BILL ANALYSIS �
AB 1917
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Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1917 (Gordon) - As Amended: May 7, 2014
Policy Committee: HealthVote:13-5
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill limits cost-sharing for prescription drugs in health
plans and insurance policies that provide prescription drug
coverage. Specifically, this bill:
1)Prohibits cost-sharing for an individual prescription, for a
supply of up to 30 days, from exceeding 1/24 of the annual
out-of-pocket maximum (or $265 for 2015), for individual and
group coverage issued, amended, or renewed on or after January
1, 2016, for an individual contract or policy, or July 1,
2015, for a group contract or policy.
2)Prohibits cost-sharing, for a drug that has a time-limited
course of treatment of 3 months or less, from exceeding 1/2 of
the annual out-of-pocket limit (or $3,175).
3)Applies to specialized plan contracts and policies that offer
prescription drugs as specified, and applies to
high-deductible health plans only after an enrollee's
deductible has been satisfied for the plan year.
FISCAL EFFECT
1)One-time costs to CDI for oversight and review of $50,000 and
ongoing potential enforcement costs of $70,000 annually
(Insurance Fund).
2)One-time costs to DMHC for review and regulations of $80,000,
and potential ongoing enforcement costs averaging $25,000 per
year (Managed Care Fund).
3)According to the California Health Benefits Review Program
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(CHBRP), estimated costs are as follows:
a. $7.5 million for provision of services through
CalPERS benefit plans (GF/federal/special/ local funds).
About 60% of this cost is state cost, while the rest is a
local cost. Increased costs to CalPERS are primarily due
to reduced cost-sharing for infertility drugs.
b. Increased employer-funded premium costs in the
private insurance market of $28 million.
c. Increased premium expenditures by employees and
individuals purchasing insurance of $79 million.
d. Reduced out-of-pocket expenditures of $22 million.
4)To the extent this bill improves adherence to costly
medication, payers may experience some level of reduced
utilization and cost for other health care services. Poor
adherence to prescription drugs is associated with increased
hospitalizations and emergency department visits. The extent
of potential savings associated with improved adherence
attributable to this bill, however, is unknown.
5)Unknown potential costs and market impact for provisions
related to specialized plans, such as those only covering
behavioral health services.
COMMENTS
1)Purpose . According to 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. For example, patients who
need high cost life-saving prescription drugs can reach the
limit in the first month of the plan, and face costs of up to
$6,350 during this time. The author believes 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.
2)Cost-sharing and prescription drugs . Prescription drugs are
required to be covered by all comprehensive health plans and
policies in the individual and small-group market, and are
also generally covered by large employers as well. Plans
often use a tiered formulary, with the first tier including
low-cost generics that have similarly low cost-sharing, the
second tier including preferred branded drugs (for which a
plan has a preferred pricing agreement), and the third tier
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being non-preferred brand drugs (which the plan generally
disincentivizes, through the use of higher cost-sharing).
Tiers range in cost-sharing, with an average copayment of $10
for generics, $25 for preferred, and $42 for non-preferred.
For plans that have a fourth tier, drugs on this tier,
generally high-cost specialty as well as so-called "lifestyle"
drugs, averaged $80 copay and 32% coinsurance. Most group
plans (about 90%) have per-prescription caps on cost sharing.
The remainder, as well as those in the individual market,
could have cost sharing that exceeds limits established by
this bill.
Prescription drug costs have generally been rising as more
specialty drugs are developed. New drugs can also sometimes
replace other types of treatment. For example, oral
chemotherapy may be used instead of facility-based
chemotherapy. In this way, services previously provided under
a medical benefit have become prescription drug benefits,
raising costs for providing prescription drugs.
Prescription drugs most likely affected by this mandate will
be the most expensive prescriptions in several classes of
specialty and biologic drugs used to treat conditions such as
cancer, multiple sclerosis, rheumatoid arthritis, immune
disorders, anemia, HIV, and infertility.
3)Effect of lowering cost-sharing . According to CHBRP, research
has established persons who face higher cost sharing use fewer
services than persons with lower cost sharing, and that this
effect occurs for both essential and nonessential treatments.
As cost-sharing increases, adherence to drug regimens
decreases. Increased adherence is generally associated with
improved outcomes. However, there is some evidence that the
effect of cost sharing may differ depending on the specific
disease and specific specialty drug. In addition, low-income
patients appear more sensitive to cost-sharing changes than
high- income patients.
This bill would likely accelerate the use of high-cost
prescription drugs over the long term. Insurers will not be
able to increase cost sharing as a mechanism to curtail the
use of high-cost drugs, but can increase premiums, apply more
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stringent utilization review criteria, and negotiate discounts
with pharmaceutical companies. In return, pharmaceutical
companies can accelerate direct to consumer advertising
efforts and increase overall prescription drug costs. A limit
on cost sharing may also be an incentive for pharmaceutical
companies to increase prices and a disincentive to offer
coupons.
CHBRP was not able to define impacts on public health,
mortality, or health disparities, but notes this bill may have
a substantial positive outcomes for certain people with
high-cost conditions.
4)Previous Legislation .
a) 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
anticancer medications to $200 for an individual
prescription of up to a 30-day supply. The governor issued
a signing statement indicating, "This policy is not without
the potential for unintended consequences. Higher drug
prices, higher premium costs, and an expectation that our
state laws can solve each pricing problem that arises-these
cannot be the outcome of our good intentions. [?]This bill,
with a sunset, permits us to examine what
effects-intentional or unintentional-this bill may have
before we embrace if for the longer term."
b) 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.
1)Staff Comments . This bill would reduce cost-sharing for all
covered outpatient prescription drugs, including drugs that a
plan chooses to cover but are not generally considered by
regulators to be medically necessary, and are not required to
be covered under the state's "essential health benefits"
rules. These drugs sometimes have a much higher share of cost,
reflecting their status as primarily intended to improve
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quality of life and not necessarily to ameliorate a medical
condition. These may include drugs for infertility as well as
conditions like skin pigmentation, baldness, and erectile
dysfunction, for example. CHBRP reports CalPERS requires a
50% share of cost for covered fertility treatments, for
example. Requiring cost-sharing for drugs primarily intended
to improve quality of life to comply with rules imposed by
this bill would reduce a plan's ability to require a
significant share of the cost of these optional drugs be paid
by the person seeking these drugs. This, in turn, increases
overall costs for health benefits. Plans could handle this
cost pressure by increasing cost-sharing for other services,
increasing premiums, or, potentially, excluding these drugs
from coverage altogether, which could reduce access to these
drugs.
Analysis Prepared by : Lisa Murawski / APPR. / (916)
319-2081