Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. The PPACA imposes an excise tax on a provider of applicable employer-sponsored health care coverage, if the aggregate cost of that coverage provided to an employee exceeds a specified dollar limit.

Existing state law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the respective department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing. Existing law authorizes the respective department to review those filings, to report to the Legislature at least quarterly on all unreasonable rate filings, and to post on its Internet Web site a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information. Existing law requires prior notice, as specified, of changes to premium rates or coverage in order for those changes to be effective.

This bill would add to the existing rate information requirement to further require large group health care service plans and health insurers to file with the respective department the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year. The bill would require the notice of changes to premium rates or coverage for large group health plans and insurance policies to provide additional information regarding whether the rate change is greater than average rate increases approved by the California Health Benefit Exchange or by the Board of Administration of the Public Employees Retirement System, or would be subject to the excise tax described above. The bill would require the plan or insurer to file additional aggregate rate information with the respective department on or before October 1, 2016, and annually thereafter. The bill would require the respective department to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the respective department has reviewed the large group rate information required to be submitted annually by the plan or insurer, as specified. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. The PPACA imposes an excise tax on a provider of applicable employer-sponsored health care coverage, if the aggregate cost of that coverage provided to an employee exceeds a specified dollar limit.

Existing state law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the respective department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing. Existing law authorizes the respective department to review those filings, to report to the Legislature at least quarterly on all unreasonable rate filings, and to post on its Internet Web site a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information. Existing law requires prior notice, as specified, of changes to premium rates or coverage in order for those changes to be effective.

This bill would add to the existing rate information requirement to further require large group health care service plans and health insurers to file with the respective department the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year. The bill would require the notice of changes to premium rates or coverage for large group health plans and insurance policies to provide additional information regarding whether the rate change is greater than average rate increases approved by the California Health Benefit Exchange or by the Board of Administration of the Public Employees Retirement System, or would be subject to the excise tax described above. The bill would require the plan or insurer to file additional aggregate rate information with the respective department on or before October 1, 2016, and annually thereafter. The bill would require the respective department to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the respective department has reviewed the large group rate information required to be submitted annually by the plan or insurer, as specified. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. The PPACA imposes an excise tax on a provider of applicable employer-sponsored health care coverage, if the aggregate cost of that coverage provided to an employee exceeds a specified dollar limit.

Existing state law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the respective department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing. Existing law authorizes the respective department to review those filings, to report to the Legislature at least quarterly on all unreasonable rate filings, and to post on its Internet Web site a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information. Existing law requires prior notice, as specified, of changes to premium rates or coverage in order for those changes to be effective.

This bill would recast the add to the existing rate information requirement to further require large group health care service plans and health insurers to file with the respective department, at least 60 days prior to implementing any rate increase, all required rate information for any product with a rate increase if any of certain conditions apply. The bill would require the respective department to review that information and finalize a decision as to whether the rate is reasonable or unreasonable within 60 days after receiving the information. department the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year. The bill would require the notice of changes to premium rates or coverage for large group health plans and insurance policies to provide additional information regarding whether the rate change is greater than average rate increases approved by the California Health Benefit Exchange or by the Board of Administration of the Public Employees Retirement System, or would be subject to the excise tax described above. The bill would require the plan or insurer to file additional aggregate rate information with the respective department on or before October 1, 2016, and annually thereafter. The bill would require the respective department to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the respective department has reviewed the large group rate information required to be submitted annually by the plan or insurer, as specified. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. The PPACA imposes an exercise excise tax on a provider of applicable employer-sponsored health care coverage, if the aggregate cost of that coverage provided to an employee exceeds a specified dollar limit.

Existing state law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the respective department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing. Existing law authorizes the respective department to review those filings, to report to the Legislature at least quarterly on all unreasonable rate filings, and to post on its Internet Web site a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information. Existing law requires prior notice, as specified, of changes to premium rates or coverage in order for those changes to be effective.

This bill would recast the rate information requirement to require large group health care service plans and health insurers to file with the respective department, at least 60 days prior to implementing any rate increase, all required rate information for any product with a rate increase if any of certain conditions apply. The bill would require the respective department to review that information and finalize a decision as to whether the rate is reasonable or unreasonable within 60 days after receiving the information. The bill would require the notice of changes to premium rates or coverage to provide additional information regarding whether the rate change is greater than average rate increases approved by the California Health Benefit Exchange or by the Board of Administration of the Public Employees Employees Retirement System, or would be subject to the excise tax described above. The bill would require the plan or insurer to file additional aggregate rate information with the respective department on or before October 1, 2016, and annually thereafter. The bill would require the respective department to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the respective department has reviewed the large group rate information required to be submitted annually by the plan or insurer. insurer, as specified. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. Existing The PPACA imposes an exercise tax on a provider of applicable employer-sponsored health care coverage, if the aggregate cost of that coverage provided to an employee exceeds a specified dollar limit.

Existing state law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing

Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the respective department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing. Existing law authorizes the respective department to review those filings, to report to the Legislature at least quarterly on all unreasonable rate filings, and to post on its Internet Web site a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information. Existing law requires prior notice, as specified, of changes to premium rates or coverage in order for those changes to be effective.

This bill would recast the rate information requirement to require large group health care service plans and health insurers to file with the department respective department, at least 60 days prior to implementing any rate change increase, all required rate information for any product with a rate change increase if any of certain conditions apply. The bill would require the respective department to review that information and finalize a decision as to whether the rate is reasonable or unreasonable within 60 days after receiving the information. The bill would require the notice of changes to premium rates or coverage to provide additional information regarding whether the rate change is greater than average rate increases approved by the California Health Benefit Exchange or by the Board of Administration of the Public Employees Retirement System, or would be subject to the excise tax described above. The bill would require the plan or insurer to file additional aggregate rate information with the respective department on or before October 1, 2016. The bill would also require that the plan or insurer disclose the aggregate data for all products sold in the large group market for all rate filings submitted under these provisions on an annual basis. 2016, and annually thereafter. The bill would require the respective departments department to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the respective department has reviewed the large group rate information required to be submitted annually by the plan or insurer. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), requires the United States Secretary of Health and Human Services to establish a process for the annual review of unreasonable increases in premiums for health insurance coverage in which health insurance issuers submit to the secretary and the relevant state a justification for an unreasonable premium increase prior to implementation of the increase. Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or health insurer in the individual, small group, or large group markets to file rate information with the Department of Managed Health Care or the Department of Insurance. For large group plan contracts and policies, existing law requires a plan or insurer to file rate information with the department at least 60 days prior to implementing an unreasonable rate increase, as defined in PPACA. Existing law requires the plan or insurer to also disclose specified aggregate data with that rate filing.

This bill would recast the rate information requirement to require large group health care service plans and health insurers to file with the department at least 60 days prior to implementing any rate change all required rate information for any product with a rate change if any of certain conditions apply. The bill would require the plan or insurer to file additional aggregate rate information with the department on or before October 1, 2016. The bill would also require that the plan or insurer disclose the aggregate data for all products sold in the large group market for all rate filings submitted under these provisions on an annual basis. The bill would require the respective departments to conduct a public meeting regarding large group rate changes. The bill would require these meetings to occur annually after the department has reviewed the large group rate information required to be submitted annually by the plan or insurer. The bill would authorize a health care service plan or health insurer that exclusively contracts with no more than 2 medical groups to provide or arrange for professional medical services for enrollees or insureds to meet this requirement by disclosing its actual trend experience for the prior year using benefit categories that are the same or similar to those used by other plans or health insurers.

Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

 UNFINISHED BUSINESS  

Bill No: SB 546

Author: Leno (D)

Amended: 8/31/15

Vote: 21

SENATE HEALTH COMMITTEE: 5-2, 4/22/15

AYES: Hernandez, Mitchell, Monning, Pan, Wolk

NOES: Nguyen, Nielsen

NO VOTE RECORDED: Hall, Roth

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NOES: Bates, Nielsen

SENATE FLOOR: 23-16, 6/3/15

AYES: Allen, Beall, Block, De León, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Monning, Pan, Pavley, Wieckowski, Wolk

NOES: Anderson, Bates, Berryhill, Cannella, Fuller, Gaines, Glazer, Huff, Moorlach, Morrell, Nguyen, Nielsen, Roth, Runner, Stone, Vidak

NO VOTE RECORDED: Mitchell

ASSEMBLY FLOOR: 51-27, 9/10/15 - See last page for vote

SUBJECT: Health care coverage: rate review

SOURCE: California Labor Federation

California Teamsters Public Affairs Council

UNITE HERE

DIGEST: This bill establishes weighted average rate increase disclosure requirements for a health plan’s or insurer’s aggregated large group market products and requires the Department of Managed Health Care and the California Department of Insurance to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market between November 1, 2016, and March 1, 2017, and annually thereafter. This bill also creates a notice to employers 60 days prior to renewal about the rate increase relative to rate increases negotiated by the California Health Benefit Exchange and CalPERS, and whether the rate change includes any portion of the excise tax paid by the plan.

Assembly Amendments (1) delete requirements that health plans and insurers for their large group market products file required rate information for rate changes aggregated for their entire large group market on or before October 1, 2016, and on or before October 1, annually thereafter; and (2) delete the large group product rate filing requirements from the Senate version of this bill.

ANALYSIS: Existing law requires health plans and health insurers for their large group market products, to file with the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), at least 60 days prior to implementing any rate change, specified rate information related to unreasonable rate increases, including all information that is required by the Affordable Care Act (ACA). These provisions have never been implemented.

This bill:

1. Requires health plans and insurers to include in a notice required 60 days before contract renewal whether the rate proposed is greater than the average rate increase for individual market products negotiated by the California Health Benefit Exchange, the amount that a rate change is greater than the average rate increase negotiated by CalPERS, and whether the rate change includes any portion of the excise tax paid by the plan.

2. Establishes large group rate filing requirements including that health plans and health insurers report the weighted average rate increase for all large group benefit designs during the 12 months period ending January 1 of the following calendar year.

3. Requires plans and insurers to disclose specified information for the aggregate rate information similar to the requirements applicable to the aggregate rate filings and requires additional disclosures.

4. Requires a plan to submit any other information required by DMHC or CDI to comply with this bill.

5. Requires DMHC and CDI to conduct an annual public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market.

Comments

1. Author’s statement. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. According to the 2014 California Employer Health Benefits Survey, health premiums in California rose by 185% since 2002, more than five times the state’s overall inflation rate. In addition, one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care.

SB 1163 (Leno, Chapter 661, Statutes of 2010) requires health plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. Since its enactment in 2011, SB 1163 has saved California consumers over $300 million. However, the same protections have not been implemented for large employers and their employees. SB 546 extends the similar transparency and reporting from SB 1163 to the large group market.

2. ACA and large groups. Not all of the ACA health insurance reforms apply to issuers in the large group market. According to a 2014 Congressional Research Report on private market reforms some key provisions of the ACA impacting the fully insured large group market include guaranteed issue and guaranteed renewability, no cost-sharing for preventive health services, coverage of preexisting health conditions, limits for annual out-of-pocket spending, and the prohibition on life time and annual limits. Large employers are required under the ACA to issue notices about the new insurance market place, and starting in 2015, large employers not offering affordable coverage (or coverage that does not meet minimum value) may be required to pay an assessment if at least one full-time employee (average of at least 30 hours per week) receives a premium tax credit to purchase coverage in an exchange. There are also reporting requirements on employers with 50 or more full-time employees regarding health coverage offered and tax and withholding requirements which may apply. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief, a 40% excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage) subject to adjustment based on cost increases in the Federal Employees Health Benefits Program. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40% of any dollar amount beyond the cap that is considered “excess” spending.

Prior Legislation

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 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.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee:

1. Estimated costs to DMHC in the range of $1.2 million for the first two years and $1 million ongoing (Managed Care Fund).

2. Estimated costs to CDI in the low hundreds of thousands for first two years. Ongoing costs could be in the range of $250,000 (Insurance Fund) annually.

