BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1917
AUTHOR: Gordon
AMENDED: May 23, 2014
HEARING DATE: June 18, 2014
CONSULTANT: Boughton
SUBJECT : Outpatient prescription drugs: cost sharing.
SUMMARY : Establishes limits on the copayment, coinsurance, or
any other form of cost sharing for a covered outpatient
prescription drug for an individual prescription of 1/12
(equivalent to $529 for 2014) or ($3,175 for 2014) of the
annual out-of-pocket limit (which is $6,350 for 2014), as
specified under the federal Patient Protection and Affordable
Care Act with respect to a non-grandfathered individual or group
health plan contract or insurance policy.
Existing law:
1.Regulates health plans through the Department of Managed
Health Care (DMHC) and health insurance policies through the
California Department of Insurance (CDI).
2.Mandates the 10 federally required Essential Health Benefits
(EHBs) and establishes Kaiser Small Group health plan as
California's EHB benchmark plan.
3.Requires, on or after January 1, 2015, for non-grandfathered
health plan contracts or health insurance policies in the
individual and small group markets, to provide for a limit on
annual out-of-pocket expenses for all covered benefits that
meet the definition of EHB, including out-of-network emergency
care, as specified. For large group, requires a
non-grandfathered health plan or health insurer to provide for
a limit on annual out-of-pocket expenses for covered benefits,
including out-of-network emergency care, as specified.
Requires this limit to only apply to EHBs that are covered
under the plan or policy to the extent that this provision
does not conflict with federal law or guidance on
out-of-pocket maximums.
4.Requires the maximum out-of-pocket limit to apply to any
copayment, coinsurance, deductible and any other form of cost
sharing for all covered benefits that meet the definition of
Continued---
AB 1917 | Page 2
EHB.
5.Limits the total maximum out-of-pocket limit for all EHBs to
the dollar amounts in effect under the Internal Revenue
Service, as specified, as adjusted by the Patient Protection
and Affordable Care Act (ACA), as specified.
6.Excludes specialized health plans or insurance policies from
3) through 5) unless the plan contract or policy offers or
provides an EHB.
7.Limits, for an individual or group health care service plan
contract or health insurance policy issued, amended, or
renewed on or after January 1, 2015, that provides coverage
for prescribed, orally administered anticancer medications
used to kill or slow the growth of cancerous cells, 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.
8.Establishes Covered California as California's health benefit
exchange where individuals and small employers can purchase
standardized health insurance from selectively contracted
qualified health plans (QHPs) based on bronze, silver, gold
and platinum actuarial level categories.
This bill:
1.Limits with respect to a non-grandfathered individual or group
health plan contract or insurance policy, the copayment,
coinsurance, or any other form of cost sharing for a covered
outpatient prescription drug for an individual prescription to
the following:
a. For a non-time-limited course of treatment or
a time-limited course of treatment of more than three
months, 1/12 of the annual out-of-pocket limit for a
supply of up to 30 days; and,
b. For a prescription drug that has a
time-limited course of treatment of three months or
less, of the annual out-of-pocket limit applicable
for the time-limited course of treatment.
2.Requires for a high deductible health plan or insurance
policy, in 1) above, to only apply once an enrollee's
deductible has been satisfied for the plan year.
AB 1917 | Page
3
3.Exempts health plan contracts or insurance policies for
Medicare from the provisions of this bill.
4.Applies the cost-sharing limits to outpatient prescription
drugs covered by the contract or policy that constitute EHBs.
5.Prohibits this bill from being construed to affect the
reduction in cost sharing for enrollees or insureds eligible
for cost-sharing reductions under the ACA.
6.Applies this bill to a specialized health plan contract or
insurance policy that offers or provides an EHB. Exempts from
this bill specialized health plan contracts or insurance
policies that do not offer or provide an EHB.
7.Applies this bill to an individual health plan contract or
insurance policy issued, amended, or renewed on or after
January 1, 2016, and to a group health plan contract or
insurance policy that is issued, amended, or renewed on or
after July 1, 2015.
8.Defines "outpatient prescription drug" as a drug approved by
the federal Food and Drug Administration, and prescribed by a
licensed health care professional acting within his or her
scope of practice, that is self-administered by a patient,
administered by a licensed health care professional in an
outpatient setting, or administered in a clinical setting that
is not an inpatient setting.
9.Defines plan year for the group market as defined in federal
regulations, as specified, and for the individual market as
the calendar year.
