BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 959
AUTHOR: Hernandez
AMENDED: March 17, 2014
HEARING DATE: March 26, 2014
CONSULTANT: Boughton
SUBJECT : Health care coverage.
SUMMARY : Prohibits a change in premium rate or coverage for an
individual plan contract or policy unless the plan or insurer
delivers a written notice of the change at least 15 days prior
to the start of the annual enrollment period applicable to the
contract or 60 days prior to the effective date of renewal,
whichever occurs earlier in the calendar year. Makes several
corrections and clarifications to provisions of law governing
individual and small group health insurance, including
clarifying that health plans and insurers have a single risk
pool for enrollees and insureds.
Existing law:
1.Establishes a health benefits exchange pursuant to the
Affordable Care Act (ACA), referred to as Covered California,
where qualified health plans (QHPs) offer health plan
contracts or health insurance policies for individual
purchasers and small businesses (through the Small Business
Health Options Program or SHOP) categorized in the following
metal tiers: Platinum, Gold, Silver, Bronze, and Catastrophic.
2.Requires health plans and insurers participating in the
Exchange to offer, market, and sell one product within each of
the five levels of coverage, and to offer, market, and sell
the same products outside of the Exchange.
3.Prohibits health plans and insurers that are not participating
in the Exchange from offering, marketing, or selling
catastrophic coverage.
4.Requires health plans and health insurers to consider as a
single risk pool for rating purposes the claims experience of
all insureds and enrollees in all nongrandfathered health
benefit plans in this state, whether offered as a health plan
contract or health insurance policy, including those insureds
and enrollees who enroll in individual coverage through the
Continued---
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Exchange and enrollees and insureds outside of the Exchange.
This requirement applies separately for individual market
products and small group products.
5.Requires health plans and health insurers to establish an
index rate based on the total combined claims costs for
providing essential health benefits, as defined, within the
single risk pool, as required. Requires the index rate to be
determined at least each calendar year for both small group
and individual market, and not more frequently than each
calendar quarter for small group. Requires the index rate to
be adjusted on a market-wide basis based on the total expected
market wide payments and charges under the risk adjustment and
reinsurance programs established for the state, as specified.
6.Requires a health plan or insurer that declines to offer
coverage to or denies enrollment for a large group applying
for coverage or that offers small group coverage at a rate
that is higher than the standard employee risk rate, to, at
the time of the denial or offer of coverage, provide the
applicant with specific reasons for the decision in writing,
in clear, easily understandable language.
7.Requires individual and small group health plan contract and
insurance policy rate information to be filed with Department
of Managed Health Care (DMHC) or Department of Insurance (CDI)
concurrent with required notices explaining reasons for
denials, increases in premium rates, the plan's average rate
increase by plan year, segment type, and product type.
8.Requires plans for individual and small group health care
contracts and policies to file with regulators at least 60
days prior to implementing any rate change, including
disclosures such as average rate increase initially requested,
average rate increase, and effective date of rate increase.
Authorizes a plan or insurer to provide aggregated additional
data that demonstrates, or reasonably estimates, year-to-year
cost increases in specific benefit categories in major
geographic regions, defined by regulators, but not more than
nine regions.
9.Requires plan filings to include certification by an
independent actuary or actuarial firm that the rate increase
is reasonable or unreasonable and if unreasonable, that the
justification for the increase is based on accurate and sound
actuarial assumptions and methodologies.
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10.Requires rate increase information to be made public 60 days
prior to implementation, including justification for any
unreasonable rate increases including all information and
supporting documentation as to why the rate change is
justified.
11.Requires the regulators to accept and post to their Internet
Web sites any public comment on a rate increase submitted to
each department during the 60-day period prior to
implementation, as specified.
12.Requires the regulators to post on their Internet Web sites
any changes submitted by the plan or insurer to the proposed
rate increase, including any documentation submitted by the
plan or insurer supporting those changes.
13.Requires if DMHC or CDI find that an unreasonable rate
increase is not justified or that a rate filing contains
inaccurate information, DMHC or CDI to post their findings on
their Internet Web sites.
