SB 908 (Hernandez) Page 3 of 3
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 908
AUTHOR: / HernandezVERSION: / March 29, 2016
HEARING DATE: / April 6, 2016
CONSULTANT: / Teri Boughton
SUBJECT: Health care coverage: premium rate change: notice: other health coverage
SUMMARY:
Requires health plans and health insurers to notify contract holders in the individual and small group market if premium rates have been determined unreasonable or unjustified. Gives contract holders the option of 60 additional days at the prior rate to choose another health plan or health insurance policy and specifies notification requirements that must be provided to contract holders.
Existing law:
1) Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans) and the California Department of Insurance (CDI) to regulate insurers, including health insurers.
2) Requires health plans and health insurers, for the small group and individual markets, to file with DMHC and CDI, at least 60 days prior to implementing any rate change, specified rate information so that the departments can review the information for unreasonable rate increases.
3) Requires DMHC and CDI to accept and post to their Internet Web sites any public comment on a rate increase submitted to the departments during the 60-day period.
4) Requires DMHC and CDI to report to the Legislature at least quarterly on all unreasonable rate filings, and post on their Internet Web sites any changes submitted by the insurer to the proposed rate increase, including any documentation submitted by the insurer supporting those changes.
5) Requires DMHC and CDI to post on their Internet Web sites any decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information.
6) Requires, pursuant to federal Centers for Medicare and Medicaid Services (CMS) regulations, if a health insurance issuer implements a rate increase determined to be unreasonable, with the later of 10 business days after the implementation of such increase or the health insurance issuer’s receipt of final determination that a rate increase is an unreasonable rate increase, the health insurance issuer to submit a final justification and prominently post it on its Web site in a form and in a manner prescribed by the federal Secretary of the Department of Health and Human Services for at least three years. CMS will also post the issuer’s final justification on the CMS Website for at least three years.
This bill:
1) Requires, for the small group market, if DMHC or CDI determines a rate unreasonable or not justified, the health plan or insurer to notify the contract holder of this determination, and to offer the contract holder coverage of no less than 60 days at the prior rate in order for the contract holder to obtain other coverage, including coverage from another health plan or insurer. Requires the notification to state the following in 14-point type:
The DMHC/CDI has determined that the rate for this product is not reasonable or not justified. All health coverage offered to employers like you is reviewed to determine whether the rates are reasonable and justified. For the next 60 days from the date of this notice you have the option to obtain other coverage from this health plan/insurer or another health plan/insurer. During this 60 day period, the prior rate shall remain in effect. For small business purchasers, you may contact Covered California at www.coveredca.com for help in obtaining coverage.
2) Requires, in the individual market, if DMHC/CDI determines that a rate is unreasonable or not justified, to notify the contract holder of this determination and if the open enrollment period has closed for the applicable rate year or there are fewer than 60 days remaining in the open enrollment period for the applicable rate year, the plan/insurer to offer the contract holder, coverage of no less than 60 days to obtain other coverage. Requires during the 60-day period, the prior rate to remain in effect.
3) Requires the notification to state the following in 14-point type, for the individual market if it is prior to open enrollment:
The DMHC/CDI has determined that the rate for this product is not reasonable or not justified. All health coverage offered to individuals like you is reviewed to determine whether the rates are reasonable and justified. Open enrollment is from (insert day of month and year) to (insert day of month and year). During that time, you have the option to obtain other coverage from this health plan/insurer or another health plan/insurer. You may also contact Covered California at www.coveredca.com for help in obtaining coverage. Many Californians are eligible for financial assistance from Covered California to help pay for coverage.
4) Requires the notification to state the following in 14-point type, for the individual market if it is after open enrollment or if there are less than 60 days remaining in the open enrollment period:
The DMHC/CDI has determined that the rate for this product is not reasonable or not justified. All health coverage offered to individuals like you is reviewed to determine whether the rates are reasonable and justified. For the next 60 days from the date of this notice you have the option to obtain other coverage from this health plan or another health plan. During this 60 day period the prior rate shall remain in effect. You may also contact Covered California at www.coveredca.com for help in obtaining coverage. Many Californians are eligible for financial assistance from Covered California to help pay for coverage.
5) Requires the notification to be provided to the solicitor or insurance agent for the contract holder, if any, so that the solicitor may assist the purchaser in finding other coverage.
6) Requires, for individual market coverage, the notice to constitute a trigger event for purposes of special enrollment if the open enrollment period has closed for the applicable rate year or there are fewer than 60 days remaining in the open enrollment period for the applicable rate year.
FISCAL EFFECT:
This bill has not been analyzed by a fiscal committee.
COMMENTS:
1) Author’s statement. According to the author, most health plans and health insurers (carriers) do not receive unreasonable rate determinations and many reduce or withdraw their rates during the rate review process. However, some carriers choose to move forward with unreasonable rates even after the rate has been determined unreasonable by DMHC or CDI. In those cases, the departments issue press releases to let the public know about the unreasonable rate determination. But no one tells the individual consumer or the small business owner who purchased the coverage if the rate has been found unreasonable or unjustified. This means consumers and small business owners can be unwittingly locked into an unreasonable rate because they are not aware that it is unreasonable. SB 908 will require a health plan or insurer whose rate has been determined unreasonable to share that information with the purchasers of that product or policy and allow those purchasers to shop around for more reasonably priced coverage. In a world where people are compelled to purchase health insurance, we must empower consumers to make informed decisions about the coverage they are choosing.