FISCAL EFFECT : According to the Assembly Appropriations
Committee
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).
AB 1917 | Page 4
3.Unknown employer-funded premium costs in the private insurance
market and premium expenditures by employees and individuals
purchasing insurance, potentially in the millions to tens of
millions of dollars. Some of these increased costs will be
offset by reduced out-of-pocket expenditures.
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.
PRIOR VOTES :
Assembly Health: 13- 5
Assembly Appropriations:12- 5
Assembly Floor: 48-25
COMMENTS :
1.Author's statement. According to the author, the annual
out-of-pocket limit established last year is intended to protect
Californians from financial ruin by placing hard caps on how much
money patients will have to spend out of their own pocket for
health care services. This bill takes that goal a step further but
limits it to prescription drugs. Patients with cancer, HIV/AIDS,
hepatitis, multiple sclerosis, and other serious and chronic
conditions need high cost specialty drugs, which can cost
thousands of dollars. These Californians can often reach their
out-of-pocket limit in the first month of the plan year with only
one prescription drug. Many Californians would find it difficult
to spend $6,350, let alone in one month. Too many patients are
forced to choose between paying for their life-saving drugs and
paying for housing, child care, or food. In turn, many are
suffering, and even face death, from illnesses that are treatable.
AB 1917 reduces the prescription drug cost sharing for patients
by capping the amount an individual pays based on a percentage of
the out-of-pocket limit. This protects Californians and makes it
easier for them to realistically afford and pay for their health
care thereby increasing patients' access and medication adherence
to life-saving drugs.
2.California Health Benefits Review Program (CHBRP) analysis. AB
1996 (Thomson), Chapter 795, Statutes of 2002, requests the
University of California to assess legislation proposing a
AB 1917 | Page
5
mandated benefit or service and prepare a written analysis with
relevant data on the medical, economic, and public health impacts
of proposed health plan and health insurance benefit mandate
legislation. CHBRP was created in response to AB 1996. Below are
major findings of CHBRP's analysis.
a. Enrollees Covered: CHBRP estimates that in 2015,
11.7 million of 23.4 million Californians with state
regulated health insurance would have coverage subject to
this bill. Enrollees eligible for cost-sharing
reductions under the ACA have incomes between 100 percent
and 250 percent of the federal poverty level and are
enrolled in a silver metal-level QHP in Covered
California. Approximately, 730,000 in 2015 are estimated
by CHBRP to have reduced cost sharing, including lower
annual out-of- pocket maximums through Covered California
b. Impact on Expenditures: In a revised analysis based
only on the 1/12 cap, CHBRP indicates expenditures would
increase in California by an estimated $43.3 million in
the non-grandfathered group and individual market.
Premium increases are estimated to range from an average
of .02 percent for group plans to an average of .17
percent for individual market policies. Enrollee
out-of-pocket expenses would be reduced by an estimated
$7 million. As for the amendment regarding time-limited
prescriptions and not time-limited prescriptions, CHBRP
is not able to quantitatively say by how much or what the
magnitude, but the limitation would likely result in
additional reduction in expenditures.
c. Medical Effectiveness: CHBRP states that overall
there is strong evidence that persons who face higher
cost sharing reduce use of both essential and
non-essential services, and for prescription drugs, there
is evidence that as cost sharing increases for
prescription drugs, including specialty prescription
drugs, usage decreases.
d. Benefit Coverage. The mandate is expected to have
the greatest impact on high cost and/or specialty drugs.
According to CHBRP, the average cost sharing per
outpatient prescription drug claim pre-mandate is
$408.94, and post-mandate is $302.24. This is lower than
the cap of $529 because some people will hit their
out-of-pocket maximum due to other additional expenses.
CHBRP points out that there is no standard industry
definition of specialty prescription drugs, but specialty
AB 1917 | Page 6
drugs are 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. Examples of
conditions that require treatment using specialty drugs
include growth hormone disorders, rheumatoid arthritis,
asthma, multiple sclerosis, hepatitis C, hemophilia,
cancer and lupus.
e. Utilization. According to CHBRP approximately
25,582 enrollees have high cost/specialty prescription
drug claims greater than the AB 1917 limit on cost
sharing (1/12th). The limit on cost sharing would
increase utilization of high cost and/or specialty drugs
by 1.35 percent and there would be an estimated 345 new
users.
f. Public Health. CHBRP projects no measurable public
health impact due to the small percentage of enrollees
(.24 percent) utilizing high cost and/or specialty
prescription drugs with cost sharing that would be
lowered. However, 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.
g. Essential Health Benefits. This bill would not
exceed EHBs and would not require the state to defray the
costs of this mandate for enrollees in QHPs.
