BILL ANALYSIS Ó
AB 1800
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1800 (Ma) - As Amended: March 20, 2012
SUBJECT : Health care coverage.
SUMMARY : Implements provisions of the Patient Protection and
Affordable Care Act (ACA) in 2013 related to prohibitions on the
imposition of out-of-pocket maximum caps which exceed specified
levels, applies the prohibitions to health care service plans
(health plans) and health insurers that cover prescription drugs
in all markets, includes prescription drug out-of-pocket
expenses under the caps, permits prescription drug benefit
exclusions to be included in the independent medical review
(IMR) process, and requires deductibles after 2014 to apply to
prescription drugs. Specifically, this bill :
1)Deletes provisions in existing law that: preclude a
prescription drug benefit exclusion from the IMR process if
the Department of Managed Health Care (DMHC) approves such
exclusion to a plan's prescription drug benefits, and,
requires DMHC to retain its role in assessing whether issues
are related to coverage or medical necessity, as specified.
2)Deletes existing law that states nothing prohibits a health
plan from setting forth by contract limitations on maximum
coverage of basic health care services, as specified, provided
that the limitations are held unobjectionable by the DMHC
Director and are disclosed to the subscriber or enrollee, as
specified.
3)Requires a health plan contract, except a specialized health
plan contract, that is issued, amended, or renewed on or after
January 1, 2013, to provide for a limit on annual
out-of-pocket expenses for covered benefits.
4)Requires a health insurance policy that is issued, amended, or
renewed on or after January 1, 2013, that offers outpatient
prescription drug coverage, to provide for a limit on annual
out-of-pocket expenses for all covered benefits and include
the insured's out-of-pocket costs of covered prescription
drugs in that limit.
5)Requires the limits described in 3) and 4) above to apply to
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any copayment, coinsurance, deductible, and any other form of
cost sharing for any covered benefits, including prescription
drugs, if covered.
6)Prohibits the limits described in 3) and 4) above from
exceeding the limit described in the ACA and any subsequent
rules, regulations, or guidance, as specified, except that
this limit takes effect on January 1, 2013.
7)Provides that nothing in 3), 4), 5), and 6) above shall be
construed to affect the reduction in cost sharing for eligible
insureds described in Section 1402 of the ACA and any
subsequent rules, regulations, or guidance, as specified.
8)Provides that notwithstanding any other provision of law, on
and after January 1, 2014, a health plan contract that is
issued, amended or renewed, or a health insurance policy that
is issued, amended, or renewed on an after January 1, 2014
shall apply any deductible for covered benefits also to
covered prescription drugs. Prohibits separate deductibles
for covered prescription drugs and any other covered benefits.
EXISTING LAW :
1)Enacts, in federal law, the ACA to, among other things, make
statutory changes affecting the regulation of, and payment
for, certain types of private health insurance. Includes the
definition of an essential health benefits (EHBs) package that
all qualified health plans must cover, at a minimum, with some
exceptions. Prohibits out-of-pocket limits greater than
Health Savings Accounts (HSAs) in all markets.
2)Provides that the EHBs package in 1) above will be determined
by the federal Department of Health and Human Services (HHS)
Secretary and must include, at a minimum, ambulatory patient
services; emergency services; hospitalizations; and,
prescription drugs, among other things.
3)Prohibits all health insurance issuers from setting lifetime
limits. Prohibits "restricted annual limits" on coverage
through 2013 subject to oversight by the Secretary of HHS with
no annual limits allowed starting in 2014 to new plans in the
individual market, and all new and existing group plans but
excludes self-insured plans.
4)Provides for regulation of health plans by the DMHC under the
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Knox-Keene Health Care Service Plan Act of 1975 and regulation
of health insurers by the California Department of Insurance
(CDI) under the Insurance Code.
5)Defines basic health care services as:
a) Physician services, including consultation and referral;
b) Hospital inpatient service and ambulatory care services;
c) Diagnostic laboratory and diagnostic and therapeutic
radiologic services;
d) Home health services;
e) Preventive health services;
f) Emergency health care services, including ambulance and
ambulance transport services and out-of-area coverage; and,
g) Hospice care, as specified.
