BILL ANALYSIS Ó
AB 2088
Page 1
Date of Hearing: April 8, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 2088 (Roger Hernández) - As Introduced: February 20, 2014
SUBJECT : Health insurance: minimum value: specified disease and
hospital confinement policies.
SUMMARY : Extends to specified disease and hospital confinement
insurance for large groups existing requirements for individual
and small group insurance of the same type, so that insurers
must require persons who will be covered to also have other
health coverage not designed as supplemental, and imposes the
same requirement on the issuers of any health insurance policy
that provides a minimum value of less than 60%, along with
specified marketing and disclosure requirements. Specifically,
this bill :
1) Requires insurers issuing specified disease or hospital
confinement indemnity insurance to large groups, as
defined, to require persons who will be covered to also
have an individual or group policy that arranges or
provides medical, hospital, and surgical coverage not
designed to supplement other private or government plans.
2) Requires insurers subject to 1) above to file with the
Commissioner of the California Department of Insurance
(CDI) on or before March 1 of each year, the following
certifications and statement:
a) The policies or certificates of specified disease or
hospital confinement indemnity are being offered as
supplemental health insurance and not as a substitute for
minimum essential coverage (MEC), as defined pursuant to
the federal Patient Protection and Affordable Care Act
(ACA);
b) The disclosure form the insurer provides on these
policies pursuant to existing law includes on the first
page this notice, "This is a supplement to health
insurance. It is not a substitute for essential health
benefits (EHBs) or MEC as defined in federal law;" and,
c) A summary of each policy and certificate subject to this
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bill along with specified information, including the
average annual premium rates for these types of policies,
or the range of premium rates if the rates vary by age,
gender, or other factors.
3) Requires, for new policies offered on or after January
1, 2015, the information in 2) above to be filed with the
Insurance Commissioner (IC) at least 30 days prior to the
policy being issued or delivered in California.
4) Requires health insurers issuing health insurance to a
large group that does not provide a minimum value of at
least 60 percent to require persons who will be covered to
have other health coverage not designed as a supplement to
private or government coverage.
5) Allows, in addition to 5) above, the offering and sale
of health insurance which does not provide a minimum value
of at least 60% to a large group, providing the insurer
also files with the IC, for that policy, the information
required in 2) above and makes the filing at least 30 days
prior to the policy being issued or delivered in California
for the first time on or after January 1, 2015.
6) Defines, for purposes of 4) and 5) above, minimum value
of at least 60% as coverage that complies with the federal
Internal Revenue Code definition for employers to meet the
requirement to provide coverage of minimum value to
employees in order to avoid federal penalties.
EXISTING LAW :
1)Establishes the Department of Managed Health Care to regulate
health plans and CDI to regulate health insurers.
2) 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 that the coverage must, at a
minimum, cover 10 EHBs as outlined in federal and state
law.
3) Defines health benefit plan for purposes of the market
reforms in 2) above to exclude a policy or certificate of
specified disease or hospital confinement indemnity from
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the requirements in 2), only if the insurer certifies to
the IC that the policy is being offered as supplemental
health insurance, and not as a substitute for the minimum
EHBs, and the insurer requires that the persons who will be
covered have other health coverage that is not designed to
serve as a supplement.
4) Existing federal law, the ACA enacts various health care
coverage market reforms and other reforms, including:
a) Minimum benefit standards for individual and small group
coverage, coverage of specified preventive services without
cost sharing, limits on consumer out-of-pocket costs and a
prohibition of annual and lifetime benefit dollar limits,
unless the coverage is specifically grandfathered in the
ACA, but exempts from these consumer protections certain
"excepted benefits," as defined, subject to specified
conditions; and,
b) Authorizes states to establish health benefit exchanges
(exchanges) through which to offer health coverage and
facilitate federal premium assistance for qualified
individuals, and specifies that premium assistance is not
available if an individual is eligible for affordable
employer-sponsored coverage that provides minimum value, as
defined.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1) PURPOSE OF THIS BILL . According to the author, this
bill is needed to close a gap in existing state law for
large group health coverage which allows insurers to sell
disease-specific and hospital indemnity products to large
employers without clear disclosure that the policies do not
constitute MEC for purposes of the employer requirement or
the individual mandate under the ACA. This bill closes the
gap by applying the same disclosures and requirement that
there be underlying comprehensive coverage as now apply in
state law for the individual and small group market to
large group coverage and extending those protections to any
large group coverage that is less than minimum value. This
bill ensures that policies with less than 60% minimum value
will only be sold as supplemental to coverage sufficient to
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comply with the individual mandate in federal law. The
author offers that in 2013, Wal-Mart informed investors
that the supplemental coverage it offers employees exceeds
60% minimum value.