3.Covered California Standard Benefit Design. For 2015, the
Covered California individual market silver plan the standard
prescription drug benefit and other benefits are shown in the
table below. For prescription drug benefits the standards are
the same for the 70.30 percent actuarial value and the 69.90
percent actuarial value. The difference in the actuarial
value is not attributable to the prescription drug benefits,
but instead to the design of other benefit cost sharing
designs. For example, imaging subject to a 20 percent cost
share after the deductible in one standardized plan and a $250
copayment in the other.
--------------------------------------------
| |Coinsurance| Copay Plan |
| | Plan | |
|------------------+-----------+-------------|
|Actuarial Value | 70.30 | 69.90 |
AB 1917 | Page
7
| | percent | percent |
|------------------+-----------+-------------|
|Deductibles | | |
| Medical | $2,000 | $2,000 |
| Brand Drugs | $250 | $250 |
| Dental | $0 | $0 |
|Individual | $6,250 | $6,250 |
|out-of-pocket max | | |
| | | |
|------------------+-----------+-------------|
|Generic | $15 | $15 |
|------------------+-----------+-------------|
|Preferred Brand | $50 | $50 |
|copay after Drug | | |
|Deductible | | |
|------------------+-----------+-------------|
|Non Preferred | $70 | $70 |
|Brand Drugs after | | |
|Deductible | | |
|------------------+-----------+-------------|
|Specialty Drugs |20 percent | 20 percent |
|after Deductible | | |
|------------------+-----------+-------------|
|Imaging |20 percent | $250 |
| |subject to | |
| |deductible | |
|------------------+-----------+-------------|
|Children's dental | | |
| |20 percent |$25 |
| Amalgam Fill | | |
--------------------------------------------
Additionally, the table shows that for both standardized
plans, a person with a high cost specialty drug that has costs
of $10,000 per month would have to first meet the deductible
of $250 and then pay 20 percent or $1,950 for that
prescription for a total of $2,200 for the first month and
$2,000 per month after that. If the individual has other
medications or other medical needs the individual would
out-of-pocket liability up to the maximum of $6,250. If the
person had no other cost sharing liability, he or she would
pay $2000 in months two and three for the specialty drug and
in month four only $50 because the out-of-pocket maximum would
have been reached. The person would have no cost sharing for
that drug and any covered benefits for the rest of the year.
AB 1917 | Page 8
Under this bill, a person with a $10,000 per month specialty
drug cost share would only pay $529 per month for 11 months
and $181 in the 12th month because the out-of-pocket maximum
would have been reached.
4.Specialty drugs. According to a February 2014 issue brief
published by America's Health Insurance Plans (AHIP), 25
percent of U.S. spending on prescription drugs in 2012 was on
specialty drugs. Specialty drugs are structurally complex and
often require special handling or delivery mechanisms and are
priced much higher than traditional drugs. The treatment
regimen for some of the most expensive specialty drugs can
cost $750,000 per year. Because of the comparatively high
cost of these drugs, the commercial trend for pharmaceutical
spending in 2012 was driven almost entirely by increases in
the unit cost of specialty drugs. Spending on specialty drugs
has shown no signs of abating; similar double digit increases
are forecast for 2013-2015. In 2013, 60 percent of the drugs
approved by the federal Food and Drug Administration are
expected to be specialty drugs. While these drugs offer
tremendous promise when medically necessary, their high costs
and extended use has put a strain on the health system and
health plans, employers and other stakeholders are searching
for ways to restrain cost growth while maintaining access to
safe and effective drugs for patients. According to the
brief, based on 2010 data the following conditions had the
following average cost per treatment member per year:
Inflammation Conditions - $14,455, Multiple Sclerosis -
$24,118, Cancer - $11,089, Pulmonary Hypertension - $32,570,
and Respiratory Conditions - $18,550.
5.Related legislation. SB 1176 (Steinberg), requires a health
plan or health insurer to track the accumulation of cost
sharing for covered EHBs and makes a health plan or insurer
responsible for notifying the enrollee or insured when the
maximum accrual limit has been reached and requires the plan
or insurer to reimburse the enrollee or insured if cost
sharing exceeds annual limits. SB 1176 is set for hearing on
June 17, 2014 in Assembly Health Committee.