6)Requires a health plan contract to provide to subscribers and
enrollees all of the basic health care services, except that
the DMHC Director may, for good cause, by rule or order exempt
a plan contract or any class of plan contracts from that
requirement.
7)Requires the DMHC Director to by rule define the scope of each
basic health care service that health plans are required to
provide as a minimum for licensure.
8)States that nothing in existing law, as specified, shall
prohibit a health plan from charging subscribers or enrollees
a copayment or a deductible for a basic health care service or
from setting forth, by contract, limitations on maximum
coverage of basic health care services, provided that the
copayments, deductibles, or limitations are reported to, and
held unobjectionable by, the DMHC Director and set forth to
the subscriber or enrollee pursuant to specified disclosures.
9)States that nothing in existing law shall preclude a plan from
filing relevant information with DMHC, as specified, to seek
the approval of a copayment, deductible, limitation, or
exclusion to a plan's prescription drug benefits.
10) States that if DMHC approves an exclusion to a plan's
prescription drug benefits, the exclusion shall not be subject
to review through the IMR process on the grounds of medical
necessity. Requires DMHC to retain its role in assessing
whether issues are related to coverage or medical necessity,
as specified.
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11) Establishes in the DMHC and the CDI the Independent
Medical Review System (IMRS), and makes all enrollee/insured
grievances involving a disputed health care service eligible
for review under the IMRS under specified requirements.
Defines disputed health care service as any health care
service eligible for coverage and payment under a health plan
contract/disability insurance contract that has been denied,
modified, or delayed by a decision of the plan, or by one of
its contracting providers, in whole or in part due to a
finding that the service is not medically necessary.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . The author states that despite having
health insurance, millions of Californians still have
excessive medical expenses that they pay for out of their own
pocket. People with chronic health conditions need frequent
and sometimes expensive care. Unfortunately, until 2014, there
is no limit on how much an insured patient is charged. Some
health plans pass along tens of thousands - even hundreds of
thousands - of dollars in costs to their insured patients by
limiting shared costs on their insurance products. The author
states that this occurs when patients reach the deductible
limit set by their insurance company, and are forced to make a
desperate choice between paying for necessary medical care or
their mortgage, groceries, or children's education.
According to the author, more than 1.9 million Californians
exceeded their out of pocket limits in 2011 alone, and the
cost exceeded more than $3 billion in out-of-pocket expenses.
People who already suffer from chronic conditions have felt
the effects of not being able to afford medications. However,
those who are healthy today may need this same protection
tomorrow. The author contends an estimated 1.5 million
Americans will be diagnosed with cancer this year alone. The
ACA will, among other important measures, cap the
out-of-pocket expenses, but it will not take place until 2014.
This bill will provide Californians with these protections one
year earlier.
2)BACKGROUND ON COST SHARING . Cost sharing may include
copayments, coinsurance, and/or deductibles. Copayments are a
form of cost sharing in which a health plan enrollee pays a
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specific amount out-of-pocket at the time of receiving a
health care service or when paying for a prescription, after
any applicable deductible. Coinsurance is the percentage of
covered health care costs for which a health plan enrollee is
responsible, after any applicable deductible. Deductibles are
a fixed dollar amount an enrollee is required to pay
out-of-pocket within a given time period before reimbursement
begins for eligible health care services.
3)FEDERAL HEALTH REFORM . On March 23, 2010, the federal
government enacted ACA (Public Law 111-148), which was further
amended by the Health Care Education Reconciliation Act
(H.R.4872). Regarding the private health insurance market,
the ACA primarily restructures the individual and small group
markets, setting minimum standards for health coverage,
providing financial assistance to individuals with income
below 400% of the federal poverty level (FPL), tax credits for
small employers, and the establishment of Health Benefit
Exchanges and EHBs that are required to be offered by QHPs,
which are plans participating the small group and individual
market through the exchanges and in the market outside the
exchanges. Beginning in 2014, QHPs will be required to offer
coverage at one of four levels: bronze, silver, gold, or
platinum. Levels will be based on a specified share of full
actuarial value of the EHBs. These plans will be prohibited
from imposing an annual cost-sharing limit that exceeds the
thresholds applicable to HSA-qualified High Deductible Health
Plans (HDHPs). In 2013, the annual out-of-pocket maximum for
an individual is $6,050 and $12,100 for family coverage.
