A1352 Page Date oi`Hcaring: May 1, 2011 ASSEMBLY COMMITTEE ON APPROPRTATIONS Felipe Fuentes, Chair AB 52 (Ferrer) - As Amended: May 3, 201 Policy Committee: Health Vote: 12-7 Urgency: No State Mandated Local Program: Yes Reimbursable: No QJMMAKX This bill establishes rate regulation, effective January 1, 2013, of California health plans and insurers (carriers) Linder the jurisdiction l` the Department of Managed Health Care and the California Department of lnsurance (CDI). y, this bill: l) Prohibits health plans and insurers lrom increasing rates tor plans in the individual, small- group, and large-group market without prior annual approval hom DMHC or CDT. Defines rates to include premiums, copayments, coinsurance, and deductibles. 2) Requires carriers to submit a number of data elements to CD1 and DMHC for the purposes of review. Applications are required to include variables such as overhead loss ratio, reserves, excess tangible net equity, surpluses, medical expenses, salaries, bonuses, and payments lor specified procedures. 3) Prohibits the approval or renewal of rates that are excessive, inadequate, or discriminatory. Permits regulators to approve, deny, or rnodily and proposed rate increase. Specilies factors for regulators to consider in making such determinations. 4) Requires DMHC and CD1 to post rate applications online and to notify the public about any rate application. Requires rates to be deemed approved by DMHC 01' CDI unless the respective department conducts an application hearing. 5) Authorizes consumers to request an administrative hearing Within 45 days ofthe date of public notice. Requires these hearings to be conducted by the Oflice oi" Administrative Hearings. 6) Subjects health plans and health insurers to penalties for violations ofprovisions ofthis bill. 7) Authorizes and CD1 to charge health plans and insurers for the administrative costs associated with rate regulation as created in this bill, and establishes a new special lund lor this purpose. 1) Annual fee-supported special costs of at least $30 million to DMI-IC and CDI, combined, to process, review, approve, post, and monitor activities related to rate increase approvals. Workload to DMHC and CD1 includes data collection, actuarial analysis, AB 52 Page 2 consumer services, rate en tbreement, legal analysis, administrative law hearings, and continued oversight. This estimate is subject to si gnitieant uncertainty, as workload would depend on plan behavior with respect to the timing and number of proposed rate increases, 2) A significant increase in fee~supported special funds may be required for several years and especially during major coverage expansions in several years per requirements ofthe federal Patient and Patient Protection and Affordable Care Act l-l48) (health re form). Actual costs may subside earlier, depending on pattems of health coverage expansions and related changes in insurance product pricing. 3) Federal health reform includes some support for states to conduct general rate review and report to the federal government about uniustified rates. California has received $3 million each year forthe next three years, and may be eligible for an additional $2 million. This federal funding would offset any fee-supported special fund costs generated by this bill. 4) Duc to methodological di flicultics in isolating the impact of prior approval, there is little reliable scientific evidence about the impact of rate review andthe authority to rel ect rate increases on long~tern1 premium growth. Other states report that prior approval has reduced rates of premium growth, at least in the short term. QQMMENTS 1) Rationale. According to the author, California should have the authority to review health care coverage rate increases in order to increase oversight of health insurance rates and slow evenescalating increases in premiums. He contends prior approval of rates would prevent loss of health insurance coverage as a result of steeply rising premium costs. Furthermore, the author states that studies and recent experience in other states provide evidence in support ofa robust prior rate approval system in California, 2) Increases in Premiums. Health insurance premiums have historically grown at a rate significantly higher than inflation, and premium growth continues to accelerate. One large California insurer has garnered national attention by proposing to increase premiums in the individual insurance market by up to 39%. State and congressional hearings have also been held on this topic. Both prior to and since the implementation of SB l63 (Leno), Chapter 66l Statutes of 2010, which requires carriers to submit detailed information about proposed rate increases to DMHC and both regulators have publicly questioned significant rate increases. ln seine cases, carriers have responded by voluntarily lowering proposed rates. 3) lmpact of Rate Review on Premium Growth. There is little reliable scientific evidence about the impact of rate review and the authority to reject rate increases on long-term premium growth. Researchers state that lack of evidence is associated with the difhculty in adjusting tor all the other factors that influence health care premiums and costs. Recent experience in other states indicates that rate regulation can reduce premiums, at least in the short term. These experiences do not relleet longer~tern1 impacts on the quality of care, investments in capital equipment or technology, or other potential broader impacts of tamping down premium growth. However, Rhode lsland indicates that their rate approval Page 3 process reduced health insurance premium growth in the group market by l./il~ 3_6 percentage points as compared to the premium growth requested by carriers, An assessment by the New York State insurance Department found that the elimination of prior rate approval of in that state led to significantly higher premium growth than that which was experienced under prior approval. Opposition Health plans and insurers, the California Medical Association, the California Hospital Association, and the Chamber of Commerce oppose this bill. Opponents indicate the framework proposed in this bill increases bureaucratic controls Without reducing health care costs. Opponents indicate the comparison to Proposition l03 is misplaced and that savings in the car' insurance market have accrued due to judicial limitations imposed on law suits, safety changes, and more rigorous enforcement ofsatcty laws, Opponents are concerned insurance rate regulation will tuithcr reduce access' to health coverage and product choice tor consumers. Related Legislation. AB 2578 (Jones and Fcuer) ot`20l0, AB 1218 (Jones) ot`2009, and AB l554 (Jones) M2008 were similar to this bill, AB 2578 Failed passage on the Senate Floor, AB 1218 failed passage in the Assembly Health Committee, and AB 1554 failed in the Senate Health Committee SB ll63 (Leno), Chapter 66l, Statutes of 2010, requires carriers to tile, with regulators, speci lied rate information lor individual and small group coverage at least 60 days prior to implementing any rate change, as specified, lt also requires the filings in the ease of large group contracts only in the ease of unreasonable rate increases, as delined by the ACA, prior to implementing any such rate change. Analysis Prepared by: Lisa Muravvski APPR. /(916) 319-2081