AB 2418 (Bonilla), requires health plans and insurers to allow
enrollees to opt out of any mandatory mail order prescription
program, allows for the synchronization of prescription
refills, and permits early refill of topical ophthalmic
medications, effective January 1, 2016. AB 2418 is set for
hearing on June 25, 2014 in this Committee.
AB 1917 | Page
9
6.Prior legislation. 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. Governor Brown wrote in a message
approving AB 219 that this policy is not without the potential
for unintended consequences and that placing a price cap on a
specific class of drugs for a specific class of diseases might
not be a policy for the ages. A sunset on the bill allows for
examination of intended and unintended consequences before
embracing the policy long term.
SB 639 (Hernandez), Chapter 316, Statutes of 2013 places in
California law provisions of the ACA relating to 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. Applies health plan enrollee and insured
out-of-pocket limits to specialized products that offer EHBs.
Allows carriers in the small group market to establish an
index rate no more frequently than each calendar quarter.
AB 1000 (Perea), of 2011, would have required a health plan
contract or health insurance policy that provides coverage for
prescription drugs and cancer chemotherapy treatment to limit
enrollee out-of-pocket costs for prescribed, orally
administered anti-cancer medications. AB 1000 was vetoed by
Governor Brown, stating that the bill doesn't distinguish
between health plans and insurers who make these drugs
available at a reasonable cost and those who do not.
SB 961 (Wright), of 2010, which was virtually identical to AB
1000, was vetoed by Governor Schwarzenegger, who stated in his
veto message that the bill would have added costs to
increasingly expensive health insurance premiums and it was
unnecessary in light of federal health reform.
7.Support. Health Access California writes that the emergence
of very high cost specialty drugs as well as drugs
administered on an outpatient basis, such as chemotherapy, has
led health plans and insurers to impose high copays and
coinsurance on these drugs. Such high cost drugs are often on
a fourth tier of a drug formulary with coinsurance of 10
AB 1917 | Page 10
percent or 20 percent so a patient may exhaust their annual
out-of-pocket limit with a single prescription in the first
month. Asking someone to spend $6,000 for a single
prescription upfront is unrealistic. This bill directly
benefits Californians by spreading the cost of prescription
drugs so that patient with expensive medications will not be
forced to pay high upfront costs. Western Center on Law and
Poverty states that consumers may be able to work out payment
plans if they do not have money to pay for a medication, but
all too often the answer is that they simply cannot purchase
the medication. The intent of this bill is to protect insured
Californians from financial ruin.
8.Opposition. America's Health Insurance Plans writes that this
bill further confuses the benefit design for consumers and
makes it more difficult to provide affordable health plans
that consumers want to purchase. In order to keep the
actuarial value in balance, health plans would need to make an
adjustment to some other type of cost sharing in the benefit
design to off-set the reduction if a separate cost-sharing
limit is established for prescription drugs. Imposing
separate cost-sharing limits for prescriptions does nothing to
address the problem of increasing health care costs.
Opponents, such as the California Chamber of Commerce,
indicate this bill will increase the usage of the most costly
specialty medications, which already account for 25 percent
of all spending for prescription drugs. The ACA and SB 639
help shield individuals and families from the ever rising cost
of health care, setting additional limits that encourage use
of costly prescription drugs at the expense of other health
care products and services, will dramatically increase health
care spending and will force individuals and employers to pay
higher premiums.
9.Amendment. The bill should be amended to clarify that the
out-of-pocket limit referenced in the bill is the limit for an
individual and not for the family.
SUPPORT AND OPPOSITION :
Support: Health Access California (sponsor)
American Cancer Society Cancer Action Network
California Alliance for Retired Americans
California Healthcare Institute
California Teachers Association
CALPIRG
AB 1917 | Page
11
Hemophilia Council of California
Los Angeles Gay & Lesbian Center
National Alliance on Mental Illness California
National Multiple Sclerosis Society
Project Inform
Western Center on Law and Poverty
Oppose: Aetna
America's Health Insurance Plans
Anthem Blue Cross
Association of California Life and Health Insurance
Companies
California Chamber of Commerce
California Association of Health Plans
California Association of Health Underwriters
California Association of Joint Powers Authorities
California Manufacturers and Technology Association
Molina Healthcare of California
National Federation of Independent Business
Pharmaceutical Care Management Association
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