Catastrophic plans are also permitted only in the individual
market for young adults (under age 30) and for those persons
exempt from the individual mandate, but catastrophic plans
must cover EHBs and have deductibles equal to the amounts
specified as out-of-pocket limits for HSA-qualified HDHPs.
Small group health plans providing QHPs will be prohibited
from imposing a deductible greater than $2,000 for individual
coverage and $4,000 for any other coverage in 2014, adjusted
annually after.
As mentioned some individuals with income under 400% FPL will
receive advanceable, refundable tax credits toward the
purchase of an exchange plan. The payment will go directly to
the insurer and will reduce the premium liability for that
individual. Those who qualify for premium credits and are
enrolled in an exchange plan at the silver tier beginning in
2014 will also be eligible for assistance in paying any
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required cost-sharing for their health services. Limitations
on exchange plans related to out-of-pocket costs will be based
upon HDHPs that qualify individuals for HSAs. Cost sharing
subsidies will further reduce those out-of-pocket maximums by
two-thirds for qualifying individuals between 100% and 200%
FPL, by one-half for qualifying individuals between 201% and
300% FPL, and by one-third for qualifying individuals between
301% and 400% FPL.
4)CALIFORNIA HEALTH BENEFITS REVIEW PROGRAM . AB 1996 (Thomson),
Chapter 795, Statutes of 2002, requests the University of
California to assess legislation proposing a mandated benefit
or service, and prepare a written analysis with relevant data
on the medical, economic, and public health impacts of
proposed health plan and health insurance benefit mandate
legislation. The California Health Benefits Review Program
(CHBRP) was created in response to AB 1996 and extended for
four additional years in SB 1704 (Kuehl), Chapter 684,
Statutes of 2006. CHBRP indicates this bill is not a
conventionally defined benefit mandate because it does not
mandate coverage of specific treatments and services. This
bill impacts the terms and conditions of coverage of plans and
policies. CHBRP has adjusted the analysis regarding medical
effectiveness, cost, and public health impacts to address the
requirements of this bill.
a) Analytic Approach . The medical effectiveness analysis
focuses on the impact of annual out-of-pocket maximums and
deductibles. The analysis does not address the
effectiveness of specific treatments because this bill does
not mandate coverage for any specific treatments, but
instead would impact the terms and conditions of coverage.
Only the effect of the annual out-of-pocket maximum on all
covered benefits is reflected in the benefit cost,
coverage, and utilization estimates.
b) Medical Effectiveness . In general, studies of the
effects of cost sharing on privately insured, nonelderly
adults, the population to which this bill would apply, have
found that: persons who face higher cost sharing for a
particular type of health care service use less of that
service than persons who face lower cost sharing, persons
who face higher cost sharing reduce use of both essential
and non-essential health care services, and cost sharing
has stronger effects on the use of health care by
low-income persons than high-income persons. There were no
relevant studies on annual out-of-pocket maximums. With
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regard to deductibles, persons enrolled in HDHPs were as
likely to fill any prescriptions as persons enrolled in
preferred provider organizations (PPOs), the preponderance
of evidence from two studies suggest that persons enrolled
in HDHPs are more likely than persons enrolled in PPOs to
discontinue use of some classes of prescription drugs for
chronic conditions, and persons enrolled in HDHPs are less
likely than persons enrolled in PPOs to be adherent to
daily prescription drug therapy for some chronic
conditions.
c) Coverage Impacts . This bill affects the health
insurance of approximately 21.66 million people, and of
that 3.3% (714,780) would have their cost sharing reduced
as a result of the annual out-of-pocket maximum. Of this,
63.89% of enrollees (13,838,620) have coverage that is not
compliant with this bill. Among the enrollees with
outpatient prescription benefit, 61% of enrollees
(13,220,970) have an annual out-of-pocket maximum, but
prescription drugs are excluded from the annual
out-of-pocket maximum. Public coverage would not be
impacted by this bill because they are already compliant.