SUPPORT: (Verified 9/10/15)

California Labor Federation (co-source)

California Teamsters Public Affairs Council (co-source)

UNITE HERE (co-source)

American Federation of State, County, and Municipal Employees, AFL-CIO

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Federation of Teachers

California Nurses Association

California Pan-Ethnic Health Network

California Public Employees’ Retirement System

California Professional Firefighters

California Retired Teachers Association

California School Employees Association

California Teachers Association

CALPIRG

Campaign for a Healthy California

Communications Workers of America, District 9, AFL-CIO

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Gray Panthers of San Francisco

Health Access California

International Longshore and Warehouse Union

Laborers’ International Union of North America Local 777

Laborers’ International Union of North America Local 792

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

SEIU California

The Beverly Hilton

UPS

Utility Workers Union of America

OPPOSITION: (Verified 9/10/15)

Aetna

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life and Health Insurance Plans

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Chamber of Commerce

California Hospital Association

Culver City Chamber of Commerce

Family Business Association

Fresno Chamber of Commerce

Fullerton Chamber of Commerce

Health Net

Kaiser Permanente

Orange County Business Council

Rancho Cordova Chamber of Commerce

Redondo Beach Chamber of Commerce and Visitors Bureau

San Jose Silicon Valley Chamber

Santa Maria Valley Chamber of Commerce Visitor and Convention Bureau

Simi Valley Chamber of Commerce

South Bay Association of Chambers of Commerce

Southwest California Legislative Council

ARGUMENTS IN SUPPORT: The California Labor Federation cosponsors this bill to protect large employers and workers from unjustified increases in the cost of their health benefits. In 2018, the ACA imposes a tax of 40% on plans over a certain threshold and in the first year alone, the excise tax is anticipated to hit 17% of the U.S. businesses, and 38% of large employers. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now 5% to 15% more than the national average. UNITE HERE, also a cosponsor, indicates real progress has been made to help manage costs but it is not enough. This bill builds on the existing rate review infrastructure established under SB 1163 and is within the ACA.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans (CAHP) writes that this bill increases administrative, legal and state costs compounding affordability problems and DMHC would need a sizeable number of additional staff and resources to complete the overwhelming influx of new work in a timely fashion. CAHP adds that they removed their opposition to SB 1182 last year and see no compelling reason to now require large group rating information to state regulators. America’s Health Insurance Plans 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.

ASSEMBLY FLOOR: 51-27, 9/10/15

AYES: Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Rendon, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Atkins

NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Cooley, Dahle, Beth Gaines, Gallagher, Grove, Hadley, Harper, Jones, Kim, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Wagner, Waldron, Wilk

NO VOTE RECORDED: Perea, Ridley-Thomas

Prepared by: Teri Boughton / HEALTH /

9/10/15 23:28:06

**** END ****

SENATE THIRD READING

STR Bill Id:SB 546

Author:(Leno)

As Amended Ver:August 31, 2015

Majority vote

SENATE VOTE: 23-16

SUMMARY: Requires health care service plans and health insurers (collectively referred to as carriers) to file specified information regarding rate changes aggregated for the entire large group market, and the Department of Managed Health Care (DMHC) and the Department of Insurance (CDI) to conduct a public meeting regarding aggregate large group rate changes. Specifically, this bill:

1. Requires large group carriers to include in a written notice to purchasers of a change in premium rates or coverage whether the rate proposed is greater than the average rate increase for individual market products negotiated by the California Health Benefit Exchange (referred to as Covered California), greater than the average rate increase negotiated by the California Public Employees' Retirement System, and whether the rate change includes any portion of the excise tax paid by the carrier.

2. Requires carriers, for large group contracts, to file with the DMHC or CDI the weighted average increase, as specified, for all large group benefit designs during the preceding calendar year.

3. Requires DMHC and CDI to each conduct an annual public meeting, to be held in the Los Angeles or San Francisco Bay areas, regarding large group rates within three months of posting the aggregate large group rate information in order to permit a public discussion of the reasons for changes in rates, benefits, and cost sharing in the large group market.

4. Requires carriers, by October 1, 2016, and annually thereafter, to disclose specified information related to the large group market aggregate rate information submitted to DMHC and CDI, including the number and percentage of rate changes, as specified; factors affecting the base rate; the plan’s overall annual medical trend factor assumptions for all benefits, and by benefit category; the amount of projected trend attributable to use of services, price inflation, and fees and risk by aggregate benefit category; a comparison of the aggregate per enrollee per month costs and rate of changes over the last five years; changes in enrollee cost sharing and benefits; cost containment and quality improvement efforts; and, the number of products covered by the information that incurred the excise tax paid by the health plan.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill will result in:

1. Estimated costs to DMHC in the range of $1.2 million for the first two years and $1 million ongoing (Managed Care Fund).

2. Estimated costs to CDI in the low hundreds of thousands for first two years. Ongoing costs could be in the range of $250,000 (Insurance Fund) annually.

COMMENTS: According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. The author states that, in order to preserve employer-sponsored insurance, more needs to be done to contain costs. The author cites SB 1163 (Leno), Chapter 661, Statutes of 2010, which requires plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. The author states that the same protections have not been implemented for large employers and their employees, and this bill will extend the transparency requirements to the large group market.

In order to increase transparency with regard to rate increases for large purchasers, state law requires carriers to provide at no charge, upon request, specified de-identified claims data or equivalent cost information to any large group purchaser that is an employer-sponsored plan with more than 1,000 covered lives or a multiemployer trust, and that demonstrates its ability to comply with applicable privacy laws.

The Patient Protection and Affordable Care Act established a 40% excise tax, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage), as specified. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40% of any dollar amount beyond the caps that is considered "excess" spending. The premium includes both the portion paid by the employer and the employee contribution. The excise tax is also referred to as the "Cadillac" tax.

This bill is sponsored by the California Labor Federation (CLF), California Teamsters Public Affairs Organization, and UNITE HERE, and is supported by labor organizations and consumer advocates. Supporters argue that health insurance premiums for employer-sponsored coverage in California climbed 180% between 2002 and 2014, outpacing a 33% rise in overall inflation. Supporters argue that getting more information on rate setting in this market is the next logical step in controlling and reducing health care costs, and that this bill will help consumers and large purchasers understand how rates are established and trended forward in the large group market by collecting information about large group rates on an aggregate basis. CLF adds that this bill is urgently needed because of the looming excise tax which will increase pressure on large purchasers to contain costs to stay under the taxation thresholds.

Carriers oppose the previous version of this bill, primarily due to requirements for rate review in the large group market. Opponents state that the volume of filings would be overwhelming, that this bill will drive up state costs and premiums by expanding DMHC and CDI workload, that the bill may drive more large employers to self-insure, and that the bill does nothing to address underlying causes of increasing health care costs. Business groups oppose the previous version of the bill questioning its effectiveness in reducing health care costs, and arguing that this bill will increase state costs and premiums.

Analysis Prepared by: Kelly Green / HEALTH / (916) 319-2097 FN: 0001725

Date of Hearing: August 19, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

SBPCA Bill Id:SB 546

Author:(Leno) – As Amended Ver:June 2, 2015

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill requires additional data collection and review of health insurance rates in the large-group market (generally comprised of purchasers who are large employers or multi-employer trusts). Specifically, this bill:

1. Establishes a rate review process for increases to large-group rates that meet specified thresholds (a rate greater than 150% of the aggregate increase for all that plan's rates, or a rate that will subject the product to a federal excise tax). It requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to determine whether such large-group rate increases are reasonable or unreasonable.

2. Modifies aggregated information plans and insurers must file regarding rate changes in the large-group market.

3. Requires DMHC and CDI to conduct a public meeting between November and March each year, regarding aggregate rate changes for each carrier that offers coverage in the large-group market.

4. Stipulates requirements for specified notices to large-group purchasers about rate increases.

FISCAL EFFECT:

$3.7 million annually to DMHC (Managed Care Fund), and $900,000 to CDI (Insurance Fund), to assess rate filing requests, and to ensure compliance. First-year costs are projected to be slightly lower than this because of the half-year of implementation in fiscal year 2015-16, and 2016-17 costs are slightly higher due to one-time activities such as issuance of regulations.

COMMENTS:

1. Purpose. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. In order to preserve employer-sponsored insurance, the author contends, more needs to be done to contain costs. The author cites SB 1163 (Leno), Chapter 661, Statutes of 2010, which requires plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. The author states that the same protections have not been implemented for large employers and their employees, and this bill will extend the transparency and reporting requirements from SB 1163 to the large group market.

2. Background.

   1. Federal Health Insurance Excise Tax. The Patient Protection and Affordable Care Act (ACA) established a 40% excise tax beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage). Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40% of any dollar amount beyond the caps that is considered “excess” spending. The premium includes both the portion paid by the employer and the employee contribution. The excise tax is also referred to as the “Cadillac” tax. The policy rationale of the tax is to discourage too-rich benefit plans that insulate workers from the high cost of care and encourage the overuse of care. Opponents of the tax, including plans and insurers, employers, and labor, have maintained the tax unfairly burdens lower-income union workers who have sometimes chosen to bargain for richer health benefits in lieu of higher wages.

   2. Rate Review in the individual and small group markets. Federal regulations provide that carriers in individual and small group markets must report specified rate increase information, and that rate increases of 10% or more are subject to review by state regulators or the federal government for states that do not have the resources or authority to review rates. California’s rate review process is established by SB 1163 (Leno), Chapter 661, Statutes of 2010, and requires carriers to submit to DMHC or CDI, specified rate information at least 60 days prior to implementing any rate change. Although DMHC and CDI may determine a rate is unreasonable, neither has the authority to approve or disapprove of the rate. However, during the rate review process, and in response to potential or actual findings that a proposed rate is not reasonable, some carriers reduce the rate.

3. Support. This bill is supported by numerous labor unions and is sponsored by the California Labor Federation (Cal Fed), California Teamsters Public Affairs Council, and UNITE HERE. Supporters note the urgency of containing rising costs in the large-group market, and the importance of ensuring plans and insurers are not passing on excessive costs to their large-group customers, who, unlike the small-group and individual markets, do not have the benefit of rate review. They state that this bill will help consumers and large purchasers understand how rates are established in the large-group market. Cal Fed adds this bill is urgently needed because of the looming excise tax, which will increase pressure on large purchasers to contain costs to stay under the taxation thresholds.

4. Opposition. Health plans and insurers, and business groups such as the California Chamber of Commerce, oppose this bill. Plans and insurers contend the volume of filings would be overwhelming, that this bill will drive up state costs and premiums by expanding DMHC and CDI workload, that the burden and expense of this proposal may drive more large employers to self-insure, and that the bill does nothing to address underlying causes of increasing health care costs. Business groups question the effectiveness of this bill in reducing health care costs and the administrative burden imposed by the proposed requirements.

5. Prior Legislation. Numerous attempts to implement rate review in the large-group market are noted below:

   1. SB 1182 (Leno), Chapter 577, Statutes of 2014, requires health plans and insurers to share de-identified claims data with purchasers that have 1,000 or more enrollees, insureds or that are multiemployer trusts. Previous versions of SB 1182 contained provisions similar to that in this bill.

2. SB 746 (Leno), of 2013, established new data reporting requirements on all health plans and insurers applicable to products 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 de-identified patient-level data, as specified, for a health plan 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 (referring to Kaiser Permanente). SB 746 was vetoed, 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.”

Although some stakeholder discusssion and planning efforts have taekn place, the administration has not proposed sucha a transparency program.

3. 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. Requires rate filings, in the case of large group contracts for unreasonable rate increases as defined in the ACA, prior to implementing any such rate change.
   
   

4. AB 52 (Feuer), of 2010, required rate review and approval for proposed rates or rate change. AB 52 was never taken up for a vote on the Senate Floor.

5. AB 2578 (Jones), of 2010, would have required health plans and insurers to file a complete rate application with DMHC and CDI for a rate increase that would have become effective on or after January 1, 2012, and would have prohibited a health plan or health insurer premium rate (defined to include premiums, co-payments, coinsurance obligations, deductibles, and other charges) from being approved or remaining in effect that is excessive, inadequate, unfairly discriminatory, or otherwise in violation of the provisions of the bill. AB 2578 failed passage on the Senate Floor.

6. SB 425 (Ortiz), of 2006, would have required carriers to obtain prior approval for a rate increase, defined in a similar manner to rates under AB 1218 of 2009. SB 425 did not have a hearing, at the author’s request, and died in the Senate Health Committee.

7. SB 26 (Figueroa), of 2004, would have required carriers to obtain prior approval of rate increases from DMHC and CDI, as specified, and would have potentially required significant refunds of premiums previously collected. SB 26 died in the Senate Insurance Committee.

1. Comments. One of the thresholds for is a rate increase that is greater than 150% of the average aggregate rate increase for a single plan. This may not be the optimal definition of a threshold to meet the stated goals. First, the timing associated with related filing requirements may be problematic.  The average aggregate rate increase, which is an average over all product lines, is required to be reported by Oct. 1 of a given year.  However, the plan is also supposed to submit a filing for any rate increases that meets one of the thresholds, at least 60 days prior to the proposed rate increase.  If a large-group client has an open enrollment period that begins October 1, for example, a rate filing that meets the "150% of average" threshold must be submitted to the department for review by August 1.    It may be impossible for a plan to know which proposed rate increases meet the "150% of average" threshold in July, when they would need to prepare a rate filing for DMHC by August 1. 

Also, if there was a low-growth year followed by a high-growth year, most proposed rate increases could meet the threshold. On the other hand, if there was a high-growth year overall followed by a low-growth year, very few may meet the threshold and even outliers not meet it.

In addition, if a single health plan charges rates that are high across the board, they may not be reviewed, as the "150%" threshold is only met by comparison to the aggregate for that plan. For example, if the average aggregate for Blue Shield was 12%, only rate increases above 18% would be reviewed. On the other hand, if another plan's average was 4%, then rate increases above 6% would be subject to review. If the goal is to review rates that are unreasonably high, this bill may not accomplish this.

