BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 2088
AUTHOR: Hernández
AMENDED: April 21, 2014
HEARING DATE: June 25, 2014
CONSULTANT: Boughton
SUBJECT : Health insurance: minimum value: large group market
policies.
SUMMARY : Requires a health plan or insurer that offers, amends,
or renews a group plan contract or policy that does not provide
a minimum value of at least 60 percent to a large group to
require that the persons to be covered by the plan contract or
policy are covered by an individual or group plan contract or
policy that arranges or provides medical, hospital, and surgical
coverage not designed to supplement other private or
governmental plans.
Existing law:
1.Provides for regulation of health plans by the Department of
Managed Health Care (DMHC) under the Knox-Keene Act and
regulation of health insurers by the California Department of
Insurance (CDI) under the Insurance Code.
2.Defines a 'health benefit plan" as any group or individual
policy of health insurance, as defined. The term does not
including coverage of Medicare services or coverage that
provides excepted benefits, as described in the federal Public
Health Services Act.
3.Excludes from the definition of "health benefit plan" policies
or certificates of specified disease or hospital confinement
indemnity provided that the carrier offering those policies or
certificates complies with the following: on or before March 1
of each year, a certification with the Insurance Commissioner
(IC) that contains the following statement and information:
a. A statement from the carrier certifying
that policies or certificates, as described are
being offered and marketed as supplemental health
insurance and not as a substitute for coverage that
provides essential health benefits and the uniform
summary benefits contains the following statement
Continued---
AB 2088 | Page 2
prominently on the first page:
"This is a supplement to health insurance. It
is not a substitute for essential health
benefits or minimum essential coverage as
defined in federal law."
b. A summary description of each policy or
certificate, as described, including the average
annual premium rates, or range of premium rates in
cases where premiums vary by age, gender, or other
factors, charged for the policies and certificates
issued or delivered in this state.
4.Requires in the case of a policy or certificate, as described
that is offered in this state on or after January 1, 2014, the
carrier to file with the IC the information and statement
above at least 30 days prior to the date such a policy or
certificate is issued or delivered in this state.
5.Requires the carrier issuing a policy or certificate of
specified disease or a policy or certificate of hospital
confinement indemnity to require that the person to be insured
is covered by an individual or group policy or contract that
arranges or provides medical; hospital; and, surgical coverage
not designed to supplement other private or governmental
plans.
6.Defines "policies or certificates of specified disease" and
"policies or certificates of hospital confinement indemnity"
as policies or certificates of insurance sold to an insured to
supplement other health insurance coverage as specified in
this section.
7.Enacts, in federal law, the Affordable Care Act (ACA) to,
among other things, a penalty on employers, with at least 50
full-time employees, that do not offer qualifying coverage or
minimum value (which means the plan's share of the total
allowed costs of benefits provided under the plan is less than
60 percent of such costs), and if at least one full-time
employee qualifies for premium tax credits to purchase
insurance in an exchange. The penalty is $2,000 for each of
their full-time employees (with the first 30 employees
exempted from the calculation).
AB 2088 | Page
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8.Requires for employers with 50 or more employees who do offer
coverage but still have at least one employee who qualifies
for a premium tax credit (due to inadequacy or unaffordability
of the employer's benefit), to pay the lesser of $3,000 for
each employee receiving the credit or $2,000 for each of all
of their full-time employees (with, again, the first 30
employees exempted).
9.Applies the employer responsibility provisions to firms with
100 or more full-time employees starting in 2015 and employers
with 50 or more full-time employees starting in 2016.
10.Requires effective January 1, 2014, that all individuals with
access to affordable coverage purchase minimum essential
coverage or pay a penalty for 2014: $95 or 1 percent of income
(whichever is greater), 2015: $325 or 2 percent of income,
2016: $695 or 2.5 percent of income (up to a cap of the
premium for a Bronze plan), and after 2016: caps adjusted by
increases in cost of living.
