BILL ANALYSIS �
SB 1046
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
SB 1046 (Beall) - As Amended: April 8, 2014
SENATE VOTE : 35-0
SUBJECT : Insurance: mental illness: developmental disabilities:
coverage: penalties.
SUMMARY : Establishes, in addition to any other remedy,
administrative penalties up to $2,500 per day for violations of
the mental health parity laws for health insurers regulated by
the Department of Insurance (DOI). Specifically, this bill :
1)Provides the Insurance Commissioner (IC) with the authority,
in addition to any other remedy permitted by law, to assess
administrative penalties against insurers for violations of
mental health parity laws, including laws related to
behavioral health treatment coverage.
2)Specifies that these administrative penalties shall not exceed
$2,500 for each violation or, for ongoing and continuous
violations, shall not exceed $2,500 per day.
3)Provides that each patient harmed is a separate and distinct
violation.
4)Establishes that the standard administrative adjudication
procedures provided by the Administrative Procedures Act (APA)
shall govern the process of determining violations and
imposing penalties pursuant to the bill's provisions.
EXISTING LAW :
1)Provides that the DOI is the regulator for insurers, including
health insurers, under provisions of the Insurance Code, and
that the Department of Managed Health Care (DMHC) is the
regulator of health care service plans (often referred to as
HMOs or health plans) pursuant to the Knox-Keene Health Care
Service Plan Act of 1975 (Knox-Keene).
2)Establishes mental health parity, which requires health plans
and health insurers to provide coverage for the diagnosis and
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medically necessary treatment of severe mental illnesses of a
person of any age, and of serious emotional disturbances of a
child, under the same terms and conditions applied to other
medical conditions.
3)Includes in the definition of severe mental illness:
schizophrenia; schizoaffective disorder; bipolar disorder;
major depressive disorders; panic disorder;
obsessive-compulsive disorder; pervasive developmental
disorder or autism; anorexia nervosa; and bulimia nervosa.
4)Requires health plans and insurers to provide coverage for
behavioral health treatment for pervasive developmental
disorder or autism no later than July 1, 2012, and requires
the coverage to be provided in the same manner and subject to
the same requirements as under mental health parity
requirements.
5)Provides that any violation of any provision of the Knox-Keene
Act subjects the violator to a civil penalty not to exceed
$2,500 for each violation, or in the case of a violation that
is ongoing and continuous, a civil penalty up to $2,500 for
each day that the violation continues, with each enrollee
harmed constituting a separate and distinct violation.
6)Subjects insurers, including health insurers, to the Unfair
Practices Act (UPA), which includes unfair claims practices,
and provides penalties of up to $5,000 for each act, or up to
$10,000 for willful acts. The UPA grants the IC the
discretion to establish what constitutes an act within the
meaning of the penalty provisions, and specifies that the
standard APA adjudicatory procedures apply to hearing on
violations and penalties.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state
costs.
COMMENTS :
1)Purpose . According to the author, this bill will correct a
disparity in penalty authority between DOI and the DMHC for
violations of the mental health parity law. The author
indicates that, whereas Knox-Keene health plans are subject to
a per day penalty for ongoing or continuous violations, the
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Insurance Code has no specific penalty provision applicable to
mental health parity violations. The author asserts that a
per day penalty for ongoing violations can be an important
tool in enforcing requirements of mental health parity law due
to the importance of timeliness of treatment for many mental
health conditions.
2)Background .
a) California mental health parity law. California's
mental health parity law, enacted in 1999, requires all
health insurers and health plans to cover the diagnosis and
medically necessary treatment of severe mental illness of a
person of any age, and of serious emotional disturbances of
a child. This coverage is required to be at parity with
other medical conditions: no differences in maximum
lifetime benefits; copayments, deductibles; or cost sharing
are permitted. Moreover, SB 964 (Steinberg), Chapter 650,
Statutes of 2011, specifically requires health plans and
insurers to provide behavioral health treatment for autism
in a manner consistent with current state mental health
parity law and requires plans and insurers to maintain
adequate networks of providers, as specified. In addition,
the federal Patient Protection and Affordable Care Act
(ACA) explicitly includes mental health and substance abuse
services, including behavioral health treatment, as one of
the 10 categories of service that must be covered as
essential health benefits (EHBs).
b) Senate Hearings. On June 27, 2013, the Senate Select
Committee on Mental Health held a hearing on compliance
with the state's mental health parity law. The Insurance
Commissioner's written testimony indicates that after
passage of SB 946, complaints about insurers denying claims
for autism-related services and treatment continued. In
2012, CDI received 184 complaints about mental health
coverage, almost all of which included claims denial. CDI
indicates 153 mental health claims denials were subject to
the Independent Medical Review process, 80 of which saw the
insurer's decision fully or partially overturned.
On March 4, 2014, the Senate Select Committee on Autism and
Related Disorders held an informational hearing on SB 946
implementation. According to DMHC, there were 20 matters
(each "matter" may be more than one complaint or type of
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enforcement action) in total related to the state's mental
health parity law and its corresponding regulation. The
monetary penalties for these matters totaled $4.2 million.
DMHC also indicates that the range of enforcement actions
includes not only assessing monetary penalties and filing
civil actions, but also issuing cease and desist orders,
corrective actions, and installing conservators and
monitors.