14.Requires a health plan or insurer that declines to offer
coverage or denies enrollment for an individual or his or her
dependent for individual coverage or that offers individual
coverage at a higher rate than the standard rate, to, at the
time of the denial or offer of coverage, provide the applicant
with the reason in writing in clear and understandable
language.
15.Prohibits a change in premium rate or coverage for an
individual plan from becoming effective unless a written
notice is delivered 60 days prior to the effective date of
change.
16.Requires the notice to be delivered at his or her last
address known to the plan at least 60 days prior to the
effective date of the change.
17.Requires, if an applicant or dependent is denied or charged a
higher rate than the standard rate, the plan or insurer to
inform the applicant about the Major Risk Medical Insurance
Program (MRMIP) or the federal temporary high risk pool, as
specified.
This bill:
1.Clarifies that as a condition of participation in the SHOP
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carriers must offer, market, and sell at least one product
within each of four levels of coverage, as specified.
2.Clarifies that a health plan or insurer, with respect to small
employer contracts that cover hospital, medical or surgical
expenses, must sell only four levels of coverage, as
specified.
3.Clarifies that a plan consider as a single risk pool for
rating purposes in the small employer market the claims
experience of all enrollees in all non-grandfathered small
employer health plan contracts offered by the health plan and
all insureds in all non-grandfathered health benefit plans
offered by a health insurer that is a corporate affiliate,
subsidiary, or parent of the plan, including those who enroll
through the Exchange and outside the Exchange.
4.Permits the index rate to be adjusted for Exchange user fees,
as described in federal regulations.
5.Deletes references to risk rating and refusals to offer
coverage in rate review requirements of existing law.
6.Deletes requirements that certain rate justification or denial
explanations notices be filed concurrent with rate filings for
individual and small group coverage.
7.Revises requirements for disclosure of rate "increase"
information to refer to rate "change" information in multiple
provisions of existing law.
8.Deletes references to nine geographic rating regions and
instead refers to existing law establishing 19 geographic
rating regions.
9.Revises a requirement about posting information on the
Internet Web sites of DMHC and CDI upon a finding by the
departments regarding unreasonable rate increases to instead
refer to decision by the directors, respectively, that an
unreasonable rate change is not justified.
10.Deletes a notice requirement when enrollment is denied or
rate is higher than the standard rate.
11.Prohibits a change in premium rate or coverage for an
individual plan contract or policy unless the plan or insurer
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delivers a written notice of the change at least 15 days prior
to the start of the annual enrollment period applicable to the
contract or 60 days prior to the effective date of renewal,
whichever occurs earlier in the calendar year.
12.Deletes a requirement for notification about MRMIP and the
federal temporary high risk pool.
13.Makes other technical and clarifying changes including
correcting inaccurate code references.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. According to the author, this bill is
necessary to make sure there are not ambiguities or uncertainty
about California's health insurance laws. California's health
insurance market is in transition with the passage of the ACA.
California has been a leader in passing enabling legislation of
the ACA in a way that takes into account stronger consumer
protections existing in California prior to the ACA. Clean up
legislation is likely to continue to be necessary as new
information becomes available, such as through the finalization of
federal regulations and through the implementation process. One
of the more substantive provisions of this bill ensures that
individuals purchasing in the individual market are notified of
rate changes 15 days prior to the start of open enrollment. It is
important that an individual subject to a rate increase is
informed so that he or she can shop for other coverage during open
enrollment, if so desired. This bill also clarifies that health
plans and insurers in California spread risk across one pool only,
not one pool for their DMHC business and another for their CDI
business. This clarification is necessary because the interaction
between federal regulations and state law may be construed to
require separate risk pools by regulator rather than by company.
Other provisions are technical or conforming to federal
requirements.
2.ACA, Risk Pools, and California Implementation. The ACA, enacted
on March 23, 2010 and amended on March 30, 2010 represents a major
expansion of U.S. health care coverage through an expansion and
simplification of the Medicaid program and the adoption of major
reforms of the health insurance market. Most transformational are
changes to the small group and individual insurance markets, such
as mandating guaranteed issuance of coverage, eliminating pre-
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existing condition exclusions, limiting factors upon which premium
rates can be developed, and authorizing the creation of health
benefit exchanges either at the state or federal level.