Additionally, 5,151 are estimated by CHBRP to become
uninsured because of premium increases resulting from this
bill.
d) Utilization Impacts . CHBRP projects no overall change
in the number of users of health care services after the
increase in the number of uninsured is taken into
consideration. However, CHBRP estimates an increase in
utilization by users as a result of the decrease in
enrollee out-of-pocket cost sharing expense. This increase
in utilization by existing users would result in costs
being shifted from enrollees to plans and policies. CHBRP
estimates that the total medical cost per user paid by a
plan or policy would increase by 1% and the total medical
cost per enrollee would decrease by 3%.
e) Cost Impacts . Total net expenditures would increase by
$246.5 million and enrollee out-of-pocket expenditure is
likely to decrease by $275.5 million. Total premium
expenditure by private employers for group insurance is
expected to increase by $361.14 million or .6% and for
individual insurance by $72.76 million or .95%. Average
portion of the premium paid by the employers in large group
market would increase by $1.77 and $5.55 per member per
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month (PMPM), in the small group market the increase would
be $.96 and $6.41. The higher PMPM increases apply to the
CDI regulated products. The major impact would be to shift
some of the out-of-pocket expenses from enrollees to plans
or policies and to the purchasers.
f) Public Health Impacts . The ability to estimate public
health impact is limited. However, there is a
preponderance of evidence showing that cost sharing in
general is associated with reduced utilization, treatment
adherence, and poorer clinical outcomes. There may be a
public health impact by reducing financial burden on
enrollees that currently have an annual out-of-pocket
maximum but the increases in premiums for CDI-regulated
large-group, small-group, and individual market are likely
to result from this bill and will lead to loss of insurance
for an estimated 5,151 individuals. In general, due to the
lack of data the effects of many of the requirements and
the magnitude of the public health impact is unknown.
g) Interaction with ACA . The ACA places restrictions on
cost sharing for plans and policies required to provide
coverage for EHBs. This bill defines the annual
out-of-pocket maximum it would place on all DMHC-regulated
plans, and on CDI-regulated policies that provide
outpatient prescription drug coverage, as the limit in the
ACA. Because this bill does not mandate coverage for a
specific benefit, but rather address cost sharing for
covered benefits, it is not clear whether the State would
be fiscally responsible for the requirements of this bill,
if it were to exceed those required for plans and policies
that cover EHBs. However, plans and policies sold in
California's Exchange, for which the State would be
fiscally responsible for any mandates exceeding EHBs, will
be required to comply with cost-sharing requirements of the
ACA. Therefore, although this bill applies more broadly,
it does not go beyond the cost-sharing requirements of the
EHBs.
5)SUPPORT . Health Access California (HAC), a cosponsor of this
bill, writes that multiple deductibles allow insurers to
select their customers based on likely health status; a
product with a low deductible for prescription drugs will draw
a very different population in terms of health status than a
similar plan with a high deductible for drugs. In practice,
insurers can use benefit design to select the consumers they
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want to attract. HAC explains the single deductible for
covered benefits will help end this practice of risk
selection. HAC states this bill will additionally aid
consumers with confusing fine print in health insurance
policies that currently it can be difficult to distinguish the
premium from the cost sharing and what counts toward the
deductible and what doesn't. The National Multiple Sclerosis
Society (NMSS), also a cosponsor of this bill, believes this
bill will help people with chronic diseases like MS when they
are required to pay a co-insurance or percentage of the cost
of prescriptions which can cost more than patients can afford.
When this happens the patients are more likely to discontinue
their medications, ultimately affecting their health, quality
of life, and progression of the disease. NMSS writes that
this is a national problem and this bill would put California
in the forefront of trying to reduce the cost-sharing burden
for people living with chronic conditions.
Supporters including HAC, NMSS, the California Neurology
Society, and the California Black Chamber of Commerce stress
this bill will strengthen the IMR process by allowing patients
to appeal for a review when a provider deems a medication
necessary, but it is not covered under a health plan.