11.Establishes exceptions for individuals not lawfully present
in the U.S., religious objectors, incarcerated individuals,
taxpayers with income below the filing threshold, members of
Indian tribes, those granted a hardship waiver and individuals
who were not covered for less than three months of the year.
12.Establishes as minimum essential coverage, health insurance
coverage provided by an employer, health insurance purchased
through an Exchange, coverage provided under a
government-sponsored program (including Medicare, Medicaid,
and health care programs for veterans), health insurance
purchased directly from an insurance company, and other health
insurance coverage that is recognized by the Department of
Health & Human Services (HHS) as minimum essential coverage.
13.Requires employers with over 50 employees to report to HHS
whether it offers minimum essential coverage to its employees
and their dependents.
14.Establishes the Exchange (Covered California) as an
independent entity in state government not affiliated with any
state agency or department, governed by a five member board.
Requires the board to establish and use a competitive process
AB 2088 | Page 4
to select participating carriers and other contractors.
15.Requires carriers participating in the Exchange to fairly and
affirmatively offer, market, and sell in the Exchange at least
one product within each of five coverage categories of the ACA
(Bronze, Silver, Gold, Platinum, Catastrophic).
This bill:
1.Requires a health plan or health insurer that offers, amends,
or renews a group plan contract or health insurance policy
that does not provide a minimum value of at least 60 percent
to a large group to require that the persons to be covered by
the plan contract or policy are covered by an individual or
group plan contract or policy that arranges or provides
medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans.
2.Authorizes a health plan or health insurer to offer, market,
or sell a health plan contract in the large group market that
provides a minimum of less than 60 percent if the health plan
or insurer, in addition to complying with 1) above, files on
or before March 1 of each year, a certification with the
director of DMHC or IC of CDI that contains the statement and
information described below:
a. A statement from the health plan or insurer
certifying that group plan contract or policy, as
specified, are being offered and marketed as
supplemental health insurance and not as a substitute
for coverage that provides minimum essential coverage as
defined; and,
b. The following statement in the uniform benefits
summary form, as specified, prominently on the first
page:
"This is a supplement to health insurance. It is not
a substitute for essential health benefits or minimum
essential coverage as defined in federal law."
c. A summary description of each group plan
contract, as described, including the average annual
premium rates, or range of premium rates in cases where
premiums vary by age, gender, or other factors, charged
for the group plan contracts.
3.Requires, in the case of a group plan contract or health
AB 2088 | Page
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insurance policy that is offered for the first time in this
state with respect to plan years on or after January 1, 2015,
the health plan or insurer to file with the DMHC director or
the IC the information and statement required in 2) above at
least 30 days prior to the date that the plan contract or
policy is issued or delivered.
4.Establishes that a plan or policy provides a minimum value of
at least 60 percent if it complies with federal law, as
specified, and any adopted regulations or guidance.
5.Defines "Large group health plan contract" as a group health
plan contract other than a contract issued to a small
employer, as defined, and "Large group" as a group that is not
a small employer, as defined.
6.Defines "Plan year" as having the same meaning set forth in
federal regulations.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1.Likely minor one-time and ongoing costs to CDI to ensure
compliance.
2.Costs to DMHC as follows (Managed Care Fund):
a. One-time cost for workload related to issuance of
regulations estimated at $60,000; and,
b. Plan licensing and enforcement workload estimated at
$135,000 for the first year of implementation, $65,000
ongoing.
PRIOR VOTES :
Assembly Health: 13- 6
Assembly Appropriations:12- 5
Assembly Floor: 50- 25
COMMENTS :
1.Author's statement. According to the author, under the ACA,
large employers with mostly low-wage workers have a financial
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incentive to offer limited benefit health plans as one option
for their employees. This bill closes this federal loophole by
ensuring that a limited benefit health plan can only be sold
as supplemental to comprehensive insurance coverage. This bill
protects workers from being offered on-the-job coverage below
the federal standards. It uses the same approach that has
worked for over twenty years for small employers.