2)BACKGROUND .
a) Excepted benefits. Federal law (and most states) does
not consider fixed indemnity insurance (policies that pay a
fixed dollar amount under specified conditions), such as
disease-specific and hospital indemnity policies to be
traditional medical insurance. Historically, they have
been considered income replacement policies, to help
compensate people for time out of work when serious illness
or hospitalizations occur. These policies are considered
"excepted benefits" under the federal Public Health Service
Act, and exempted from the consumer protections in the ACA
that apply to traditional insurance (such as the minimum
EHBs and a cap on out-of-pocket costs) if they meet certain
conditions as outlined in the section on types of excepted
benefits.
According to the Georgetown University Center for Health
Insurance Reforms (CHIR), both federal and state regulators
have expressed concerns that insurance companies could
attempt to market these policies in such a way that they
appear to consumers to be health insurance, even though the
policies don't cover a meaningful set of benefits or
protect people from significant financial harm if they get
sick. CHIR points out that because the policies do not
count as MEC for purposes of the ACA's individual mandate
requirement, the coverage could also subject unsuspecting
policyholders to a tax penalty.
b) Types of excepted benefits in federal law. Under
federal law, there are four categories of "excepted
benefits" which are exempt from ACA market reforms: i)
benefits that are not considered health insurance, such as
accident, auto, workers' compensation, credit, coverage for
onsite clinics or other benefits for medical care secondary
to other types of insurance; ii) limited "excepted
benefits" if offered under a separate policy or certificate
of insurance, or otherwise not an integral part of the
plan, including limited scope dental or vision benefits,
long-term care, nursing home care, home health care,
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community-based care, or any combination thereof; iii) non-
coordinated "excepted benefits" (specified disease or
hospital indemnity) if offered under a separate policy or
certificate of insurance and benefits are paid without
regard to whether benefits are provided under a group or
individual policy maintained by the same plan sponsor or
health insurance issuer; and, iv) supplemental benefits if
offered as a separate insurance policy, such as Medicare
supplemental health insurance and similar supplemental
coverage under a group health plan.
c) Proposed federal rules. Under current federal rules,
individual and group excepted benefit indemnity insurance
can only be paid on a per period, rather than a
per-service, basis and must be paid at a fixed amount
regardless of the costs of a service. This is part of what
distinguishes the coverage as cash-replacement coverage
intended for people who have other coverage. On March 14,
2014, the Centers for Medicare and Medicaid Services (CMS)
proposed to allow fixed indemnity in the individual market
as excepted benefits only if sold to individuals who
otherwise have MEC, there is not coordination of benefits
with other health coverage, benefits are paid at a fixed
dollar amount per day or per service regardless of expenses
involved, and a notice is displayed prominently in plan
materials explaining that the coverage does not satisfy the
MEC requirement. The proposed federal notice reads: "This
is a supplement to health insurance and is not a substitute
for major medical coverage. Lack of medical coverage (or
other MEC) may result in an additional payment with your
taxes." CMS is seeking comments on the proposed rules,
including whether fixed indemnity coverage should only be
sold to individuals with other coverage that includes EHBs.
d) Differences in large group coverage. Large group (50 or
more employees) coverage is subject to different rules than
individual and small group coverage under the ACA. For
example, while individual and small group coverage must
cover EHBs, at a minimum, large group coverage does not
need to meet that standard. Individual and small group
coverage is subject to evaluation of the actuarial value
(AV) of the coverage, (the percentage of expected health
costs paid for by the policy), determined through the use
of federal calculator. Individual and small group policies
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(unless grandfathered) are offered and sold based on the AV
value (Bronze-60%, Silver-70%, Gold-80%, and Platinum-90%).