3)Dual regulatory structure . California has a somewhat unique
regulatory structure for "health insurance." In virtually
every other jurisdiction, a single regulator is responsible
for the laws governing both traditional "health insurers" and
modern "HMOs" or "health plans." As pre-paid or managed care
organizations began to become popular alternatives to
traditional indemnity insurance in the early 1970's, and as
some of these organizations objected to being treated as
"insurers" pursuant to the Insurance Code, a separate
regulatory structure known as the Knox-Keene Act was adopted
in 1975, and the Department of Corporations was designated as
the regulator (later shifted to the Department of Managed
Health Care, which has no non-Knox-Keene responsibilities).
The Knox-Keene Act governs both "full-service" (health
insurance) and "specialized" (dental or vision) health care
service plans. Its enforcement provisions broadly apply to
all plans and any violations, without distinction.
The Insurance Code applies much more broadly than the Knox-Keene
Act - all types of insurers are covered by the Code. It was
not created specifically for a certain type of insurance
coverage, and developed over a much longer period of time.
In the mid-1970's, a traditional health insurer looked and
operated very differently from a pre-paid health care service
plan. Today, it is often difficult to tell the difference
between an entity that is licensed by the DOI and an entity
that is licensed by the DMHC. There are certainly
differences, but few of the differences are visible to
patients seeking coverage for their health care needs.
Indeed, most major health coverage entities have companies
licensed by both regulators (even Kaiser, the "classic" model
for a Knox-Keene plan, has an affiliated DOI-licensed
insurance company).
Currently, the vast majority of people covered by commercial
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health insurance (pursuant to ERISA, many large employers do
not buy health insurance for their employees, but instead
"self-insure") are covered by Knox-Keene licensees -
approximately 21 million lives, as opposed to between 2 and 3
million lives covered by DOI licensees.
4)Knox-Keene/DOI parity for mental health parity . Essentially,
this bill calls for parity of enforcement authority as between
DOI and DMHC with respect to the mental health parity laws.
Mental health parity laws are not the only matters for which
DOI/DMHC differences exist. With respect to enforcement, the
same arguments as posed by proponents of this bill could be
made on virtually any other health insurance issue. Virtually
every mandate to offer, coverage requirement, or other
regulatory rule governing health insurance enacted since 1975
has had both an Insurance Code and a Health and Safety Code
(where the Knox-Keene Act is codified) parallel provision.
But as the substantive laws have developed on parallel tracks,
enforcement has traditionally been left to the basic
enforcement provisions granted to the IC as head of the DOI,
and the basic enforcement provisions granted to DMHC by the
Knox-Keene Act.
According to the author, and to DOI, the sponsor of the bill,
resistance in the marketplace to implementation of mental
health parity makes this issue uniquely in need of a change in
the law so that the IC will have the power to penalize, or
obtain compliance due to the risk of a penalty, on par with
what the DMHC might impose on one of its licensees. They
assert that this is not a "flavor of the month" situation,
where the bill serves as the starting point for future similar
legislation with respect to numerous other "special"
situations with respect to numerous other medical conditions.
5)Extent of penalty authority . It is clear, especially with
respect to "ongoing and continuous" violations, that current
the DMHC penalty structure can reach a higher dollar figure.
But the UPA in the Insurance Code is no minor enforcement tool
in its own right. For example, if a health insurer adopted a
wrongful claims payment rule with respect to certain therapies
for autism, this would be deemed a "willful" act, subject to a
penalty of $10,000 per act. If that rule were applied to 100
autism patients, and those patients each filed 10 claims for a
weekly recurring treatment, the resulting penalty would be up
to $10 million. Under the bill's proposal, using the same
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hypothetical, there would be 100 patients, times 70 days,
times $2500 with a potential penalty of up to $17.5 million.
The author and proponents believe that this enhanced scope for
the potential penalties will result in better compliance with
the law due to insurers' desire to avoid being found in
violation of the law. On the other hand, the UPA in the
Insurance Code could provide higher penalties than the
Knox-Keene penalty structure on other fact patterns.
According to the terms of the bill, the IC would have the
discretion to select whichever enforcement tool results in the
higher penalty.
6)Notice and definition of "ongoing and continuous" ? Health
insurers have raised the concern that it is unclear what
counts as an "ongoing and continuous" violation, and that, due
to the substantially enhanced penalty associated with having
that characterization, an insurer should receive notice of the
allegation so that it might cure the problem before incurring
the enhanced penalties. While acknowledging that the language
comes from the rules being enforced by DMHC currently, where
there is no definition or notice provision, these insurers
note that on virtually every implementation issue, the DMHC
regulations and DOI regulations are different, and compliance
with one may not constitute compliance with the other. They
argue, therefore, that just because something has worked for
DMHC is no reason to assume it will be the same with DOI.
7)Related legislation . SB 22 (Beall) would have required health
plans and insurers to report to DMHC and DOI, respectively, on
compliance with state and federal law related to mental health
parity. SB 22 was held on the suspense file in the Assembly
Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Association for Marriage and Family Therapy, California
Division
Association of Regional Center Agencies
Autism Health Insurance Project
Autism Research Group
Autism Speaks
California Association for Behavior Analysis
California Association of Alcohol and Drug Program Executives
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California Association of Local Mental Health Boards and
Commissions
California Chapter of the American College of Emergency
Physicians
California Council of Community Mental Health Agencies
California Department of Insurance (sponsor)
ACT Today!
California Mental Health Planning Council
California Psychiatric Association
California Psychological Association
Center for Autism and Related Disorders
Children Now
Institute for Behavioral Training
Mental Health America of California
NAMI San Fernando Valley
NAMI San Francisco
National Alliance on Mental Illness (NAMI) California
National Association of Social Workers, California Chapter
Several Individuals
Southern California Psychiatric Society
The Children's Partnership
Opposition
Association of California Life and Health Insurance Companies
(unless amended)
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086