Community Healthcare Services (CHS) and the California
Arthritis Foundation Council write that without this bill many
of their patients may stop taking their prescribed medication
or skip doses because they cannot afford it, and that skipping
doses or delaying treatment increases the risk of lifelong
disabilities. CHS writes that, for example, for people with
hemophilia, there can be devastating consequences when
clotting factor is not provided or administered properly and
that there is no generic alternative currently available. The
Association of Northern California Oncologists and the Medical
Oncology Association of Southern California explain that due
to the expensive nature of cancer treatment, patients rely on
consistency and affordability of their health coverage to help
pay for their therapies and that this bill will assist in
reducing the potential of ever-increasing health care costs by
requiring a health plan to limit annual out-of-pocket expenses
for covered benefits. Supporters agree this bill will help
liberate patients from unexpected medical bills, perpetually
maxed out credit cards, and unfilled prescriptions.
6)OPPOSITION . The California Association of Health Plans
(CAHP), Health Net, and Kaiser Permanente (KP) all write in
opposition that this bill would expand drug coverage by
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eliminating that drug coverage exclusion must be approved by
DMHC and be a covered benefit before going to IMR to resolve
disputes between health plans and a provider. CAHP states
that currently a service must be covered before it is eligible
for medical necessity review, that DMHC already has a process
to determine whether a service is covered or not and that this
bill would circumvent that process and allow prescription drug
coverage disputes to fall under IMR. KP claims that this bill
is vague, but appears to be in conflict with the original
purpose of IMR and even though KP excludes very few categories
of drugs, those that are contractually excluded are subject to
overturn under IMR, after being approved by DMHC, making those
contracts meaningless and will confuse consumers, their
members and employer groups. America's Health Insurance Plans
(AHIP) also opposes this bill because this bill applies limits
to out-of-pocket limits to all products, not just those
subject to the ACA requirements, that this bill expands those
limits to health plans offered to individuals and small groups
outside the Exchange. AHIP requests, at a minimum, this bill
apply only in the individual and small group markets. All
opposition feels that as cost-sharing is decreased then
premiums will proportionally increase as coverage is
broadened. The opposition claims this bill goes far beyond
the federal requirements in the ACA, that the ACA does not say
that separate deductibles for prescription drugs and medical
benefits cannot be used as long as the overall out-of-pocket
maximum is not exceeded. The opposition also agrees that this
bill would enact the provision in the ACA that applies to
out-of-pocket limits on prescription drug benefits a full year
prior to the availability of federal financial assistance and
tax subsidies for lower-income enrollees and will inevitably
cause premiums to increase.
7)RELATED LEGISLATION . AB 369 (Huffman) prohibits health plans
and health insurers that restrict medications for the
treatment of pain from requiring a patient to try and fail on
more than two pain medications before allowing the patient
access to the pain medication, or its generic equivalent,
prescribed by his or her physician. AB 369 is pending in the
Senate Health Committee.
8)PREVIOUS LEGISLATION .
a) AB 310 (Ma) of 2011 would have prohibited health plan
contracts and health insurance policies that cover
outpatient prescription drugs from requiring coinsurance,
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as defined, as a basis for cost sharing for outpatient
prescription drug benefits and imposes specified
limitations on copayments, as defined, and out-of-pocket
expenses for outpatient prescription drugs. AB 2011 was
held in Assembly Appropriations Committee.
b) SB 961 (Wright) of 2010 would have required a health
plan contract or health insurance policy that provides
coverage for cancer chemotherapy treatment to establish
limits on enrollee out-of-pocket costs for prescribed,
orally administered, nongeneric cancer medication. SB 961
was vetoed by the Governor Schwarzenegger. In his veto
message he indicated that his concerns about adding costs
to our increasingly expensive health insurance premiums had
not been addressed, and that SB 961 is unnecessary in light
of the provisions of the federal health reform act that
will take effect on January 1, 2014 and cap out-of-pocket
costs for both individuals and families.