To stabilize health insurance rates during this regulatory
transition and to spread health risk across health plans and
insurers, the ACA established programs of risk adjustment,
reinsurance and risk corridors. Before the ACA, health plans
and insurers often maintained several separate risk pools
within their individual and small group market business, often
as a way to segment risk and further underwrite premiums.
Beginning in 2014, health plans and insurers are no longer
able to deny coverage based on applicants' health status and
are limited in the types of rating factors they can apply in
setting premiums in the individual and small group markets.
Without a single risk pool rule, these prohibitions against
traditional underwriting could incentivize health plans and
insurers to find ways to segment the market into separate risk
pools and charge differential premiums based on segmented
risk, a de facto mechanism for underwriting. As a result, the
ACA requires a health plan or insurer to consider all of its
enrollees in all plans and policies (other than grandfathered
plans or policies) offered by the health plan or issuer to be
members of a single risk pool in the individual market or
small group market, respectively, which prevents plans and
insurers from creating separate pools in order to segment high
risk and low risk enrollees. While risk adjustment will
address some risk segmentation, the single risk pool
requirement provides another layer of protection against
adverse selection among plans and protects consumers by
requiring health plans and insurers to consider the risk of
all enrollees when developing and pricing unique plans. In
the preamble to the regulations the federal Centers for
Medicare and Medicaid Services interpreted the single risk
pool requirement to apply to each separately licensed issuer,
as opposed to the parent or holding company. However, when
taking into account California's unique dual regulatory
structure this interpretation would cause multiple risk pools
rather than one, contrary to the spirit of the ACA single risk
pool requirement.
For rates effective starting January 1, 2014, a health plan or
insurer would use the estimated total combined claims experience
of all non-grandfathered plans deriving from providing essential
health benefits within a state market to establish an index rate
(average rate) for the relevant market. The index rate would be
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utilized to set the rates for all non-grandfathered plans of the
issuer in the market. Federal regulations require the index rate
to be adjusted on a market-wide basis for the state based on the
total expected market-wide payments and charges under the risk
adjustment and reinsurance programs, and Exchange user fees (fees,
payments or charges paid by participating plans and insurer, as
described in the regulations).
California took early steps to establish a state based Exchange,
pass rate review requirements, establish essential health
benefits, and adopt insurance market reforms to implement aspects
of the ACA, in some cases before federal regulatory guidance was
issued or finalized. An overarching objective in the development
of the California implementing legislation was to ensure, to the
extent possible, that laws applicable to plans and insurers
participating in the Exchange were also applied to plans and
insurers not participating in the Exchange to keep a level
regulatory playing field. For example, open and special
enrollment periods not only apply to QHPs but also to health plans
and insurers not participating in the Exchange. As such, for the
individual market, an initial open enrollment period of October 1,
2013 to March 31, 2014 and annual open enrollment period of
October 15 to December 7 apply to QHPs and health plans and
insurers not participating in the Exchange. Additionally, plans
and policies must develop rates for a period beginning January 1
to December 31. Under the rate review laws, enrollees and
insureds would receive a notice of a rate increase 60 days in
advance of the increase (November 1) in the middle of the open
enrollment period.
3.Related legislation.
a. SB 1034 (Monning), set for hearing March 26, 2014 in
this Committee, prohibits a health benefit plan for group
coverage from imposing a waiting or affiliation period.
b. SB 1182 (Leno), currently awaiting hearing in this
Committee, requires rate review for large group health
plans and insurers for rate increases exceeding 5 percent
and establishes new data reporting requirements on health
plans and health insurers sold in the large group market,
similar to SB 746 of 2013.