Although the timing issues could likely be clarified by regulation, it may be simpler to identify a standard threshold, such as 150% of an annual medical consumer price index projection for a given year.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: July 7, 2015

ASSEMBLY COMMITTEE ON HEALTH

Rob Bonta, Chair

SBPCA Bill Id:SB 546

Author:(Leno) – As Amended Ver:June 2, 2015

SENATE VOTE: 23-16

SUBJECT: Health care coverage: rate review.

SUMMARY: Establishes a rate review process for increases to large group rates that meet specified thresholds, and requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to determine whether such large group rate increases are reasonable or unreasonable. Requires health care service plans and health insurers (collectively referred to as carriers) to file specified information regarding rate changes aggregated for the entire large group market, and DMHC and CDI to conduct a public meeting regarding aggregate large group rate changes for each carrier that offers coverage in the large group market. Specifically, this bill:

1. Requires large group carriers to include in a written notice to purchasers of a change in premium rates or coverage the following information:

   1. The amount by which the rate change, as specified, is greater than the average rate increase for individual market products approved by the California Health Benefits Exchange (now Covered California) for the calendar year.

   2. The amount by which the rate change, as specified, is greater than the average rate increase approved by the Board of Administration of the California Public Employees' Retirement System (CalPERS) for the calendar year.

   3. Whether the rate change would cause the carrier's plan or policy to incur the excise tax.

2. Amends existing law requiring rate review for large group carriers to provide for review of aggregate large group rates for each plan or policy. Specifically:

   1. Deletes existing requirements requiring carriers to file with DMHC and CDI, respectively, large group plan and policy contract rate information for unreasonable rate increases.

   2. Requires carriers to file with DMHC and CDI, respectively, all required rate information for rate changes aggregated for the entire large group market, on or before October 1, 2016, and annually thereafter.

3. Requires DMHC and CDI, after reviewing the aggregate rate change information filed by the carriers, to conduct a public meeting, between November 1, 2016 and March 1, 2017, and annually thereafter between those same months, regarding large group rate changes for each carrier that offers coverage in the large group market.

4. Requires DMHC and CDI to schedule the public meetings referenced in 3) above in an order based on the number of covered lives for the carrier in the large group market, with the largest carrier first, and the smallest carrier last.

5. Deletes some existing large group rate filing requirements, and adds specified data to be disclosed by the carrier in its large group aggregate rate filing, including:

   1. Any factors affecting the rate, and the actuarial basis for those factors, including:

      1. Geographic region;

      2. Age, including age rating factors;

      3. Occupation;

      4. Industry;

      5. Health status, including health status factors considered;

      6. Employee, employee and dependents, including a description of the family composition used;

      7. Enrollee cost sharing;

      8. Covered benefits in addition to basic health care services, as defined, and other mandated benefits; and,

      9. Any other factors that affect the rate that are not otherwise specified.

   2. The plan or insurer's overall annual medical trend factor assumptions in each rate filing for all benefits and by aggregate benefit category, including hospital, inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology;

   3. The amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual plan contract trends by aggregate benefit category, such as hospital inpatient, hospital outpatient, physician services, prescription drugs, laboratory, and radiology;

   4. Specifies, with respect to the information required in c) and d) above, that a plan that contracts with no more than two medical groups in the state to provide or arrange for medical services to enrollees (referring to Kaiser Permanente) shall instead disclose the amount of its actual trend experience for the prior contract year by aggregate benefit category, using benefit categories that are the same or similar to those used by other plans;

   5. A comparison of claims cost and rate of changes over time;

   6. Changes in enrollee cost sharing and enrollee benefits over the prior year associated with the submitted rate filing; and,

   7. The average rate increase for the large group market enrollees covered in the filing weighted by the number of covered lives.

6. Requires carriers to file with DMHC and CDI required rate information at least 60 days prior to implementing any rate increase, and concurrent with the notice to large group purchasers in 1) above, if either of the following apply:

   1. The rate increase is greater than 150% of the carrier's average large group rate increase; or,

   2. The rate increase would cause the plan or policy to incur the excise tax, as specified.

7. Requires carriers to disclose specified information for each rate filing in 6) above, including:

   1. Basic information about the plan or insurer and the product for which the filing is being made such as, company name, number of plan contract forms covered by the filing, product type (e.g., preferred provider organization or health maintenance organization), whether the products are open or closed, and enrollment in each plan contract and rating form;

   2. Information regarding the basis for the rate development, including geographic region, age, occupation, industry, health status, employees, dependents, enrollee cost sharing, and covered benefits in addition to basic health services, as defined; and,

   3. Information about the basis of the rate change, including annual rate, total earned premiums in each plan contract, total incurred claims in each plan contract, average rate increase initially requested, average rate of increase, effective date of increase, number of subscribers or enrollees affected by each rate filing, overall annual medical trend, projected trend attributable to specified factors, a comparison of claims cost and rate of changes over time, changes in administrative costs, and cost containment and quality improvement efforts since the plan's last rate filing for the same category.

8. Requires DMHC and CDI to, within 60 days after receiving complete information from the plan or insurer, complete its review and finalize a decision as to whether the rate is reasonable or unreasonable.

9. Authorizes DMHC and CDI to require carriers to submit rate filings to the National Association of Insurance Commissioner's System for Electronic Rate and Form Filing, deeming such filings as filed with the departments; and, requires carriers to submit any other information as required by the Patient Protection and Affordable Care Act (ACA) or pursuant to any regulation adopted by DMHC and CDI.

EXISTING LAW:

1. Establishes the Knox-Keene Health Care Service Plan Act of 1975, the body of law governing plans in the state, and provides for the licensure and regulation of plans by DMHC.

2. Provides for the regulation of health insurers, and health insurance agents and brokers, by CDI.

3. Prohibits a change in premium rates or coverage stated in a group plan or policy contract from becoming effective unless the plan has delivered written notice to purchasers indicating the change at least 60 days prior to the contract renewal effective date.

4. Requires health plans and health insurers for the large group market to file with DMHC and CDI, at least 60 days prior to implementing any rate change, specified rate information related to unreasonable rate increases, including all information that is required by the ACA. These provisions have never been implemented.

5. Requires plans and insurers to provide, on an annual basis, de-identified claims data at no charge to a large group purchaser upon request, if the purchaser is able to demonstrate its ability to comply with state and federal privacy laws and is either an employer with enrollment of greater than 1,000 covered lives (at least 500 of which are enrolled with the health plan or insurer) or a multiemployer trust with enrollment of greater than 500 lives (at least 250 of which are enrolled with the health plan or insurer).

6. Requires a health plan or insurer as an alternative to providing claims data pursuant to 2) above, to provide:

1. De-identified aggregated data sufficient for the purchaser to compare costs of similar services from other plans or insurers; and,

2. De-identified aggregated patient level data that includes demographics and encounter data, including data used to experience rate the group, as specified.
   
   

1. Requires the health plan or insurer to obtain a formal determination from a qualified statistician that the claims or shared data do not provide a reasonable basis from which to identify an individual.

8. Requires individual and small group health plan contracts to be filed with regulators at least 60 days prior to implementing any rate change, including disclosures such as average rate increases initially requested, average rate increases, and effective date of the 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, as specified.

FISCAL EFFECT: According to the Senate Appropriations Committee, this bill, as amended April 30, 2015, would result in:

1. One-time costs of $575,000 to develop and adopt regulations by CDI (Insurance Fund).

2. Ongoing costs of $1.1 million per year to review rate filing information and conduct actuarial reviews of rate filing information by CDI (Insurance Fund).

3. Annual costs of $2.9 million in 2015-16 and $4.9 million per year thereafter to develop regulations, review plan filings, analyze actuarial information, conduct public hearings, and respond to requests for information from the public by DMHC (Managed Care Fund).

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. The author states that in 2018, the ACA imposes a tax of 40% on plans with costs over a certain threshold, and purchasers in California will be particularly hit hard because the tax is based on national costs and California premiums are now 5% to 15% higher than the national average. In order to preserve employer sponsored insurance, more needs to be done to contain costs. The author cites SB 1163 (Leno), Chapter 661, Statutes of 2010, which requires plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. The author states that the same protections have not been implemented for large employers and their employees, and this bill will extend the transparency and reporting requirements from SB 1163 to the large group market.

2. BACKGROUND.

   1. Rate Review in the individual and small group markets. As a cost-control measure, the ACA established a process for the identification, disclosure, justification, and annual review of unreasonable premium increases for health insurance coverage in the individual and small group markets, beginning with the 2010 plan year. Federal regulations provide that carriers in individual and small group markets must report specified rate increase information, and that rate increases of 10% or more are subject to review by state regulators or the federal government for states that do not have the resources or authority to review rates. Federal regulations allow the 10% threshold to be replaced by state-specific thresholds that reflect the insurance and health care costs trends in each state.
      
      According to an October 2012 report by the Kaiser Family Foundation, 44 states (including California) and the District of Columbia have rate review programs that have been deemed by the federal Department of Health and Human Services to be effective in at least one insurance market, meaning they have authority to determine the reasonableness of a rate increase, they have a transparent process for making the information publically available and they allow public comment on the proposed rate change.
      
      California’s rate review process is established by SB 1163, and requires carriers to submit to DMHC or CDI, specified rate information at least 60 days in prior to implementing any rate change. Some of the significant information plans and insurers must submit in their rate filings, includes, but is not limited to:
      
      

      1. Annual rate and average rate of the increase;

      2. Number of people affected by the filing;

      3. Total earned premiums and incurred claims;

      4. Overall annual medical trend factor assumptions by annual benefit category;

      5. Amount of the projected trend attributable to the use of services, price inflation, or fees and risk for contract trends by annual benefit category;

      6. A comparison of claims cost and rate of changes over time; and,

      7. Any changes in enrollee cost-sharing associate with the filing. Additionally, the current rate review process requires that the rate filing be actuarially sound and requires a certification by an independent actuary or actuarial firm that the rate increase is reasonable and that the justification for the increase is based on accurate and sound actuarial assumptions and methodologies.

Although DMHC and CDI may determine a rate is unreasonable, neither has the authority to approve or disapprove of the rate. However, during the rate review process, and in response to potential or actual findings that a proposed rate is not reasonable, some carriers reduce the rate. For example, according to a quarterly report to the Legislature by DMHC, between October 1, 2014 and December 31, 2014, DMHC reviewed six premium rate filings, and determined one rate filing was unreasonable. The carrier initially required a 12-month rate increase average 15.2%. After review by, and discussions with DMHC, the carrier agreed to lower the rate to 12.9% resulting in a total savings of approximately $35 million. In the previous quarter, after review and discussion with DMHC, another carrier agreed to reduce its proposed rate from 9.9% to 2.7%, resulting in over $8.6 million. CDI also demonstrates rate reductions by carriers following its rate review and determination. Both DMHC and CDI post their findings on their respective websites.

An April 2014 review of California’s rate review process in the first three years conducted by the California Public Interest Research Group (CALPIRG) found that: Health insurance carriers have filed 369 proposed rate changes in the individual and small group markets. As a result of objections raised in the rate review process, carriers have voluntarily reduced or withdrawn 44 rate hikes. At least 14 times, health insurance carriers have moved forward with rate increases that regulators found unreasonable. Rate review has saved California consumers and small businesses $349 million in health insurance premiums since 2011, according to estimates by state regulators. An estimated 1.3 million Californians benefited from reduced or withdrawn rate increases on average in each of the first three full years of rate review. An estimated 923,237 Californians have been subject to rate hikes that were declared unreasonable but still went into effect.

2. Rate review in the large group market. For large group contracts, SB 1163 requires carriers to file with DMHC or CDI, at least 60 days prior to implementing any rate change, all required information for unreasonable rate increases. Carriers are also required to submit all information required by the ACA, and to disclose specified aggregate data related to such rate filings. However, the rate review provisions in the ACA have not been applied to the large group market as the federal government has not issued regulations specifying what constitutes an unreasonable rate increase in the large group market. Further, DMHC and CDI have not adopted regulations to establish rate review for the large group market in California. As such, large group rate review has not been implemented in California.
   
   

3. Claims data. In order to increase transparency with regard to rate increases for large purchasers, state law requires carriers to provide at no charge, upon request, specified de-identified claims data or equivalent cost information to any large group purchaser that is an employer-sponsored plan with more than 1,000 covered lives or a multiemployer trust, and that demonstrates its ability to comply with applicable privacy laws. If claims data is not available, carriers are required to provide de-identified aggregated data sufficient for the purchaser to compare costs of similar services from other carriers, and de-identified aggregated patient level data that includes demographics and encounter data, including data used to rate the group based on claims experience.
   
   

4. Excise Tax. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief, a 40% excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage), as specified. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40% of any dollar amount beyond the caps that is considered “excess” spending. The premium includes both the portion paid by the employer and the employee contribution. The excise tax is also referred to as the “Cadillac” tax.
   