In the large group market, coverage is not required to be
evaluated through the federal AV calculator but the federal
law defines minimum value for purposes of the employer
responsibility as a health plan where the plan's share of
the total costs of covered services is at least 60%.
e) Employer Coverage in California. According to the UC
Berkeley Labor Center April 2012 report, "Health Insurance
Reforms: How Will They Affect Employment-Based Coverage in
California?", the average actuarial value of existing
employer coverage in the state is 87%, higher than the
national average of 83%. Analyzing data from the 2010
California HealthCare Foundation Employer Health Benefits
Survey, the Berkeley study found that only 2% of large
employers offered coverage less than 70% AV.
3)SUPPORT . According to Health Access California, sponsor of
this bill, this bill closes an important gap that could lead
employers to offer inadequate coverage for workers. Health
Access points out that employers, like individuals, can choose
to pay a tax penalty rather than offer coverage, but employers
who choose to offer low benefit plans still comply with one
prong of the ACA employer responsibility for employers with
more than 50 workers, the requirement to offer coverage to
employees and dependents, even though such limited coverage
does not meet the employees' responsibility to maintain MEC.
Employers would pay a lower penalty when workers decline the
low benefit policies offered and seek coverage in the
exchange. However, the employer penalty would be $3,000 for
each employee who enrolls in the exchange and receives premium
assistance while the employer penalty for failing to offer any
coverage is $2,000 for every full time employee. Health
Access acknowledges that California law cannot regulate the
health benefits provided by employers to employees, but
California can regulate what insurers sell to large employers.
Supporters, primarily labor organizations, argue that most
large employers do the right thing and buy comprehensive
coverage for their workers, but given the federal employer
contribution and potential penalties some employers and
insurers may be tempted to pass off limited benefit coverage
as meeting the individual mandate. Supporters state that this
bill properly treats disease and hospital indemnity policies,
and low value policies, as supplemental insurance.
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4)OPPOSITION . The Association of California Life and Health
Insurance Companies (ACLHIC) opposes this bill unless it is
amended to delete the provisions of this bill which impose
limits and disclosure requirements on coverage with a minimum
value of less than 60%. According to ACLHIC, the provision
requiring insurers to require that persons be covered by the
disease-specific and hospital indemnity policies have other
health coverage that meets minimum value puts insurers in the
role of policing employers to ensure they are providing the
underlying more comprehensive coverage. ACLHIC suggests that
these requirements could threaten the continued availability
of the indemnity products. Finally, ACLHIC states that there
is no evidence to show that insurers are inappropriately
offering or marketing minimum value plans as a substitute for
MEC.
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) 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 COMMENT . The proposed federal rules relating to
excepted benefits include a mandatory notice (see 2) c) above)
that, in addition to letting consumers know the policies
covered by this bill may not constitute MEC for purposes of
the individual mandate, also informs them that they may end up
with an additional tax payment. The author may wish to
monitor federal action, and as appropriate, amend this bill to
include the final federal notice, if adopted, or if not,
include a state-specific notice that similarly gives consumers
more information. If the notice in this bill is changed, it
would be appropriate to conform the notice in the sections in
existing law applicable to the individual and small group
market.
7)DOUBLE REFERRAL . This bill is double referred, upon passage
of this Committee, it will be referred to the Assembly
Committee on Insurance.
REGISTERED SUPPORT / OPPOSITION :
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Support
Health Access California (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Labor Federation, AFL-CIO
California Teachers Association
California Teamsters Public Affairs Council
CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinist
Congress of California Seniors
International Longshore & Warehouse Union
UNITE HERE, ALF-CIO
Engineers & Scientists of CA, IFPTE Local 20
Professional & Technical Engineers, IFPTE Local 20
Utility Workers Union of America, Local 132, AFL-CIO
Opposition
Association of California Life and Health Insurance Companies
(unless amended)
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097