2.Federal Health Reform. On March 23, 2010, the federal
government enacted the ACA (Public Law 111-148), which was
further amended by the Health Care Education Reconciliation
Act (H.R. 4872). The ACA, as modified by the U.S. Supreme
Court ruling, gives states the option to expand eligibility in
the Medicaid program to include adults without children, and
it contains other required program simplifications. Regarding
the private health insurance market, the ACA primarily
restructures the individual and small group markets, setting
minimum standards for health coverage, providing financial
assistance to individuals with income below 400 percent of the
federal poverty level (FPL), tax credits for small employers,
and the establishment of health benefit exchanges and
essential health benefits that are required to be offered by
qualified health plans (QHPs), which are plans participating
the small group and individual market through Exchanges. QHPs
are required to offer coverage at one of four levels: bronze,
silver, gold, or platinum and a catastrophic plan which can
only be offered by plans participating in the Exchange.
Levels are based on a specified share of full actuarial value
of the essential health benefits (see below). Catastrophic
plans are also permitted only in the individual market for
young adults (under age 30) and for those persons exempt from
the individual mandate. Some individuals with income under 400
percent FPL will receive advanceable, refundable tax credits
toward the purchase of an Exchange plan. The payment will go
directly to the insurer and will reduce the premium liability
for that individual.
3.Actuarial Value Categories. The ACA establishes four benefit
categories-bronze, silver, gold, and platinum-all of which
will have the essential health benefits package. Policies
cannot be sold in the small-group and individual market or
exchanges that do not meet the actuarial standards for the
benefit categories established by law. All carriers selling
in the individual and small-group markets are at least
required to offer silver and gold plans under the federal law.
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a. The bronze package represents minimum creditable
coverage with an actuarial value of 60 percent (i.e.,
covering 60 percent of enrollees' medical costs) with
out-of-pocket spending limited to that which is defined
for health savings accounts (HSAs), or $6,350 for
individual policies and $12,350 for family policies in
2014;
b. The silver benefit package has an actuarial value of
70 percent and the same out-of-pocket limits;
c. The gold package has an actuarial value of 80
percent and the same out-of-pocket limits, and,
d. The platinum package covers 90 percent of costs with
the same out-of-pocket limits.
e. A catastrophic benefit package can be made available
for adults younger than age 30, similar to HSA-eligible,
high-deductible plans, with the essential benefits
package, preventive services excluded from the deductible
as under current HSA law, three primary care visits, and
cost-sharing to HSA out-of-pocket limits. People who are
unable to find a plan with a premium that is 8 percent or
less of their income will be able to purchase the young
adult plan as well, regardless of age.
4.Related legislation. AB 1792 (Gomez), would require the
Department of Finance (Finance) to annually transmit to the
Legislature and post on Finance's Internet Web a report that
identifies each employer that employs 25 or more beneficiaries
enrolled in a public assistance program (Medi-Cal, CalFresh
and CalWORKS). Requires Finance to determine the cost to
determine the total cost to the state of the aggregated
benefits provided to an identified employer's employees who
are beneficiaries under each public assistance program, and
the total cost to the state of the aggregated benefits
provided to each identified employer's employees who are
beneficiaries. AB 1792 is set for hearing on June 25, 2014 in
this Committee.
AB 880 (Gomez), would have required a large employer, as
defined, to pay to EDD an employer responsibility penalty for
each covered employee, as defined, enrolled in Medi-Cal based
on the average cost of employee-only coverage provided by
large employers to their employees, including both the
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employer's and employee's share of the premiums, as specified.
AB 880 failed passage on the Assembly Floor in 2013.
SB 1034 (Monning) would prohibit a health benefit plan for
group coverage from imposing a waiting or affiliation period.
SB 1034 is pending on the Assembly Floor.