   In a report commissioned by the National Education Association (NEA), Milliman indicates that there are several quantifiable elements of premium determination, including plan members’ geographical location, the industry in which they work, their age and gender, and the number of people in the health insurance group in which they participate, that can increase premiums in addition to the level of benefits. While the ACA, which established the Cadillac tax to target high benefit plans and help fund components of the ACA, attempted to address the impact of age and gender, Milliman found that age and gender remain as factors that impact the excise tax. NEA points out that a gold-level plan in San Francisco would be 37% higher than the exact same plan’s premium if it were in Huntington, West Virginia.
   
   

5. CalPERS Rate Negotiation Process. CalPERS is the largest health plan purchaser in California, the second largest in the nation. In 2013, the CalPERS health program spent $7.51 billion to cover 1.4 million active and retired members and their dependents. From 2003 to 2015 basic health plan rate increases overall have been reduced from a 24.1% increase in 2003 to a 3.3% increase in 2015, which includes rate increase reductions from 25.9% to 3.9% for HMOs, from 19.9% to 0.6% for PPOs, and from 20.8% to 5.6% for Association plans.
   
   Beginning every January, CalPERS requests its participating health plans prepare utilization assumptions and develop premium rate proposals for the following calendar year. Proposals are based on two years of actual data and one year of projected data. CalPERS staff develops independent rate forecasts based on underlying factors and trends identified from the data, and engages an independent consultant to develop additional rate projections. CalPERS then compares its rate projections to the preliminary rates submitted by the health plans. Through a negotiation period between January and June, rates are refined and typically decreased based on these comparisons and more recent experiential claims data. Premium rates are approved at the June meeting of the CalPERS board. The average rate increase for plan year 2014 was 3.03% and for 2015 was 3.85%.
   
   

6. Covered California Rates. According to Covered California, the state's health benefits exchange, its role as an active purchaser brings in low rate increases while maintaining high quality. Covered California negotiates with carriers to keep rate increases to a minimum. The average weighted statewide rate increase for Covered California plans was 4.2% from 2014 to 2015. 

7. Health care costs. For many years, health spending growth has outpaced inflation. The United States spends a larger share of its gross domestic product (GDP) on health care than any other major industrialized country. Expenditures on health care represent 17% of the nation’s GDP. In 1960, health care expenditures accounted for about 5% of the GDP. By 2019, the federal Centers for Medicare and Medicaid Services project health care expenditures will account for 19% of GDP.
   
   As costs have risen, health care coverage has become less affordable. According to the 2014 California Employer Health Benefits Survey published by the California HealthCare Foundation, health coverage premiums in California have risen 185% since 2002, more than five times the state's inflation rate. The survey also indicated that one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year due to rising health care costs.
   
   According to the Kaiser Family Foundation/Health Research and Education Trust 2014 Employer Health Benefits Survey, average annual premiums for employer-sponsored family health coverage reached $16,834 in 2014, up 3% from 2013. Premiums increased more slowly over the past five years than the preceding five years and well below annual double-digit increase recorded in the late 1990s and early 2000s. Cumulative health insurance premiums from 1999 to 2014 have increased 191% compared to a 212% increase in workers’ contribution to premiums, a 54% increase in workers’ earnings, and a 43% inflation during this same period of time.
   
   According to the National Business Group on Health, projected health costs were expected to rise 6.8% in 2015, but after accounting for likely changes in benefit design, a net growth rate of health benefit costs was expected to be 4.8%.
   
   

8. Proposition 45. On November 4, 2014, California voters considered the Insurance Rate Public Justification and Accountability Act (Proposition 45), which would have required health insurance rate changes in the small group and individual market to be approved by the CDI Commissioner before taking effect. Among other things, Proposition 45 would have required a sworn statement by health insurers as to accuracy of information submitted to the CDI Commissioner to justify rate changes and provided for public notice, disclosure and hearing on health insurance rate changes, as well as subsequent judicial review. Proposition 45 was based on Proposition 103 (approved by voters in 1988), which prohibits rates for certain types of insurance, including automobile and homeowner’s insurance, from being excessive, inadequate, or unfairly discriminatory. The CDI Commissioner must approve proposed rates before such rates take effect and may hold public hearings on proposed rates. A consumer or a consumer representative can challenge proposed rates and request hearings. Hearings must be granted when proposed rate changes exceed certain percentages. Proposition 45 failed passage with 41.1% of California voters voting in support and 58.9% voting in opposition.
   
   

1. SUPPORT. This bill is sponsored by the California Labor Federation (CLF), California Teamsters Public Affairs Organization, and UNITE HERE, and is supported by labor organizations and consumer advocates. Sponsors and supporters argue that health insurance premiums for employer-sponsored coverage in California climbed 180% between 2002 and 2014, outpacing a 33% rise in overall inflation. The individual and small group markets in California have benefited from rate review which has reduced their costs by hundreds of millions of dollars. However, large group purchasers do not know what factors are used in establishing rates in the large group market or developing rate increases, and large group rates continue to rise. Supporters assert that, whereas large group purchasers previously obtained lower prices due the massive numbers of covered lives, they are now seeing higher rates to make up for reduced costs in the individual and small group due to rate review in those markets.
   
   Supporters argue that getting more information on rate setting in this market is the next logical step in controlling and reducing health care costs. Supporters state that this bill will help consumers and large purchasers understand how rates are established and trended forward in the large group market by collecting information about large group rates on an aggregate basis. Further, by requiring rate filings for rate increase that meet certain triggers, this bill will give the same benefit of rate review to large purchasers as those in the small and individual markets, and provide tools to ensure that health plan premiums are reasonable and justified. CLF adds that this bill is urgently needed because of the looming excise tax which will increase pressure on large purchasers to contain costs to stay under the taxation thresholds.
   
   

2. SUPPORT IF AMENDED. CalPERS would support this bill if amended to exempt CalPERS from its rate review provisions. CalPERS states that the provisions of this bill could be viewed as promoting additional transparency and accountability, and rate increases proposed by the plans that provide products to CalPERS could be subject to review. However, the review would take place after the time the CalPERS Board has negotiated and adopted rates. As such, CalPERS states that a determination as to whether rates are reasonable or unreasonable would not be helpful to CalPERS rate setting process, nor would the timing allow for any adjustments without interrupting the open enrollment process.
   
   

3. OPPOSITION. Carriers state that this bill creates a new and expensive regulatory structure on large group health plan rate, and mandates health plans to submit thousands of large group plans and policies to DMHC and CDI for rate review. They argue that large purchasers are able to choose among plans and benefit designs that meet their needs and price points, and that this bill unnecessarily authorizes the state to judge agreed upon rates as unreasonable. Further, large group rates are actively negotiated with large group purchasers, and filing rates 60 days prior is nearly impossible, because rates are often adjusted during the negotiating process to reflect benefit, network, or other changes. Carriers state that they agreed to legislation last year requiring carriers to provide claims data to large purchasers in order to aid them in their negotiations with plans, and there is no reason to now require large group rates to be subject to rate review or require plans to send voluminous amounts of large group rating information to state regulators. Carriers contend that the volume of large filings would be overwhelming; that this bill will drive up state costs and premiums by expanding DMHC and CDI workload; that the burden and expense of this proposal may drive more large employers to self-insure; and, that the bill does nothing to address underlying causes of increasing health care costs. Carriers state that this bill would require a public hearing for each aggregate rate filing, even though such filings do not warrant such extreme oversight, and that requirements for aggregate filings will yield no value in the large group market given that each large group is unique in its rates and benefits making an aggregate-level comparison meaningless.
   
   The California Chamber of Commerce and other business and commerce organizations state that expanding rate review to the large group is not necessary, and will impose unnecessary administrative burdens on carriers that will ultimately be paid by large employers through higher premiums. Further, the bill's usefulness in controlling premiums is limited, particularly in the large group market where employers have significant bargaining strength and the ability to design their benefit offerings to control premium costs and cost-sharing by employees.

4. RELATED LEGISLATION.

   1. SB 26 (Ed Hernandez), requires the Secretary of Health and Human Services to, no later than January 1, 2017, use a competitive process to contract with one or more private, independent, nonprofit organizations in order to establish the California Health Care Cost and Quality Database. SB 26 was held in the Senate Appropriations Committee.

   2. SB 1027 (Gatto) requires a plan or insurer to disclose to consumers information regarding the contracted rate for a procedure or a full course of treatment between the plan or insurer and a provider. SB 1027 is a two-year bill in the Assembly Health Committee.

5. PREVIOUS LEGISLATION.

   1. SB 1182 (Leno), Chapter 577, Statutes of 2014, requires health plans and insurers to share de-identified claims data with purchasers that have 1,000 or more enrollees, insureds or that are multiemployer trusts.

2. 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 market and would have established new specific data reporting requirements related to annual medical trend factors by service category, as well as claims data or de-identified patient-level data, as specified, for a health plan 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 (referring to Kaiser Permanente). 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.”

3. 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. Requires rate filings, in the case of large group contracts for unreasonable rate increases as defined in the ACA, prior to implementing any such rate change.
   
   

4. AB 52 (Feuer), of 2010, would have prohibited health plans and health insurers from implementing a rate for a new product or instituting a rate change unless it submits an application to DMHC or CDI that is approved. The Director of DMHC and the Insurance Commissioner would have the authority approve, deny, or modify any proposed rate or rate change. AB 52 was never taken up for a vote on the Senate Floor.

5. AB 2578 (Jones), of 2010, would have required health plans and insurers to file a complete rate application with DMHC and CDI for a rate increase that would have become effective on or after January 1, 2012, and would have prohibited a health plan or health insurer premium rate (defined to include premiums, co-payments, coinsurance obligations, deductibles, and other charges) from being approved or remaining in effect that is excessive, inadequate, unfairly discriminatory, or otherwise in violation of the provisions of the bill. AB 2578 failed passage on the Senate Floor.

6. SB 425 (Ortiz), of 2006, would have required carriers to obtain prior approval for a rate increase, defined in a similar manner to rates under AB 1218 of 2009. SB 425 did not have a hearing, at the author’s request, and died in the Senate Health Committee.

7. SB 26 (Figueroa), of 2004, would have required carriers to obtain prior approval of rate increases from DMHC and CDI, as specified, and would have potentially required significant refunds of premiums previously collected. SB 26 died in the Senate Insurance Committee.

1. POLICY COMMENTS. By increasing transparency with regard to the way carriers devise large group rates, and by requiring active rate review by regulators, this bill aims to help large group purchasers more effectively bargain with carriers and to contain costs in the large group market. Similar reviews in the individual and small group markets appear to have achieved their intended goals of increasing transparency and reducing rates. However, given the differences between the large group market and individual and small group markets with respect to the number and variety of large group products and how those products are negotiated and purchased, the committee should consider the following potential issues.

   1. Volume of large group rates subject to review is unknown. In 2014, DMHC reviewed 38 rate individual and small group rate filings, and CDI reviewed 41 filings in those same markets. It is unknown how many large group rate reviews DMHC and CDI would have to perform under this bill, but it is estimated by some that the number could reach well into thousands. To add context, Aetna reports that it would be required to file over 1,700 large group rates for review under this bill. CAHP, based on feedback from a limited number of plans, states that the rate review trigger of 150% of the carrier's average large group rate increase would result in 3200 filings to the state, and it is unknown how many filings would be required under the excise tax trigger considering the excise tax will not go into effect until 2018. At the time of the writing of this analysis, committee staff did not have formal estimates from CDI or DMHC of the number of filings that would be reviewed.

2. Bill would require numerous public meetings, and may not offer sufficient time for regulators to review the largest plans. This bill would require DMHC and CDI to hold a public meeting to review aggregate large group filings for each large group carrier on an annual basis between the months of November and March. Under this bill, CDI could be required to hold up to 25 public meetings, and DMHC may be required to hold approximately 20 meetings. It is possible that the regulators could consolidate more than one meeting into a day. The author and sponsors assert that these meetings will offer the public an opportunity to better understand how large group rates are devised, as well a chance to provide input and feedback in an open forum about the tangible impacts of large group rates and rate increases.
   
   Additionally, the bill would require CDI and DMHC to schedule the public meetings based on the number of covered lives with the largest plan first and the smallest plan last. Under these scheduling requirements, the regulators would have the least amount of time to review and set a public meeting on the largest aggregate large group filings. The author may wish to amend the bill to provide more flexibility to the departments in scheduling the public meetings in order to allow more time if needed for review of the larger aggregate rate filings.

3. Timing of rate review determinations is unclear. Unlike rates in the individual and small group markets, rates for large group products are subject to negotiation between carriers and purchasers. Existing law requires carriers to provide a purchaser with 60 days of notice of any change to a rate. Under this bill, the carrier would be required to simultaneously file the same rate change with its respective regulator if the change resulted in a rate increase that met the specified triggers in the bill. It is unclear if the purchaser and the carrier may negotiate during the 60-day period after the filing was submitted. If so, the rate could change before the regulator completes its review, rendering the regulator's review to a rate that may not be used. If the carrier and the purchaser finalize the contract prior to the completion of the rate review, it is unclear whether or not the purchaser could use the findings of the regulator to its advantage as intended.
   
