BILL ANALYSIS �
SB 959
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Date of Hearing: June 17, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 959 (Ed Hernandez) - As Amended: June 10, 2014
SENATE VOTE : 24-7
SUBJECT : Health care coverage.
SUMMARY : Requires health plans and insurers to deliver notice
of rate changes at least 15 days in advance of the annual open
enrollment period and makes numerous additional changes to
current law related to health plans and insurers. Specifically,
this bill :
1)Limits the requirement to sell catastrophic coverage through
the California Health Benefit Exchange (Exchange, now known as
Covered California) to individual market plans and insurers
and requires small group plans and insurers in the Small
Business Health Options Program (SHOP) plans to offer bronze,
silver, gold, and platinum plans, but not catastrophic.
2)Includes participation fees paid by health plans and insurers
that sell products through the Exchange in the calculation
(under current law) of the index rate upon which premium rates
are based.
3)Updates the definition of "small employer," for purposes of
law governing products sold through the Exchange and for the
purposes of statutes governing essential health benefits in
the small group market, to the existing definition that
applies to nongrandfathered plans under the federal Patient
Protection and Affordable Care Act (ACA). Beginning in 2016,
this expands the definition of small employer to include
employers with up to 100 employees, rather than 50.
4)Deletes an obsolete requirement for health plans and insurers
that offer small group coverage at a rate that is higher than
the standard employee risk rate to provide a reason for the
decision to offer coverage at a higher rate. Deletes a
similar obsolete requirement for health plans and insurers
that deny coverage for an individual.
5)Updates requirements that require plans and insurers to notify
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individuals who are denied coverage about coverage options
through the Major Risk Medical Insurance Program, as
specified, to apply to only specific circumstances under which
an individual might be denied coverage: a grandfathered
individual health plan or insurer rejects the addition of a
dependent, or a Medicare supplement plan rejects an applicant
due to the applicant having end-stage renal disease. Requires
plans and insurers, in these circumstances, to also inform the
applicant about new coverage options through Covered
California, as specified.
6)Deletes a requirement for small group and individual health
plan contract and insurance policy rate filings to be
concurrent with notices to enrollees required to be delivered
60 days in advance.
7)Updates rate filing and related requirements that currently
apply to rate increases to instead apply to rate changes, as
specified.
8)Updates rate filing requirements to reflect the 19 rating
regions established in current law governing the individual
and small group market.
9)Corrects and updates code section references and makes other
minor, technical, and clarifying changes.
EXISTING LAW :
1)Establishes the Exchange pursuant to the ACA, where qualified
health plans offer health plan contracts or health insurance
policies for individual purchasers and small businesses
categorized in the following levels of coverage: 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
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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
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.
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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.
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 websites
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 websites 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 DMHC or CDI, if they find that an unreasonable rate
increase is not justified or that a rate filing contains
inaccurate information, to post their findings on their
websites.
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. 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.
16)Requires, if an applicant or dependent is denied or charged a
higher rate than the standard rate, the plan or insurer to
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inform the applicant about the Major Risk Medical Insurance
Program or the federal temporary high risk pool, as specified.
FISCAL EFFECT : According the Senate Appropriations Committee,
no significant costs to DMHC, and one-time costs of about
$230,000 for CDI to adopt regulations.
COMMENTS :
1)PURPOSE OF THIS BILL . The author asserts 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. This is a 2014 omnibus health
insurance clean-up bill.
One of the most substantive provisions ensures that individuals
purchasing in the individual market are notified of rate
changes 15 days prior to the start of open enrollment. The
author argues 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.
In addition, this bill conforms state law to federal regulations
stating the index rate plans and insurers use to set their
premiums should be adjusted to include participation fees the
plans pay to offer products through the Exchange.
2)BACKGROUND . The ACA made major changes to the small group and
individual health insurance markets, such as mandating
guaranteed issuance of coverage, eliminating pre-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.
a) Single risk pool and index rates. 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
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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.
Health plans and insurers must use their estimated total
combined claims experience to establish an index rate for
the relevant market, which they then use to set the rates
for non-grandfathered plans. Federal regulations require
the index rate to be adjusted on a market-wide basis for
various factors, including Exchange user fees. However,
current state law does not allow for adjustment of the
index rate based on Exchange user fees. This bill conforms
state law to federal regulations in this regard.
b) Rate change notification and open enrollment. In
California's ACA-implementing legislation, a key goal was
to ensure 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 Exchange plans
but also to health plans and insurers not participating in
the Exchange. In the individual market, after 2015, an
annual open enrollment period of October 15 to December 7
applies to Exchange plans and health plans and insurers not
participating in the Exchange. Under current rate review
laws, enrollees and insureds must receive a notice of a
rate increase 60 days in advance of the rate taking effect;
for most consumers, whose plan year begins January 1, this
notice would be sent November 1, in the middle of the open
enrollment period. This bill, instead, requires notice to
be sent at least 15 days prior to open enrollment.
3)SUPPORT . Health Access California, in support, writes that
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California has enacted numerous pieces of landmark legislation
to implement and improve on the federal ACA. 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.
4)OPPOSE UNLESS AMENDED (PRIOR VERSION) . The California
Association of Health Plans and the Association of California
Life and Health Insurance Companies submitted letters with a
position of "oppose unless amended" for a prior version of
this bill. Their letters request removal of a provision that
was removed in the June 10, 2014, version of this bill.
However, at the time this analysis was printed, they were
unable to formally confirm removal of their opposition.
5)RELATED LEGISLATION .
a) SB 1034 (Monning) prohibits health plans and health
insurance policies in the group market from imposing a
waiting or affiliation period. SB 1034 is pending in the
Assembly Appropriations Committee.
b) SB 1182 (Leno) requires rate review for large group
health plans and insurers for rate increases exceeding 5%
and establishes new data reporting requirements on health
plans and health insurers sold in the large group market.
SB 1182 is set to be heard in this Committee on June 24,
2014.
c) SB 2 X1 (Ed Hernandez), Chapter 2, Statutes of 2013-14
First Extraordinary Session, 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.
d) AB 2 X1 (Pan), Chapter 1, Statutes of 2013-14 First
Extraordinary Session, establishes health insurance market
reforms contained in the ACA specific to individual
purchasers, such as prohibiting insurers from denying
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coverage based on pre-existing conditions and makes
conforming changes to small employer health insurance laws
resulting from final federal regulations.
e) 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.
6)PREVIOUS LEGISLATION .
a) 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.
b) SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB
1602 (John A. P�rez), Chapter 655, Statutes of 2010,
establish the Exchange.
c) 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.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
California Optometric Association
Health Access California
Opposition
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Association of California Life and Health Insurance Companies
(unless amended, prior version)
California Association of Health Plans (unless amended, prior
version)
Analysis Prepared by : Ben Russell / HEALTH / (916) 319-2097