billion (10.5% of all health
care spending). CAHP notes that the high-cost of specialty
medications to treat complex and rare conditions could outpace
all of the recent savings from the expanded use of generic
drugs for common conditions like high cholesterol and high
blood pressure. The Pharmaceutical Care Management
Association opposes this bill because it will increase costs
both inside and outside of Covered California, gives branded
drug manufacturer's a free ride on endless price increases,
and the requirements of this bill would be extremely complex
and costly to administer. Association of California Life and
Health Insurance Companies (ACLHIC) that under the ACA
actuarial value standards lowering cost sharing for one
benefit will necessarily increase cost sharing for other
services. ACLHIC believes that this bill will only shift the
burden and socialize the costs of expensive drugs to all rate
payers.
6)PREVIOUS LEGISLATION .
a) SB 639 (Ed Hernandez), Chapter 316, Statutes of 2013,
enacts implementing state law related to ACA out-of-pocket
limits on health plan enrollee and insured cost sharing,
health plan and insurer actuarial value coverage levels and
catastrophic coverage requirements, and requirements on
health insurers with regard to coverage for out-of-network
emergency
services.
b) AB 219 (Perea), Chapter 661, Statutes of 2013, limits
the total amount of copayments and coinsurance an enrollee
or insured is required to pay for orally administered
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anticancer medications to $200 for an individual
prescription of up to a 30-day supply.
c) SB 842 (Speier), Chapter 791, Statutes of 2002, required
DMHC to develop standards for health plan that cover
prescription drugs, including standards to be used by DMHC
in reviewing a health plan's request for approval of
proposed copayment, deductible, limitations, or exclusions
for prescription drug benefits.
7)TECHNICAL AMENDMENTS. The definition of outpatient drugs in
this bill does not specify that the drug must require and be
dispensed by a prescription, or be covered by the contract or
policy, to be subject to the cost sharing limits in this bill.
The definition of outpatient prescription drugs in this bill
should be amended to make those clarifying changes.
8)AUTHOR'S AMENDMENTS . The author intends to offer the
following amendments in Committee:
a) Eliminate the limit on out-of-pocket costs for
individuals eligible for ACA CSRs;
b) Spread the cost sharing out over the course of
treatment;
c) Clarify that the limits on out-of-pocket costs in
specialized health plan contracts and insurance policies
(dental-only, vision-only, mental health-only, etc.) only
applies if the specialized health plans covers EHBs; and
d) Authorize DMHC and CDI to adjust the requirements in
this bill if necessary to comply with federal or state
actuarial value requirements; and,
e) Delay the effective date of this bill until July 1, 2015
for the group market and until January 1, 2016 for the
individual market.
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Healthcare Institute
California Pharmacists Association
California Teachers Association
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CALPIRG
National Alliance for the Mentally Ill, California
National Multiple Sclerosis Society, California Action Network
Western Center on Law and Poverty
Opposition
Aetna
America's Health Insurance Plans
Anthem
Association of California Life and Health Insurance Companies
California Association of Health Plans
California Chamber of Commerce
Pharmaceutical Care Management Association
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097