   To address similar timing issues with respect to rate review in the individual and small group markets, CDI implemented voluntary guidelines for insurers to submit individual and small group rate filings 120 days in advance of a rate change, in order to allow sufficient time for the rate review to have an impact on policyholders.

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation (cosponsor)

California Teamsters Public Affairs Council (cosponsor)

UNITE HERE (cosponsor)

American Federation of State, County, and Municipal Employees, AFL-CIO

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Federation of Teachers

CALPIRG

California Nurses Association

California Pan-Ethnic Health Network

California Professional Firefighters

California Retired Teachers Association

California School Employees Association

California Teachers Association

Communications Workers of America, District 9, ALF-CIO

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Fairmont Hotel San Jose

Federated Indians of Graton Rancheria

Health Access California

International Longshore and Warehouse Union

LIUNA Local 777

LIUNA Local 792

Northern California District Council – International Longshore and Warehouse Union

Northern California International Longshore and Warehouse Union Pensioners Association

Oasis West Realty

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Retired Public Employees Association

SEIU California

State Building and Construction Trades Council of California

United Auburn Indian Community

United Nurses Associations of California/Union of Health Care Professionals

Utility Workers Union of America

Opposition

Aetna

America's Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Chamber of Commerce

Culver City Chamber of Commerce

Family Business Association

Fresno Chamber of Commerce

Fullerton Chamber of Commerce

Health Net

Kaiser Permanente

Orange County Business Council

Rancho Cordova Chamber of Commerce

Redondo Beach Chamber of Commerce and Visitors Bureau

San Jose Silicon Valley Chamber

Santa Maria Valley Chamber of Commerce Visitor and Convention Bureau

Simi Valley Chamber of Commerce

South Bay Association of Chambers of Commerce

Southwest California Legislative Council

Torrance Chamber of Commerce

Analysis Prepared by: Kelly Green / HEALTH / (916) 319-2097

 THIRD READING 

Bill No: SB 546

Author: Leno (D)

Amended: 6/2/15

Vote: 21

SENATE HEALTH COMMITTEE: 5-2, 4/22/15

AYES: Hernandez, Mitchell, Monning, Pan, Wolk

NOES: Nguyen, Nielsen

NO VOTE RECORDED: Hall, Roth

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NOES: Bates, Nielsen

SUBJECT: Health care coverage: rate review

SOURCE: California Labor Federation

California Teamsters Public Affairs Council

UNITE HERE

DIGEST: This bill establishes a rate review process for a health plan’s or insurer’s aggregated large group market products and requires the Department of Managed Health Care and the California Department of Insurance to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market between November 1, 2016, and March 1, 2017, and annually thereafter. This bill establishes a rate review process for specific large group health insurance products prior to the implementation of any rate increase that is 150% greater than the average rate increase for the large group market enrollees covered in the aggregated filing or if the rate increase would trigger the excise tax.

ANALYSIS: Existing law requires health plans and health insurers for their large group market products, to file with the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), at least 60 days prior to implementing any rate change, specified rate information related to unreasonable rate increases, including all information that is required by the Affordable Care Act (ACA). These provisions have never been implemented.

This bill:

1. Requires health plans and insurers to include in a notice required 60 days before contract renewal the amount that a rate change is greater than the average rate increase for individual market products approved by the California Health Benefit Exchange, the amount that a rate change is greater than the average rate increase approved by CalPERS, and whether the rate change would trigger the excise tax.
   
   

2. Requires health plans and insurers for their large group market products to file required rate information for rate changes aggregated for their entire large group market on or before October 1, 2016, and on or before October 1, annually thereafter.

3. Establishes large group rate filing requirements including that health plans and health insurers report the average rate increase for the large group market enrollees or insureds covered in the filing with the average rate weighted by the number of covered lives.

4. Requires large group product rate filings 60 days prior to implementing any rate increase that is:

1. Greater than150% of the average rate increase determined in 3) above; or

2. Causes the plan for the large group purchaser to incur the excise tax.
   
   

1. Requires plans and insurers to disclose specified information for each rate filing required in 4) above similar to the requirements applicable to the aggregate rate filings and requires additional disclosures.

6. Requires a plan to submit any other information required under the ACA, and any other information required pursuant to any regulation adopted by DMHC or CDI to comply with this bill.

7. Requires DMHC and CDI to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market between November 1, 2016, and March 1, 2017, and annually thereafter between November 1 and March 1 of the subsequent year. Requires the public meeting to be scheduled based on the number of covered lives for each plan with the largest plan first, and the smallest last.

Comments

1. Author’s statement. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. According to the 2014 California Employer Health Benefits Survey, health premiums in California rose by 185% since 2002, more than five times the state’s overall inflation rate. In addition, one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care.

SB 1163 (Leno, Chapter 661, Statutes of 2010) requires health plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. Since its enactment in 2011, SB 1163 has saved California consumers over $300 million. However, the same protections have not been implemented for large employers and their employees. SB 546 extends the transparency and reporting from SB 1163 to the large group market and triggers prior approval by a regulator for increases that hit a certain threshold to protect employers and workers from unjustified rate increases.

2. ACA and large groups. Not all of the ACA health insurance reforms apply to issuers in the large group market. According to a 2014 Congressional Research Report on private market reforms some key provisions of the ACA impacting the fully insured large group market include guaranteed issue and guaranteed renewability, no cost-sharing for preventive health services, coverage of preexisting health conditions, limits for annual out-of-pocket spending, and the prohibition on life time and annual limits. Large employers are required under the ACA to issue notices about the new insurance market place, and starting in 2015, large employers not offering affordable coverage (or coverage that does not meet minimum value) may be required to pay an assessment if at least one full-time employee (average of at least 30 hours per week) receives a premium tax credit to purchase coverage in an exchange. There are also reporting requirements on employers with 50 or more full-time employees regarding health coverage offered and tax and withholding requirements which may apply. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief, a 40% excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage) subject to adjustment based on cost increases in the Federal Employees Health Benefits Program. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40% of any dollar amount beyond the cap that is considered “excess” spending.

Prior Legislation

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 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.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

1. One-time costs of $575,000 to develop and adopt regulations by CDI (Insurance Fund).

2. Ongoing costs of $1.1 million per year to review rate filing information and conduct actuarial reviews of rate filing information by CDI (Insurance Fund).

3. Annual costs of $2.9 million in 2015-16 and $4.9 million per year thereafter to development of regulations, review plan filings, analyze actuarial information, conduct public hearings, and respond to requests for information from the public by the DMHC (Managed Care Fund).

SUPPORT: (Verified 5/28/15)

California Labor Federation (co-source)

California Teamsters Public Affairs Council (co-source)

UNITE HERE (co-source)

American Federation of State, County, and Municipal Employees, AFL-CIO

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Federation of Teachers

California Nurses Association

California Pan-Ethnic Health Network

California Professional Firefighters

California Retired Teachers Association

California School Employees Association

California Teachers Association

CALPIRG

Campaign for a Healthy California

Communications Workers of America, District 9, AFL-CIO

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Gray Panthers of San Francisco

Health Access California

International Longshore and Warehouse Union

Laborers’ International Union of North America Local 777

Laborers’ International Union of North America Local 792

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

SEIU California

Utility Workers Union of America

OPPOSITION: (Verified 5/28/15)

Aetna

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life and Health Insurance Plans

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Chamber of Commerce

California Hospital Association

Culver City Chamber of Commerce

Family Business Association

Fresno Chamber of Commerce

Fullerton Chamber of Commerce

Health Net

Kaiser Permanente

Orange County Business Council

Rancho Cordova Chamber of Commerce

Redondo Beach Chamber of Commerce and Visitors Bureau

San Jose Silicon Valley Chamber

Santa Maria Valley Chamber of Commerce Visitor and Convention Bureau

Simi Valley Chamber of Commerce

South Bay Association of Chambers of Commerce

Southwest California Legislative Council

ARGUMENTS IN SUPPORT: The California Labor Federation cosponsors this bill to protect large employers and workers from unjustified increases in the cost of their health benefits. In 2018, the ACA imposes a tax of 40% on plans over a certain threshold and in the first year alone, the excise tax is anticipated to hit 17% of the U.S. businesses, and 38% of large employers. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now 5% to 15% more than the national average. UNITE HERE, also a cosponsor, indicates real progress has been made to help manage costs but it is not enough. This bill will for the first time explain how rates are established and trended forward in the large purchaser market. The insurance market rules which apply to the individual and small employer markets do not apply to large purchasers. This bill builds on the existing rate review infrastructure established under SB 1163 and is within the ACA. Health Access California writes that this bill will help consumers and purchasers understand how rates are established and trended forward in the large group market, factors used in setting rate and rate increases.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans (CAHP) writes that this bill increases administrative, legal and state costs compounding affordability problems and DMHC would need a sizeable number of additional staff and resources to complete the overwhelming influx of new work in a timely fashion. CAHP adds that they removed their opposition to SB 1182 last year and see no compelling reason to now require large group rating information to state regulators. 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 points out that large group rates are actively negotiated with the large group purchaser and filing them 60 days in advance is nearly impossible because rates are often adjusted during the negotiating process to reflect benefit, network, or other changes that may be discussed with the large group purchaser throughout the process. The California Chamber of Commerce (CalChamber) states this bill “[t]hreatens employers with higher premiums and interferes with their ability to negotiate with health plans by imposing unnecessary and burdensome new reporting requirements on health plans and insurers in the large group market. ‘Job killer’ tag removed due to April 30 amendments eliminating authorization for state regulators to veto or unilaterally alter large-group rate changes, but CalChamber remains opposed.”

Prepared by: Teri Boughton / HEALTH /

6/3/15 10:40:35

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 546 (Leno) - Health care coverage: rate review

SUSPENSE FILE. AS AMENDED.

Bill Summary:

SB 546 would establish a rate review process for large group heath care coverage products.

Fiscal Impact (as approved on May 28, 2015):

• One-time costs of $575,000 to develop and adopt regulations by the Department of Insurance (Insurance Fund).

• Ongoing costs of $1.1 million per year to review rate filing information and conduct actuarial reviews of rate filing information by the Department of Insurance (Insurance Fund).

• Annual costs of $2.9 million in 2015-16 and $4.9 million per year thereafter to development of regulations, review plan filings, analyze actuarial information, conduct public hearings, and respond to requests for information from the public by the Department of Managed Health Care (Managed Care Fund).

Background:

Under current law, the Department of Insurance regulates health insurers and the Department of Managed Health Care regulates health plans (collectively, these are referred to as “carriers”). Current law requires carriers in the individual and small group markets to provide information regarding rate increases to their respective regulators annually. The regulators use this information to conduct reviews of the proposed rates. The regulators are authorized to make their findings public, but they do not have the power to reject proposed rate increases by carriers.

In the large group market, current law requires carriers to submit certain information on rate increases to their respective regulators for “unreasonable” rate increases. The federal government has not provided guidance on what constitutes unreasonable rate increases in the large group market and neither department has adopted regulations to implement this provision of law.

Beginning in 2018, the federal Affordable Care Act imposes an excise tax on health care coverage that exceeds a specified cost threshold ($10,200 for individual coverage or $27,500 for family coverage). The tax would apply to expenditures above the threshold and would be paid by employers (but the premium threshold includes both the employer and employee contributions). This excise tax has been referred to as the “Cadillac tax”.

Proposed Law:

SB 546 would establish a rate review process for large group heath care coverage products.

Specific provisions of the bill would:

• Expand the current requirement to file information on changes in premium rates or coverage, to also require information regarding whether the premium rate increase will exceed specified thresholds or would result in the imposition of the federal excise tax on the product;

• Require carriers to annually file with their regulator regarding rate changes, aggregated across the large group market;

• Expand the information that must be filed by carriers for aggregate large group filings;

• Require carriers to also file information on premium rate increases for specific products when the premium rate increase for that product is greater than the carrier’s average premium rate increase across the large group market or when a product’s premium rate increase would trigger the federal excise tax;

• Require the Department of Insurance or the Department of Managed Health Care to determine whether a filing regarding an individual product (that is reported pursuant to the preceding bullet) is reasonable.

Related Legislation:

• SB 26 (Hernandez) would require the California Health and Human Services Agency to establish an all payer claims database, to allow for analysis of health care expenditures. That bill will be heard in this committee.

• SB 1182 (Leno, Statutes of 2014) requires carriers in the large group market to share specified data with certain large purchasers.

• SB 746 (Leno, 2013) would have required additional reporting by large group carriers SB 1182. That bill was vetoed by Governor Brown.

Staff Comments:

The bill would require carriers to provide information on aggregate rate increases across all the carrier’s large group products. The bill would also require carriers to provided product-specific information on rate increases for all the products whose annual rate increase exceeds the average rate increase for that carrier. Carriers tend to have many products in the large group market that are tailored to the specific needs of their purchasers. Depending on how the rate setting works for each of those individual products, carriers may be obligated to provide detailed information for half or more of their large group products each year. Reviewing this detailed information will require considerable staff resources by the Department of Insurance and the Department of Managed Health Care.