c) SB 161 (Wright) of 2009 would have required a health
plan contract or health insurance policy issued, amended,
or renewed after January 1, 2010, that provides coverage
for cancer chemotherapy treatment to provide coverage for
an orally administered cancer medication no less favorably
than intravenously administered or injected cancer
medications covered under the contract or policy. In his
veto message, Governor Schwarzenegger state, "For those
patients fortunate enough to have health coverage in
today's economic environment, health plans already provide
coverage for oral anticancer medications. This bill limits
a plan's ability to control both the appropriateness of the
care and the cost by requiring them to immediately cover
every medication as soon as it receives federal approval
regardless of the provisions of the health plan's formulary
placing them at a severe disadvantage when negotiating
prices with drug manufacturers. I do believe that oral
anticancer medications can be more cost-effective and
efficacious in some instances. If there is a way to
provide greater access without increasing overall costs, I
would be willing to reconsider such a measure next year. I
would encourage
a collaborative approach with my Administration, the health
plans, and the pharmaceutical manufacturers next year on
this topic."
d) AB 2170 (Bonnie Lowenthal) of 2010 would have prohibited
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health plans and health insurers that cover prescription
drugs and use a formulary from increasing applicable
copayments or deductibles for prescription drugs for the
length of the contract, including, but not limited to,
during an open enrollment period. AB 2170 died on the
Assembly Appropriations Committee Suspense File.
e) AB 2052 (Goldberg), Chapter 336, Statutes of 2002,
prohibits health plans and health insurers from making any
change in premium rates or cost sharing after acceptance of
a contract or policy or after the annual open enrollment
period.
f) AB 974 (Gallegos), Chapter 68, Statutes of 1998,
prohibits health plans from limiting coverage for a drug
that had previously been approved by the plan and requires
specified disclosures regarding the use and contents of
drug formularies.
9)AUTHOR'S AMENDMENTS .
a) The author requests amendments to be adopted in
committee to restore the IMR exclusion in Section 1 of the
bill and add the following sentences: No exclusion may be
approved for a medically necessary prescription drug for
which there is no therapeutic equivalent. In determining
whether to allow an exclusion for a prescription drug, the
department shall review whether the drug is medically
necessary, whether there is a therapeutic equivalent, and
whether peer-review scientific literature indicates that
the prescription drug is likely to provide a benefit to the
consumer.
b) The author also requests amendment to delay the
implementation of the limit on annual out-of-pocket
expenses to 2014.
10)DRAFTING CONCERNS .
a) Does the author wish to apply the same provisions
included in the Health and Safety Code (Section 1) to the
parallel provisions related to IMR in the Insurance Code
(INS 10169)? Attempts are being made to make requirements
consistent in both codes so that DMHC and CDI can regulate
products in a coordinated and consistent fashion.
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b) Does the author intend for the provisions in Health and
Safety Code (Section 3) to apply to all health plans and
the provisions in the Insurance Code (Section 4) to apply
only to policies that offer outpatient prescription drug
coverage? There appears to be an inconsistency in the
drafting of this bill.
c) Specialized health plan contracts are exempt in the
Health and Safety Code (Section 3) but not in the Insurance
Code (Section 4). Is this the author's intent?
REGISTERED SUPPORT / OPPOSITION :
Support
Health Access California (cosponsor)
National Multiple Sclerosis Society (cosponsor)
Advocacy for Patients with Chronic Illness, Inc.
Alliance for Biotherapeutics
Association of Northern California Oncologists
BayBio
BIOCOM
California Arthritis Foundation Council
California Black Chamber of Commerce
California Conference Board of Amalgamated Transit Union
California Conference of Machinists
California Healthcare Institute
California Neurology Society
California Pan-Ethnic Health Network
California Psychological Association
California Teamsters Public Affairs Council
CALPIRG
Community Healthcare Services
Engineers and Scientists of California
Family Unida Living with MS
For Grace
International Longshore & Warehouse Union
Medical Oncology Association of Southern California
Mental Health America of California
National Association of Social Workers, California Chapter
Neuropathy Action Foundation
Professional & Technical Engineers, Local 21
The Myositis Association
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
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Western Center on Law & Poverty
Opposition
America's Health Insurance Plans
Association of California Life & Health Insurance Companies
California Association of Health Plans
California Chamber of Commerce
Health Net
Kaiser Permanente
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097