2) Rate Review in California. Under the Affordable Care Act (ACA) and SB 1163 (Leno), Chapter 661, Statutes of 2010, carriers must 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. Rates must be submitted to both the regulator and their customer’s at least 60 days in advance of the increase. CDI has encouraged insurers to allow at least 120 days for CDI to review rates. The carriers also must submit an analysis performed by an independent actuary who is not employed by a plan or insurer. Regulators do not have the authority to modify or reject rate changes.
3) Rate Development. For plans participating in Covered California, the rate negotiation process with Covered California typically begins in May of the year prior to the applicable rate year. Preliminary rates are announced near the end of the summer and final rates are published in the fall prior to the open enrollment period. Small businesses are not subject to a uniform open enrollment period. Coverage can be issued any time during the year. In the small group market, carrier contracts with the small business purchaser typically cover a 12 month period and are guaranteed renewable but not necessarily at the prior year’s rate.
4) Rate Review Report. The California Public Interest Research Group has published an analysis of implementation of California’s Health Insurance Rate Review: the First Five Years. This CALPIRG report indicates that health insurance carriers have filed 565 proposed rate changes in the individual and small group markets. Carriers have voluntarily reduced or withdrawn 69 rate filings after beginning the rate review process (12% of the total number of filings posted). Regulators estimate that Californians have saved $417 million dollars as a result of rate increases that were filed with the regulator and subsequently reduced. Carriers pushed ahead their rate increases despite regulators declaring them unreasonable at least 26 times. Over the last five years, over one million Californians have been subject to rate hikes that were declared unreasonable but still went into effect. Many of the same companies have had multiple rate hikes declared unreasonable.
5) Prior legislation. SB 546 (Leno), Chapter 801, Statutes of 2015, establishes weighted average rate increase disclosure requirements for a health plan’s or insurer’s aggregated large group market products and requires DMHC and CDI to conduct a public meeting regarding large group rate changes, as specified.
SB 1182 (Leno, Chapter 577, Statutes of 2014), requires health plans and insurers to share specified data with purchasers that have 1,000 or more enrollees, insureds or that are multiemployer trusts.
SB 746 (Leno, of 2013), would have established new data reporting requirements on all health plans and insurers applicable to products sold in the large group. SB 746 was vetoed by the Governor. In his veto message, the Governor stated:
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.
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.
6) Support. Health Access California writes that today it is challenging for an individual consumer or small business owner to know that their health insurance rate has been found unreasonable or unjustified. This bill lets the market work by informing individual consumers and small business owners if the rate for their product is found unreasonable or unjustified and giving them the opportunity to shop for other coverage.
The organization of SMUD Employees, San Diego County Court Employees Association and the San Luis Obispo County Employees Association write that each year, millions of individual consumers and employers shop for coverage and have virtually no way of knowing if the premium has been found unreasonable or unjustified and no chance to shop for other coverage. The California Labor Federation writes that given the success of California’s rate review law, notification of consumers is a logical next step to broaden the impact of the process and to continue to discourage unreasonable and unjustified rate hikes.
CALPIRG writes that the experience of the program to date suggests that some insurance carriers are not receptive to regulators’ requests for rate reductions when they find that the increases are not justified. When that happened consumers can become locked in to unreasonable policies without their informed consent. Western Center on Law and Poverty believes consumers and small business owners deserve to know if their health plan is charging unreasonable or unjustified rates and should have the option to switch plans. The Asian Law Alliance writes this bill would let the market work.
7) Oppose. America’s Health Insurance Plans (AHIP) writes that this bill fails to offer any solution to address the problem of rising health care costs that threaten the affordability of health care coverage in California. AHIP believes this bill is unnecessary because federal regulations have been promulgated governing the obligation to disclose unreasonable rate increases. AHIP also believes there is no need for a special enrollment period and that rates are being reviewed surrounding the annual open enrollment period or a small group’s renewal period. Anyone receiving the notice in this bill would be able to choose a new plan at that time. The California Association of Health Plans (CAHP) believes this bill will subject health plans to new administrative burdens and inadvertently disrupt the health insurance market by adding additional and overlapping enrollment options and rate freezes. CAHP also writes that the new notice requirement fails to include a critical feature of federal regulations which allows the health plan to explain its rationale for moving forward with a rate. CAHP states that it is virtually impossible to go back in time and change rates if the regulator makes an unreasonable determination after the annual open enrollment period.
Blue Shield of California writes that this bill will cause confusion for consumers and disruption in market segments that are already working appropriately to inform customers of premium charges. In the small group market, Blue Shield points out that an employer can switch coverage at any time and the notice in this bill does not provide any new benefit or additional information that does not exist today. Blue Shield writes that neither the current rate review process nor this bill creates a timeline for the regulator to make a determination of whether a rate is reasonable or justified.