Author’s amendments (as adopted May 28, 2015): spread out the time period for public hearings.

Committee amendments (as adopted May 28, 2015): limit the reviews of individual product filings to those products which have an annual rate increase greater than 150% of the carrier’s average rate increase.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 546 (Leno) - Health care coverage: rate review

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 546 would establish a rate review process for large group heath care coverage products.

Fiscal Impact:

• One-time costs of $575,000 to develop and adopt regulations by the Department of Insurance (Insurance Fund).

• Ongoing costs of $1.1 million per year to review rate filing information and conduct actuarial reviews of rate filing information by the Department of Insurance (Insurance Fund).

• Annual costs of $2.9 million in 2015-16 and $4.9 million per year thereafter to development of regulations, review plan filings, analyze actuarial information, conduct public hearings, and respond to requests for information from the public by the Department of Managed Health Care (Managed Care Fund).

Background:

Under current law, the Department of Insurance regulates health insurers and the Department of Managed Health Care regulates health plans (collectively, these are referred to as “carriers”). Current law requires carriers in the individual and small group markets to provide information regarding rate increases to their respective regulators annually. The regulators use this information to conduct reviews of the proposed rates. The regulators are authorized to make their findings public, but they do not have the power to reject proposed rate increases by carriers.

In the large group market, current law requires carriers to submit certain information on rate increases to their respective regulators for “unreasonable” rate increases. The federal government has not provided guidance on what constitutes unreasonable rate increases in the large group market and neither department has adopted regulations to implement this provision of law.

Beginning in 2018, the federal Affordable Care Act imposes an excise tax on health care coverage that exceeds a specified cost threshold ($10,200 for individual coverage or $27,500 for family coverage). The tax would apply to expenditures above the threshold and would be paid by employers (but the premium threshold includes both the employer and employee contributions). This excise tax has been referred to as the “Cadillac tax”.

Proposed Law:

SB 546 would establish a rate review process for large group heath care coverage products.

Specific provisions of the bill would:

• Expand the current requirement to file information on changes in premium rates or coverage, to also require information regarding whether the premium rate increase will exceed specified thresholds or would result in the imposition of the federal excise tax on the product;

• Require carriers to annually file with their regulator regarding rate changes, aggregated across the large group market;

• Expand the information that must be filed by carriers for aggregate large group filings;

• Require carriers to also file information on premium rate increases for specific products when the premium rate increase for that product is greater than the carrier’s average premium rate increase across the large group market or when a product’s premium rate increase would trigger the federal excise tax;

• Require the Department of Insurance or the Department of Managed Health Care to determine whether a filing regarding an individual product (that is reported pursuant to the preceding bullet) is reasonable.

Related Legislation:

• SB 26 (Hernandez) would require the California Health and Human Services Agency to establish an all payer claims database, to allow for analysis of health care expenditures. That bill will be heard in this committee.

• SB 1182 (Leno, Statutes of 2014) requires carriers in the large group market to share specified data with certain large purchasers.

• SB 746 (Leno, 2013) would have required additional reporting by large group carriers SB 1182. That bill was vetoed by Governor Brown.

Staff Comments:

The bill would require carriers to provide information on aggregate rate increases across all the carrier’s large group products. The bill would also require carriers to provided product-specific information on rate increases for all the products whose annual rate increase exceeds the average rate increase for that carrier. Carriers tend to have many products in the large group market that are tailored to the specific needs of their purchasers. Depending on how the rate setting works for each of those individual products, carriers may be obligated to provide detailed information for half or more of their large group products each year. Reviewing this detailed information will require considerable staff resources by the Department of Insurance and the Department of Managed Health Care

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 546

SUBJECT: Health care coverage: rate review

SUMMARY:

1. Establishes a rate approval process for large group health insurance products prior to the implementation of any rate change that equals or exceeds certain triggers, or at the request of a large group purchaser. Establishes a rate review process of a health plan’s or insurer’s entire aggregated large group market products and requires the Department of Managed Health Care and the California Department of Insurance to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market on or before November 1, 2016 and annually thereafter.

Existing law:

1. Requires health plans and health insurers for the large group market, to file with the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), at least 60 days prior to implementing any rate change, specified rate information related to unreasonable rate increases, including all information that is required by the Affordable Care Act (ACA). These provisions have never been implemented.
   
   

2. Requires a health plan or insurer annually to provide deidentified claims data at no charge to a large group purchaser upon request, if the purchaser is able to demonstrate its ability to comply with state and federal privacy laws and is either an employer with enrollment of greater than 1,000 covered lives (at least 500 of which are enrolled with the health plan or insurer) or a multiemployer trust with enrollment of greater than 500 lives (at least 250 of which are enrolled with the health plan or insurer). Allows a health plan or insurer to provide the claims data in an aggregated form as necessary to comply with state and federal privacy laws.
   
   

3. Requires a health plan or insurer, as an alternative to providing claims data under 2) above, to provide: deidentified aggregated data sufficient for the purchaser to compare costs of similar services from other health plans or insurers; and deidentified aggregated patient level data that includes demographics and encounter data, including data used to experience rate the group, as specified. Requires the health plan or insurer to obtain a formal determination from a qualified statistician that the claims or shared data do not provide a reasonable basis from which to identify an individual.

4. Prohibits change in premium rates or changes in coverage in the group market unless the plan or insurer has delivered in writing a notice indicating the change or changes at least 60 days prior to the effective date.

5. Requires individual and small group health plan contract and insurance policy rate information to be filed with DMHC or CDI concurrent with required notices explaining reasons for denials, increases in premium rates, and the plan’s average rate increase by plan year, segment type, and product type.

6. Requires plans and policies for individual and small group health care contracts to be filed 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, as specified.

This bill:

1. Requires health plans and insurers for the large group market to file required rate information for rate changes aggregated for the entire large group market on or before October 1, 2016, and on or before October 1, annually thereafter.
   
   

2. Deletes some existing large group rate filing requirements and adds the following as part of the aggregated filing:

1. Any factors affecting the rate, and the actuarial basis for those factors, including:

   1. Geographic region;

   2. Age, including age rating factors;

   3. Occupation;

   4. Industry;

   5. Health status, including health status factors considered;

   6. Employee, employee and dependents, including a description of the family composition used;

   7. Enrollee share of premiums;

   8. Enrollee cost sharing;

   9. Covered benefits in addition to basic health care services, as specified; and,

   10. Any other factors that affect the rate that are not otherwise specified.

2. The plan’s or insurer’s overall annual medical trend factor assumptions by aggregate benefit category, as specified, or actual trend experience for the prior contract year by aggregate benefit category, for a plan with exclusive contracts with no more than two medical groups, as specified.

3. The amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual plan contract rends by aggregate benefit category, as specified, or the amount of its actual trend experience for the prior contract year by aggregate benefit category, as specified, for a plan with exclusive contracts with no more than two medical groups, as specified.

4. A comparison of cost claims.

5. Any changes in cost sharing over the prior year associated with the submitted rate filing.

6. Any changes in benefits over the prior year associated with the submitted rate filing.

7. Any cost containment and quality improvement efforts since the plans’ last rate filing for the same category of health benefit plan.
   
   

1. Requires large group product rate filings 60 days prior to implementing any rate change that is:

   1. Equal to or greater than the average rate increase for individual market products approved by Covered California;

   2. Equal to or greater than the average rate increase approved by CalPERS for the subsequent calendar year;

   3. Causes the large group purchaser to incur the excise tax; or,

   4. Requested by the large group purchaser.
      
      

2. Requires the rate filing in 3) immediately above concurrent with a required written notice prior to premium rate changes or changes in coverage as required under existing law, except in the case where a large group purchaser has requested the filing, in which case the filing may occur at any time after receipt of the required written notice and prior to the rate taking effect.
   
   

3. Requires plans and insurers to disclose specified information for each rate filing in 3) immediately above such as company name, product type, segment type, and any factors affecting the rate, and the actuarial basis for the factor, similar to the requirements applicable to the aggregate rate filings as described in 2) immediately above.
   
   

4. Requires 17 additional disclosures including total earned premiums in each plan contract form, total incurred claims in each plan contract form, overall annual medical trend factor assumptions in each rate filing by aggregate benefit category, as specified, and projected trend attributable to the use of services, as specified, and any cost containment and quality improvement efforts since the plan’s last rate filing for the same category of plan. Permits the reporting of actual trend experience for the prior contract year by aggregate benefit category, for a plan with exclusive contracts with no more than two medical groups, as specified.

6. Requires the DMHC Director or CDI Commissioner to make a decision to modify or deny a rate change that is unreasonable, inadequate, or otherwise in violation of this bill or federal law prior to the implementation of the rate change by the plan or insurer.
   
   

7. Requires a plan to submit any other information required under the ACA, and any other information required pursuant to any regulation adopted by DMHC or CDI to comply with this bill.

8. Requires DMHC and CDI to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market on or before November 1, 2016 and annually thereafter.

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. According to the 2014 California Employer Health Benefits Survey, health premiums in California rose by 185 percent since 2002, more than five times the state’s overall inflation rate. In addition, one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care.
   
   

SB 1163 (Leno), Chapter 661, Statutes of 2010, requires health plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. Since its enactment in 2011, SB 1163 has saved California consumers over $300 million. However, the same protections have not been implemented for large employers and their employees. SB 546 extends the transparency and reporting from SB 1163 to the large group market and triggers prior approval by a regulator for increases that hit a certain threshold to protect employers and workers from unjustified rate increases.

2. Rate review in California. Under the ACA and SB 1163, 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. 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 also requires health plans and insurers to submit all information required by the ACA and any additional information adopted through regulation necessary to comply with the bill. However, the rate review provisions in the ACA have not been applied to the large group market and DMHC and CDI have 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, rate review has increased transparency on rate increases in the individual and small group market.
   
   

3. Proposition 45. On November 4, 2014, California voters considered the Insurance Rate Public Justification and Accountability Act (Proposition 45), which would have required health insurance rate changes in the small group and individual market to be approved by the CDI Commissioner before taking effect. Among other things, Proposition 45 would have required a sworn statement by health insurers as to accuracy of information submitted to the CDI Commissioner to justify rate changes and provided for public notice, disclosure and hearing on health insurance rate changes, as well as subsequent judicial review. Proposition 45 was based on Proposition 103 (approved by voters in 1988), which prohibits rates for certain types of insurance, including automobile and homeowner’s insurance, from being excessive, inadequate, or unfairly discriminatory. The CDI Commissioner must approve proposed rates before such rates take effect and may hold public hearings on proposed rates. A consumer or a consumer representative can challenge proposed rates and request hearings. Hearings must be granted when proposed rate changes exceed certain percentages. Proposition 45 failed passage with 41.1 percent of California voters voting in support and 58.9 percent voting in opposition.
   
   

4. Employer Sponsored Coverage Premium Increases. According to the Kaiser Family Foundation/Health Research and Education Trust 2014 Employer Health Benefits Survey average annual premiums for employer-sponsored family health coverage reached $16,834 in 2014, up three percent from 2013. Premiums increased more slowly over the past five years than the preceding five years and well below the annual double-digit increases recorded in the late 1990s and early 2000s. Cumulative health insurance premiums from 1999 to 2014 have increased 191 percent compared to a 212 percent increase in workers’ contribution to premiums, a 54 percent increase in workers’ earnings, and a 43 percent increase in overall inflation during this same period of time. According to the National Business Group on Health, projected health costs were expected to rise 6.8 percent in 2015 but after accounting for likely changes in benefit design, a net growth rate of health benefit costs was expected to be 4.8 percent.
   
   

5. ACA and Large Groups. Not all of the ACA health insurance reforms apply to issuers in the large group market. According to a 2014 Congressional Research Report on private market reforms some key provisions of the ACA impacting the fully insured large group market include: guaranteed issue, nondiscrimination based on health status, extension of dependent coverage, prohibition of discrimination based on salary, waiting period limitation, guaranteed renewability, prohibition on rescissions, no cost-sharing for preventive health services, coverage of preexisting health conditions, limits for annual out-of-pocket spending, prohibition on life time and annual limits, summary of benefits and coverage, and medical loss ratio. Grandfathered plans (plans in place on the day the ACA was enacted that have undergone minimal changes overtime) are exempt from about half of these reforms. Large employers are required under the ACA to issue notices about the new insurance market place, and starting in 2015, large employers not offering affordable coverage (or coverage that does not meet minimum value) may be required to pay an assessment if at least one of their full-time employees (average of at least 30 hours per week) receives a premium tax credit to purchase coverage in an exchange. There are also reporting requirements on employers with 50 or more full-time employees regarding health coverage offered and tax and withholding requirements which may apply.
   