5.Prior legislation. SB X1 2 (Hernandez), Chapter 2, Statutes of
2013, applies the individual insurance market reforms of the ACA
to health plans regulated by DMHC and updates the small group
market laws for health plans to be consistent with final federal
regulations.
AB X1 2 (Pan), Chapter 1, Statutes of 2013, establishes health
insurance market reforms contained in the ACA specific to
individual purchasers, such as prohibiting insurers from denying
coverage based on pre-existing conditions and makes conforming
changes to small employer health insurance laws resulting from
final federal regulations.
AB 1083 (Monning), Chapter 852, Statutes of 2012, reforms
California's small group health insurance laws to enact the ACA.
Eliminates pre-existing condition requirements and establishes
premium rating factors based only on age, family size, and
geographic regions, except for grandfathered plans. New guaranteed
issue provisions and the rating provisions are tied to those
provisions in the ACA. Should guaranteed issue and rating factors
be repealed in the ACA, California's existing guaranteed issue and
rating law pre-ACA would become operative.
SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602
(Perez), Chapter 655, Statutes of 2010, establishes the California
Health Benefit Exchange.
6.Support. The California Labor Federation writes that allowing
insurers to sell sub-standard coverage not only allows
employers to evade their responsibilities under the ACA, it
puts workers' health and well-being at risk. This bill
addresses this problem by prohibiting health plans and
insurers from plans that do not meet the minimum value of 60
percent unless they are supplemental to a full coverage plan.
Employers could still chose to offer these types of plans as
long as it was in conjunction with another plan that provides
adequate coverage for workers. Health Access California
writes that this bill closes a loophole in federal law which
allows insurers to sell large employers skinny benefit plans
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with minimum actuarial value of less than 60 percent.
7.Opposition. The California Association of Health
Underwriters, the Independent Insurance Agents and Brokers of
California, and the National Association of Insurance and
Financial Advisors of California oppose this bill because it
reduces options and increases costs for employers by removing
choice in coverage options. This bill stops insurers from
selling and employers with 50 or more employees from
purchasing limited benefit health plan unless it is
supplemental to primary coverage that meets the Bronze level
plans that have at least 60 percent actuarial value. The
opposition believes this is an unreasonable attempt to further
control what types of plans carriers may sell.
8.Opposition unless amended. Guardian Life Insurance Company of
America (Guardian), writes that it is neither the role nor the
responsibility of a health plan to require an employer offer
its employees a particular type of coverage. This foisting
such a "policing" requirement onto insurers and in essence
making them a regulator would be burdensome to health plans
and a disservice to regulators. Second, specialized health
plans offering optional, supplemental coverage such as dental,
vision or disability income insurance, cannot be expected to
have specific knowledge of underlying medical coverage they
had no role in selling, including the actuarial value of such
coverage. Guardian believes specialized plans should be
exempt from these requirements and that instead a disclaimer
form could be developed. The Association of California Life
and Health Insurance Companies would like this bill amended to
narrow the definition of health insurance and exempt
specialized plans.
9.Suggested amendment. This bill should be clarified to ensure
that an entity which must comply with existing law disclosure
requirements in Insurance Code 10198.61 does not also have to
include the disclosures required under this bill.
SUPPORT AND OPPOSITION :
Support: Health Access California (sponsor)
American Federation of State, County and Municipal
Employees, AFL-CIO
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California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Nurses Association
California School Employees Association
California Teachers Association
California Teamsters Public Affairs Council
Engineers and Scientists of California, IFPTE Local
20, AFL-CIO
International Longshore and Warehouse Union
Professional and Technical Engineers, IFPTE Local 20
AFL-CIO
UNITE-HERE, AFL-CIO
Utility Workers Union of America, Local 132, AFL-CIO
Oppose: Association of California Life and Health Insurance
Companies (unless amended)
California Association of Health Underwriters
Delta Dental (unless amended)
Independent Insurance Agents and Brokers of California
National Association of Insurance and Financial
Advisors of California
The Guardian Life Insurance Company of America (unless
amended)
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