4. Prior legislation.
a. 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
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health plans to be consistent with final federal regulations.
b. 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.
c. SB 639 (Hernandez), Chapter 316, Statutes of 2013, codifies
provisions of the ACA relating to out-of-pocket maximums on
cost-sharing, health plan and insurer actuarial value coverage
levels and catastrophic coverage requirements, and requirements
on health insurers for coverage of out-of-network emergency
services. Applies out-of-pocket limits to specialized products
that offer essential health benefits and permits carriers in
the small group market to establish an index rate no more
frequently than each calendar quarter.
d. SB 746 (Leno) of 2013 would have established new data
reporting requirements on health plans and health insurers sold
in the large group market and established new specific data
reporting requirements related to annual medical trend factors
by service category, as well as claims data or deidentified
patient-level data, as specified, for a health plan or health
insurer that exclusively contracts with no more than two
medical groups in the state to provide or arrange for
professional medical services for the enrollees of the plan.
SB 746 was vetoed by the Governor who stated in his veto
message:
"This bill would require all health plans and insurers to
disclose every year broad data relating to services used
by large employer groups, including aggregate rate
increases by benefit category. The bill also requires that
one health plan additionally provide anonymous claims data
or patient level data upon request and without charge to
large purchasers.
I support efforts to make health care costs more
transparent, and my administration is moving forward to
establish transparency programs that will cover all health
plans and systems.
I urge all parties to work together in this effort. If
these voluntary efforts fail, I will seriously consider
stronger actions."
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e. SB X1 3 (Hernandez), Chapter 5, Statutes of 2013, requires
Covered California, by means of selective contracting, to make
a bridge plan product available to specified eligible
individuals, as a QHPs. Exempts the bridge plan product from
certain requirements that apply to QHPs relating to making the
product available and marketing and selling to all individuals
equally (guaranteed issue) outside Covered California and
selling products at other levels of coverage. Requires the
Department of Health Care Services to include provisions
relating to bridge plan products in its contracts with Medi-Cal
managed care plans. Requires Covered California to evaluate
three years of data from the bridge plan products, as
specified. Repeals Covered California's authority for
enrollment in a bridge plan product on the October 1 that falls
five years after the date of federal approval.
f. 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.
g. SB 951 (Hernandez), Chapter 866, Statutes of 2012, and AB
1453 (Monning), Chapter 854, Statutes of 2012 designates the
Kaiser Small Group HMO as California's benchmark plan to serve
as the essential health benefit standard, as required by
federal health care reform.
h. SB 51 (Alquist), Chapter 644, Statutes of 2011, establishes
enforcement authority in California law to implement provisions
of the ACA related to medical loss ratio requirements on health
plans and health insurers and enacts prohibitions on annual and
lifetime benefits.
i. AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires
guaranteed issue of health plan and health insurance products
for children beginning in January 1, 2011.
j. SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602
(Perez), Chapter 655, Statutes of 2010, establishes the
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California Health Benefit Exchange.
aa. SB 1163 (Leno), Chapter 661, Statutes of 2010, requires
carriers to submit detailed data and actuarial justification
for small group and individual market rate increases at least
60 days in advance of increasing their customers' rates. The
carriers also must submit an analysis performed by an
independent actuary who is not employed by a plan or insurer.
For large group filings, SB 1163 requires health plans to
submit all information required by ACA and any additional
information adopted through regulation by DMHC necessary to
comply with the bill. The rate review provisions in ACA have
not been applied to the large group market and DMHC/CDI has not
adopted regulations to establish rate review for the large
group market in California. Though regulators do not have the
authority to modify or reject rate changes found to hurt
consumers, rate review has increased transparency on rate
increases in the individual and small group market.
5. Support. According to Health Access California since the
enactment of the ACA, California has enacted numerous pieces
of landmark legislation to implement and improve on the
federal law. These laws have eliminated denials of coverage
based on pre-existing conditions, provided public scrutiny of
health insurance rates, and otherwise imposed consumer
protections on a market that was once widely known as the
Wild, Wild West of health insurance. This bill includes
numerous conforming and clarifying corrections and is clean-up
to major legislation that taken together constitutes the
market changes that implement and improve on the ACA.
SUPPORT AND OPPOSITION :
Support: Health Access California
Oppose: None received
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