   

6. Excise Tax. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief, a 40 percent excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage) subject to adjustment based on cost increases in the Federal Employees Health Benefits Program. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40 percent of any dollar amount beyond the caps that is considered “excess” spending. The premium includes both the portion paid by the employer and the employee contribution. The excise tax is also referred to as the “Cadillac” tax. In a report commissioned by the National Education Association (NEA), Milliman indicates that there are several quantifiable elements of premium determination, including plan members’ geographical location, the industry in which they work, their age and gender, and the number of people in the health insurance group in which they participate, that can increase premiums in addition to the level of benefits. While the ACA, which established the Cadillac tax to target high benefit plans and help fund components of the ACA, attempted to address the impact of age and gender, Milliman found that age and gender remain as factors that impact the excise tax. NEA points out that a gold-level plan in San Francisco would be 37 percent higher than the exact same plan’s premium if it were in Huntington, West Virginia.
   
   

7. CalPERS Rate Negotiation Process. CalPERS is the largest health plan purchaser in California, the second largest in the nation. In 2013, the CalPERS health program spent $7.51 billion to cover 1.4 million active and retired members and their dependents. From 2003 to 2015 basic health plan rate increases overall have been reduced from a 24.1 percent increase in 2003 to a 3.3 percent increase in 2015, which includes rate increase reductions from 25.9 percent to 3.9 percent for HMOs, from 19.9 percent to 0.6 percent for PPOs, and from 20.8 percent to 5.6 percent for Association plans. Beginning every January, CalPERS requests its participating health plans prepare utilization assumptions and develop premium rate proposals for the following calendar year. Proposals are based on two years of actual data and one year of projected data. CalPERS staff develops independent rate forecasts based on underlying factors and trends identified from the data, and engages an independent consultant to develop additional rate projections. CalPERS then compares its rate projections to the preliminary rates submitted by the health plans. Through a negotiation period between January and June, rates are refined and typically decreased based on these comparisons and more recent experiential claims data. Premium rates are approved at the June meeting of the CalPERS board. The average rate increase for plan year 2014 was 3.03 percent and for 2015 was 3.85 percent.
   
   

8. Covered California Rates. Average weighted statewide rate increase for Covered California plans was 4.2 percent from 2014 to 2015.  
   
   

9. Related legislation. SB 26 (Hernandez), requires the Secretary of Health and Human Services to, no later than January 1, 2017, use a competitive process to contract with one or more private, independent, nonprofit organizations in order to establish the California Health Care Cost and Quality Database. This bill is scheduled for a hearing in the Senate Health Committee on April 22, 2015.

10. Prior legislation. 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 market and would have 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 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 (referring to Kaiser Permanente). 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.

AB 52 (Feuer), of 2010, would have prohibited health plans and health insurers from implementing a rate for a new product or instituting a rate change unless it submits an application to DMHC or CDI that is approved. The director of DMHC and the Insurance Commissioner would have the authority approve, deny, or modify any proposed rate or rate change. The bill was never taken up for a vote on the Senate Floor.

AB 2578 (Jones), of 2010, would have required health plans and insurers to file a complete rate application with DMHC and CDI for a rate increase that would have become effective on or after January 1, 2012, and would have prohibited a health plan or health insurer premium rate (defined to include premiums, co-payments, coinsurance obligations, deductibles, and other charges) from being approved or remaining in effect that is excessive, inadequate, unfairly discriminatory, or otherwise in violation of the provisions of the bill. AB 2578 failed passage on the Senate Floor.

11. Support. The California Labor Federation cosponsors this bill to protect large employers and workers from unjustified increases in the cost of their health benefits. In 2018, the ACA imposes a tax of 40 percent on plans over a certain threshold and in the first year alone, the excise tax is anticipated to hit 17 percent of the U.S. businesses, and 38 percent of large employers. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now five percent to 15 percent more than the national average. Increasing costs affect all employment-based plans; joint Labor-management trusts will not pass along the new costs to our members without first exhausting all other possible alternatives. Union trustees are more vigilant about costs and finding alternative strategies to protect member benefits while keeping health care affordable. UNITE HERE, also a cosponsor, indicates real progress has been made to help them manage costs but it is not enough. This bill would for the first time explain how rates are established and trended forward in the large purchaser market. The insurance market rules which apply to the individual and small employer markets do not apply to large purchasers. Also, this bill would impose prior approval of rates to encourage rate increases in the large purchaser market that are more in line with CalPERS and the individual and small employer markets. This bill builds on the existing rate review infrastructure established under SB 1163 and is within the ACA framework unlike Proposition 45. CALPIRG writes in support that an April 2014 analysis by the CALPIRG Education Fund discovered the transparency and outside rate review process applied in the individual and small group process resulted in savings of $349 million but 923,237 Californians were subject to unreasonable rate hikes, which would have resulted in significantly more savings for consumers. Health Access California writes that this bill will help consumers and purchasers understand how rates are established and trended forward in the large group market, factors used in setting rate and rate increases.
    
    

12. Opposition. The California Association of Health Plans (CAHP) writes in opposition that rate regulation does nothing to lower health care costs and that the rate regulations provisions may result in less customization and choice for employers, interfere with important timelines to ensure employee benefit packages are available during open enrollment, and infringe government intervention into employer benefit packages driving more employers into self-insurance unregulated by the state. CAHP argues that this bill would increase administrative, legal and state costs compounding affordability problems and DMHC would need a sizeable number of additional staff and resources to complete the overwhelming influx of new work in a timely fashion. CAHP adds that they removed their opposition to SB 1182 last year and see no compelling reason to now require large group rating information to state regulators.
    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 points out that large group rates are actively negotiated with the large group purchaser and filing them 60 days in advance is nearly impossible because rates are often adjusted during the negotiating process to reflect benefit, network, or other changes that may be discussed with the large group purchaser throughout the process. The California Chamber of Commerce labels this bill a job killer and writes that this bill creates unnecessary uncertainty for large employers with adequate bargaining strength, and interferes with their ability to negotiate health benefits on behalf of, and in some cases with, their employees. The California Chamber of Commerce is concerned about rising health care costs but feels rate regulation is not the solution to controlling these costs or ensuring the affordability of health care for Californians.
    
    

13. Volume of Reviews. It is unclear how many rate reviews the triggering mechanisms in this bill would generate. At present, Covered California and CalPERS most recently negotiated rates averaged approximately 3 to 4 percent. According to the California HealthCare Foundation’s California Employer Health Benefits Survey for 2014, among California firms that offered the same health plan or plans in 2013-2014, the average family coverage premium increase was 6 percent. For California firms that changed plans or had workers who switched plans, the average family premium increase was 1.7 percent. The committee may wish to consider alternative triggering mechanisms to focus the rate review requirements on those premium rates that are above average.
    
    

14. Amendments. The author requests the committee approve amendments to delete subdivision (e) on pages 7 and 12 related to requirements on the regulators to make decisions to modify or deny rate changes that are unreasonable, inadequate, or otherwise in violation of this bill or federal law prior to the implementation of the rate changes. The author also requests amendments to expand notification requirements on plans and insurers with regard to the amount by which rates would exceed specified triggers.
    
    

SUPPORT AND OPPOSITION:

Support:

California Labor Federation (sponsor)

UNITE HERE (sponsor)

American Federation of State, County, and Municipal Employees, AFL-CIO

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Federation of Teachers

California Nurses Association

California Pan-Ethnic Health Network

California Professional Firefighters

California Retired Teachers Association

California School Employees Association

California Teachers Association

California Teamsters Public Affairs Council

CALPIRG

Campaign for a Healthy California

Communications Workers of America, District 9, AFL-CIO

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Gray Panthers of San Francisco

Health Access California

International Longshore and Warehouse Union

LIUNA Local 777

LIUNA Local 792

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Utility Workers Union of America

Oppose:

Aetna

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life and Health Insurance Plans

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Chamber of Commerce

California Hospital Association

Culver City Chamber of Commerce

Family Business Association

Fresno Chamber of Commerce

Fullerton Chamber of Commerce

Health Net

Kaiser Permanente

Orange County Business Council

Rancho Cordova Chamber of Commerce

Redondo Beach Chamber of Commerce and Visitors Bureau

San Jose Silicon Valley Chamber

Santa Maria Valley Chamber of Commerce Visitor and Convention Bureau

Simi Valley Chamber of Commerce

South Bay Association of Chambers of Commerce

Southwest California Legislative Council

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 546

SUBJECT: Health care coverage: rate review

SUMMARY:

1. Establishes a rate approval process for large group health insurance products prior to the implementation of any rate change that equals or exceeds certain triggers, or at the request of a large group purchaser. Establishes a rate review process of a health plan’s or insurer’s entire aggregated large group market products and requires the Department of Managed Health Care and the California Department of Insurance to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market on or before November 1, 2016 and annually thereafter.

Existing law:

1. Requires health plans and health insurers for the large group market, to file with the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), at least 60 days prior to implementing any rate change, specified rate information related to unreasonable rate increases, including all information that is required by the Affordable Care Act (ACA). These provisions have never been implemented.
   
   

2. Requires a health plan or insurer annually to provide deidentified claims data at no charge to a large group purchaser upon request, if the purchaser is able to demonstrate its ability to comply with state and federal privacy laws and is either an employer with enrollment of greater than 1,000 covered lives (at least 500 of which are enrolled with the health plan or insurer) or a multiemployer trust with enrollment of greater than 500 lives (at least 250 of which are enrolled with the health plan or insurer). Allows a health plan or insurer to provide the claims data in an aggregated form as necessary to comply with state and federal privacy laws.
   
   

3. Requires a health plan or insurer, as an alternative to providing claims data under 2) above, to provide: deidentified aggregated data sufficient for the purchaser to compare costs of similar services from other health plans or insurers; and deidentified aggregated patient level data that includes demographics and encounter data, including data used to experience rate the group, as specified. Requires the health plan or insurer to obtain a formal determination from a qualified statistician that the claims or shared data do not provide a reasonable basis from which to identify an individual.

4. Prohibits change in premium rates or changes in coverage in the group market unless the plan or insurer has delivered in writing a notice indicating the change or changes at least 60 days prior to the effective date.

5. Requires individual and small group health plan contract and insurance policy rate information to be filed with DMHC or CDI concurrent with required notices explaining reasons for denials, increases in premium rates, and the plan’s average rate increase by plan year, segment type, and product type.

6. Requires plans and policies for individual and small group health care contracts to be filed 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, as specified.

This bill:

1. Requires health plans and insurers for the large group market to file required rate information for rate changes aggregated for the entire large group market on or before October 1, 2016, and on or before October 1, annually thereafter.
   
   

2. Deletes some existing large group rate filing requirements and adds the following as part of the aggregated filing:

1. Any factors affecting the rate, and the actuarial basis for those factors, including:

   1. Geographic region;

   2. Age, including age rating factors;

   3. Occupation;

   4. Industry;

   5. Health status, including health status factors considered;

   6. Employee, employee and dependents, including a description of the family composition used;

   7. Enrollee share of premiums;

   8. Enrollee cost sharing;

   9. Covered benefits in addition to basic health care services, as specified; and,

   10. Any other factors that affect the rate that are not otherwise specified.

2. The plan’s or insurer’s overall annual medical trend factor assumptions by aggregate benefit category, as specified, or actual trend experience for the prior contract year by aggregate benefit category, for a plan with exclusive contracts with no more than two medical groups, as specified.

3. The amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual plan contract rends by aggregate benefit category, as specified, or the amount of its actual trend experience for the prior contract year by aggregate benefit category, as specified, for a plan with exclusive contracts with no more than two medical groups, as specified.

4. A comparison of cost claims.

5. Any changes in cost sharing over the prior year associated with the submitted rate filing.

6. Any changes in benefits over the prior year associated with the submitted rate filing.

7. Any cost containment and quality improvement efforts since the plans’ last rate filing for the same category of health benefit plan.
   
   

1. Requires large group product rate filings 60 days prior to implementing any rate change that is:

   1. Equal to or greater than the average rate increase for individual market products approved by Covered California;

   2. Equal to or greater than the average rate increase approved by CalPERS for the subsequent calendar year;

   3. Causes the large group purchaser to incur the excise tax; or,

   4. Requested by the large group purchaser.
      
      

2. Requires the rate filing in 3) immediately above concurrent with a required written notice prior to premium rate changes or changes in coverage as required under existing law, except in the case where a large group purchaser has requested the filing, in which case the filing may occur at any time after receipt of the required written notice and prior to the rate taking effect.
   
   

3. Requires plans and insurers to disclose specified information for each rate filing in 3) immediately above such as company name, product type, segment type, and any factors affecting the rate, and the actuarial basis for the factor, similar to the requirements applicable to the aggregate rate filings as described in 2) immediately above.
   
   

4. Requires 17 additional disclosures including total earned premiums in each plan contract form, total incurred claims in each plan contract form, overall annual medical trend factor assumptions in each rate filing by aggregate benefit category, as specified, and projected trend attributable to the use of services, as specified, and any cost containment and quality improvement efforts since the plan’s last rate filing for the same category of plan. Permits the reporting of actual trend experience for the prior contract year by aggregate benefit category, for a plan with exclusive contracts with no more than two medical groups, as specified.

7. Requires the DMHC Director or CDI Commissioner to make a decision to modify or deny a rate change that is unreasonable, inadequate, or otherwise in violation of this bill or federal law prior to the implementation of the rate change by the plan or insurer.
   
   

8. Requires a plan to submit any other information required under the ACA, and any other information required pursuant to any regulation adopted by DMHC or CDI to comply with this bill.

9. Requires DMHC and CDI to conduct a public meeting regarding large group rate changes for each plan or insurer that offers coverage in the large group market on or before November 1, 2016 and annually thereafter.

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, the rising cost of health care is a major concern for large purchasers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. According to the 2014 California Employer Health Benefits Survey, health premiums in California rose by 185 percent since 2002, more than five times the state’s overall inflation rate. In addition, one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care.
   
   

SB 1163 (Leno), Chapter 661, Statutes of 2010, requires health plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases in the individual and small group markets. Since its enactment in 2011, SB 1163 has saved California consumers over $300 million. However, the same protections have not been implemented for large employers and their employees. SB 546 extends the transparency and reporting from SB 1163 to the large group market and triggers prior approval by a regulator for increases that hit a certain threshold to protect employers and workers from unjustified rate increases.

2. Rate review in California. Under the ACA and SB 1163, 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. 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 also requires health plans and insurers to submit all information required by the ACA and any additional information adopted through regulation necessary to comply with the bill. However, the rate review provisions in the ACA have not been applied to the large group market and DMHC and CDI have 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, rate review has increased transparency on rate increases in the individual and small group market.
   
   

3. Proposition 45. On November 4, 2014, California voters considered the Insurance Rate Public Justification and Accountability Act (Proposition 45), which would have required health insurance rate changes in the small group and individual market to be approved by the CDI Commissioner before taking effect. Among other things, Proposition 45 would have required a sworn statement by health insurers as to accuracy of information submitted to the CDI Commissioner to justify rate changes and provided for public notice, disclosure and hearing on health insurance rate changes, as well as subsequent judicial review. Proposition 45 was based on Proposition 103 (approved by voters in 1988), which prohibits rates for certain types of insurance, including automobile and homeowner’s insurance, from being excessive, inadequate, or unfairly discriminatory. The CDI Commissioner must approve proposed rates before such rates take effect and may hold public hearings on proposed rates. A consumer or a consumer representative can challenge proposed rates and request hearings. Hearings must be granted when proposed rate changes exceed certain percentages. Proposition 45 failed passage with 41.1 percent of California voters voting in support and 58.9 percent voting in opposition.
   
   

4. Employer Sponsored Coverage Premium Increases. According to the Kaiser Family Foundation/Health Research and Education Trust 2014 Employer Health Benefits Survey average annual premiums for employer-sponsored family health coverage reached $16,834 in 2014, up three percent from 2013. Premiums increased more slowly over the past five years than the preceding five years and well below the annual double-digit increases recorded in the late 1990s and early 2000s. Cumulative health insurance premiums from 1999 to 2014 have increased 191 percent compared to a 212 percent increase in workers’ contribution to premiums, a 54 percent increase in workers’ earnings, and a 43 percent increase in overall inflation during this same period of time. According to the National Business Group on Health, projected health costs were expected to rise 6.8 percent in 2015 but after accounting for likely changes in benefit design, a net growth rate of health benefit costs was expected to be 4.8 percent.
   
   

5. ACA and Large Groups. Not all of the ACA health insurance reforms apply to issuers in the large group market. According to a 2014 Congressional Research Report on private market reforms some key provisions of the ACA impacting the fully insured large group market include: guaranteed issue, nondiscrimination based on health status, extension of dependent coverage, prohibition of discrimination based on salary, waiting period limitation, guaranteed renewability, prohibition on rescissions, no cost-sharing for preventive health services, coverage of preexisting health conditions, limits for annual out-of-pocket spending, prohibition on life time and annual limits, summary of benefits and coverage, and medical loss ratio. Grandfathered plans (plans in place on the day the ACA was enacted that have undergone minimal changes overtime) are exempt from about half of these reforms. Large employers are required under the ACA to issue notices about the new insurance market place, and starting in 2015, large employers not offering affordable coverage (or coverage that does not meet minimum value) may be required to pay an assessment if at least one of their full-time employees (average of at least 30 hours per week) receives a premium tax credit to purchase coverage in an exchange. There are also reporting requirements on employers with 50 or more full-time employees regarding health coverage offered and tax and withholding requirements which may apply.
   
   

6. Excise Tax. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief a 40 percent excise tax will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage) subject to adjustment based on cost increases in the Federal Employees Health Benefits Program. Health insurance issuers and sponsors of self-funded group health plans must pay the tax of 40 percent of any dollar amount beyond the caps that is considered “excess” spending. The premium includes both the portion paid by the employer and the employee contribution. The excise tax is also referred to as the “Cadillac” tax. In a report commissioned by the National Education Association (NEA), Milliman indicates that there are several quantifiable elements of premium determination, including plan members’ geographical location, the industry in which they work, their age and gender, and the number of people in the health insurance group in which they participate, that can increase premiums in addition to the level of benefits. While the ACA, which established the Cadillac tax to target high benefit plans and help fund components of the ACA, attempted to address the impact of age and gender, Milliman found that age and gender remain as factors that impact the excise tax. NEA points out that a gold-level plan in San Francisco would be 37 percent higher than the exact same plan’s premium if it were in Huntington, West Virginia.
   
   

7. CalPERS Rate Negotiation Process. CalPERS is the largest health plan purchaser in California, the 2^nd largest in the nation. In 2013, the CalPERS health program spent $7.51 billion to cover 1.4 million active and retired members and their dependents. From 2003 to 2015 basic health plan rate increases overall have been reduced from a 24.1 percent increase in 2003 to a 3.3 percent increase in 2015, which includes rate increase reductions from 25.9 percent to 3.9 percent for HMOs, from 19.9 percent to 0.6 percent for PPOs, and from 20.8 percent to 5.6 percent for Association plans. Beginning every January, CalPERS requests its participating health plans prepare utilization assumptions and develop premium rate proposals for the following calendar year. Proposals are based on two years of actual data and one year of projected data. CalPERS staff develops independent rate forecasts based on underlying factors and trends identified from the data, and engages an independent consultant to develop additional rate projections. CalPERS then compares its rate projections to the preliminary rates submitted by the health plans. Through a negotiation period between January and June, rates are refined and typically decreased based on these comparisons and more recent experiential claims data. Premium rates are approved at the June meeting of the CalPERS board. The average rate increase for plan year 2014 was 3.03 percent and for 2015 was 3.85 percent.
   
   

8. Covered California Rates. Average weighted statewide rate increase for Covered California plans was 4.2 percent from 2014 to 2015.  
   
   

9. Related legislation. SB 26 (Hernandez), requires the Secretary of Health and Human Services to, no later than January 1, 2017, use a competitive process to contract with one or more private, independent, nonprofit organizations in order to establish the California Health Care Cost and Quality Database. This bill is scheduled for a hearing in the Senate Health Committee on April 22, 2015.

10. Prior legislation.

    1. 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.
       
       

    2. 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 market and would have 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 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 (referring to Kaiser Permanente). 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.

3. 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.
   
   

4. AB 52 (Feuer), of 2010, would have prohibited health plans and health insurers from implementing a rate for a new product or instituting a rate change unless it submits an application to DMHC or CDI that is approved. The director of DMHC and the Insurance Commissioner would have the authority approve, deny, or modify any proposed rate or rate change. The bill was never taken up for a vote on the Senate Floor.

5. AB 2578 (Jones), of 2010, would have required health plans and insurers to file a complete rate application with DMHC and CDI for a rate increase that would have become effective on or after January 1, 2012, and would have prohibited a health plan or health insurer premium rate (defined to include premiums, co-payments, coinsurance obligations, deductibles, and other charges) from being approved or remaining in effect that is excessive, inadequate, unfairly discriminatory, or otherwise in violation of the provisions of the bill. AB 2578 failed passage on the Senate Floor.
   
   

1. Support. The California Labor Federation cosponsors this bill to protect large employers and workers from unjustified increases in the cost of their health benefits. In 2018, the ACA imposes a tax of 40 percent on plans over a certain threshold and in the first year alone, the excise tax is anticipated to hit 17 percent of the U.S. businesses, and 38 percent of large employers. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now five percent to 15 percent more than the national average. Increasing costs affect all employment-based plans; joint Labor-management trusts will not pass along the new costs to our members without first exhausting all other possible alternatives. Union trustees are more vigilant about costs and finding alternative strategies to protect member benefits while keeping health care affordable. UNITE HERE, also a cosponsor, indicates real progress has been made to help them manage costs but it is not enough. This bill would for the first time explain how rates are established and trended forward in the large purchaser market. The insurance market rules which apply to the individual and small employer markets do not apply to large purchasers. Also, this bill would impose prior approval of rates to encourage rate increases in the large purchaser market that are more in line with CalPERS and the individual and small employer markets. This bill builds on the existing rate review infrastructure established under SB 1163 and is within the ACA framework unlike Proposition 45. CALPIRG writes in support that an April 2014 analysis by the CALPIRG Education Fund discovered the transparency and outside rate review process applied in the individual and small group process resulted in savings of $349 million but 923,237 Californians were subject to unreasonable rate hikes, which would have resulted in significantly more savings for consumers. Health Access California writes that this bill will help consumers and purchasers understand how rates are established and trended forward in the large group market, factors used in setting rate and rate increases.
   
   

2. Opposition. The California Association of Health Plans (CAHP) writes in opposition that rate regulation does nothing to lower health care costs and that the rate regulations provisions may result in less customization and choice for employers, interfere with important timelines to ensure employee benefit packages are available during open enrollment, and infringe government intervention into employer benefit packages driving more employers into self-insurance unregulated by the state. CAHP argues that this bill would increase administrative, legal and state costs compounding affordability problems and DMHC would need a sizeable number of additional staff and resources to complete the overwhelming influx of new work in a timely fashion. CAHP adds that they removed their opposition to SB 1182 last year and see no compelling reason to now require large group rating information to state regulators.
   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 points out that large group rates are actively negotiated with the large group purchaser and filing them 60 days in advance is nearly impossible because rates are often adjusted during the negotiating process to reflect benefit, network, or other changes that may be discussed with the large group purchaser throughout the process. The California Chamber of Commerce labels this bill a job killer and writes that this bill creates unnecessary uncertainty for large employers with adequate bargaining strength, and interferes with their ability to negotiate health benefits on behalf of, and in some cases with, their employees. The California Chamber of Commerce is concerned about rising health care costs but feels rate regulation is not the solution to controlling these costs or ensuring the affordability of health care for Californians.
   
   

3. Amendments. The author requests the committee approve the following amendments:

Page 5, lines 9-22 and page 10, lines19-31 applicable to insurance policies

(a) (1) For large group health care service plan contracts, concurrent with the notice required under Section 1374.21, all health plans shall file with the department at least 60 days prior to implementing any rate change all required rate information for any product with a rate change if any of the following apply:

(A) The rate change is equal to or greater than the average rate increase for individual market products approved by the California Health Benefits Exchange for the calendar year for the majority of the months for which the rate is proposed to be in effect.

(B) The rate change is equal to or greater than the average rate increase approved by the CalPERS board for the subsequent calendar year for the majority of the months for which the rate is proposed to be in effect.

(C) The rate change would cause the health plan for the large group purchaser to incur the excise tax for any part of the period the rate increase is proposed to be in effect.

(D) A rate increase meets or exceeds the applicable threshold in (A) or (B) if the average increase for all enrollees weighted by premium volume meets or exceeds the applicable threshold.

(D) At the request of the large group purchaser.

Page 7, lines 26-29 and pages 12, lines 37-39 and 13, lines 1-2 applicable to insurance policies

(e) For rate filings subject to this section, the director shall make a decision to modify or deny a rate change that is unreasonable, inadequate, or otherwise in violation of this article or federal law prior to the implementation of the rate change by the plan. Upon receiving complete information from the plan consistent with this section, the department shall within sixty days complete its review and finalize its decision to modify, deny or approve a rate change subject to this section.

SUPPORT AND OPPOSITION:

Support:

California Labor Federation (sponsor)

UNITE HERE (sponsor)

American Federation of State, County, and Municipal Employees, AFL-CIO

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Federation of Teachers

California Nurses Association

California Pan-Ethnic Health Network

California Professional Firefighters

California Retired Teachers Association

California School Employees Association

California Teamsters Public Affairs Council

CALPIRG

Campaign for a Healthy California

Communications Workers of America, District 9, AFL-CIO

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Gray Panthers of San Francisco

Health Access California

International Longshore and Warehouse Union

LIUNA Local 777

LIUNA Local 792

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Utility Workers Union of America