BILL ANALYSIS Ó
AB 1846
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1846 (Gordon) - As Amended: March 29, 2012
SUBJECT : Consumer operated and oriented plans.
SUMMARY : Establishes a licensing framework at the California
Department of Insurance (CDI) for Consumer Operated and Oriented
Plans (CO-OPs), which may be established and seeks funding under
the Patient Protection and Affordable Care Act (ACA).
Specifically, this bill :
1)Requires the CDI Commissioner (IC) to have the authority to
issue a certificate of authority to a CO-OP that has been
organized as a nonprofit member organization or nonprofit
member corporation under the laws of this state.
2)Permits the IC to also issue a certificate of authority to a
foreign CO-OP that has been organized as a nonprofit member
organization or nonprofit member corporation under the laws of
another state, provided that the entity meets the requirements
governing CO-OPs under the ACA and this bill. Requires a
CO-OP seeking or maintaining a certificate of authority
pursuant to this bill to be subject to the same fees that are
imposed on mutual insurers.
3)Requires a domestic or foreign insurer admitted as a CO-OP
insurer to be subject to the same "paid-in-capital" or
"capital paid-in" requirements as are imposed on domestic and
foreign mutual insurers pursuant to existing law, as
specified.
4)Requires a domestic or foreign insurer admitted as a CO-OP
insurer to be subject to all of the provisions of this bill
and all applicable rules and regulations of the IC, including
but not limited to, the general provisions governing issuance
of a certificate of authority, as specified, of the
examination provisions, as specified, of the risk based
capital requirements, as specified, and the financial
statement of filing requirements, as specified. Requires the
provisions of this bill and the rules and regulations of the
IC to be construed in consideration of the fundamental nature
of a CO-OP insurer. Requires, in the event of any direct
conflict in provisions, the provisions of this bill to
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prevail.
5)Requires a solvency loan obtained by a CO-OP to be treated as
a surplus and not to be subject to the same requirements as
are imposed on mutual insurers, as specified. Permits the IC
to request any documentation relating to a CO-OP's start-up
loan or solvency loan.
6)Requires a CO-OP to be subject to the same securities permit
requirements that are imposed upon mutual insurers, as
specified; but, requires the IC to have the authority to waive
the requirements, as specified, upon a determination that they
are not applicable following a full review of the CO-OP's plan
of operations and any other documents as requested by the IC
prior to the admission of the CO-OP.
7)Requires specified provisions to apply to any insurer admitted
as a CO-OP insurer; however any loans received by the CO-OP in
the form of a solvency or start-up loan shall not be construed
as any form of subsidy, ownership, or financial control of the
CO-OP insurer within the meaning of existing law.
8)Requires a CO-OP to be subject at all times to the
prohibitions in the ACA against converting or selling to a
for-profit or nonconsumer-operated entity at any time after
receiving a solvency loan. Requires a CO-OP to not undertake
any transaction that would result in the CO-OP implementing a
governance structure that does not meet the standards
contained in ACA. Requires any violations of these
prohibitions to constitute grounds for revocation of the CO-OP
insurer's certificate of authority, in addition to any other
grounds in this bill for revocation of the certificate.
9)Makes a CO-OP insurer insolvent if its surplus becomes less
than the amount of paid-in capital required of a capital stock
company to qualify to transact the class of disability and
health insurance. States that the conservation and
liquidation provisions of existing law, as specified, shall
apply to CO-OP insurers.
10) States that in addition to any applicable
requirements in this bill for maintaining a certificate of
authority, a CO-OP is required at all times to be in full
compliance with the requirements of the ACA governing CO-OPs.
11) Authorizes the IC to request the federal
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government's certification that a CO-OP is in compliance with
the requirements of the ACA governing CO-OPs, as well as the
status of the CO-OPs compliance with its obligations under any
loan or loan modification agreement.
12) Authorizes CDI to adopt regulations
implementing this bill pursuant to the Administrative
Procedure Act, as specified.
13) Establishes several definitions including
that a CO-OP means a nonprofit member organization or
nonprofit member corporation that has been established
consistent with the requirements of the ACA and implementing
regulations and remains in full compliance with those
requirements.
EXISTING LAW :
1)Licenses and regulates health care service plans at the
Department of Managed Health Care (DMHC) and disability
insurers, including health insurance, at the CDI.
2)Establishes the ACA, which among other provisions, imposes new
requirements on individuals, employers, and health insurance
issuers; restructures the private health insurance market;
sets minimum standards for health coverage; provides financial
assistance to certain individuals, and small employers; and
authorizes states to establish health benefit exchanges for
individuals and small business to compare health insurance
products and purchase policies from among four categories:
Bronze, Silver, Gold, and Platinum, and for some purchasers,
obtain subsidies and tax credits.
3)Establishes, under the ACA, the CO-OP program to foster the
creation of qualified nonprofit health insurance issuers to
offer qualified health plans (QHP) in the individual and small
group market in the states in which the issuers are licensed
to offer such plans.
4)Requires, under the ACA, any reference to a QHP to be deemed
to include a QHP offered through the CO-OP program or a
multistate plan, unless specifically provided for otherwise.
5)Establishes the California Health Benefit Exchange (Exchange)
as an independent public entity to purchase health insurance
on behalf of Californians, including those with income up to
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400% of the federal poverty level (FPL), and small businesses.
Establishes a five member governing board.
6)Requires the Exchange board to determine the minimum
requirements a carrier must meet to be considered for
participation in the Exchange, and the standards and criteria
for selecting QHPs to be offered through the Exchange that are
in the best interest of qualified individuals and qualified
small employers.
7)Requires the Exchange board to consistently and uniformly
apply these requirements, standards, and criteria to all
carriers. Requires the board, in the course of selectively
contracting for health care coverage through the Exchange, to
seek to contract with carriers so as to provide health care
coverage choices that offer optimal combination of choice,
value, quality, and service.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, the ACA
(Section 1322) anticipates the licensing of at least one CO-OP
in each state as a health issuer (either as an insurer or a
health maintenance organization (HMO)). The author states
that those seeking to form a CO-OP may apply for $3.8 billion
in federal funds in 2011-12 and are expected to be up and
running in time to offer insurance products in the Exchange by
October 2013. Since there is no current statutory framework,
this bill would establish a licensing framework for CO-OPs
which would allow California entities to participate in the
program and receive federal funding. The author contends that
this program is not self-executing, and therefore requires
enabling legislation. It is the author's intent that CDI be
given the authority to regulate the operations of the CO-OP
once it is up and running.
2)BACKGROUND . The ACA (Public Law (P.L.) 111-148) was signed
into law on March 23, 2010. On March 30, 2010, ACA was
amended by P.L. 111-152, the Health Care and Education
Reconciliation Act of 2010, to impose new requirements on
individuals, employers, and health plans; restructure the
private health insurance market; set minimum standards for
health coverage; and, provide financial assistance to certain
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individuals and, in some cases, small employers. The ACA
requires individuals, beginning in 2014, to maintain health
insurance, with some exceptions. The ACA enables and supports
the creation of state health benefit exchanges. An exchange
will provide eligible individuals and small businesses with
access to insurance in a comparable way. The exchanges will
include private health plans and multi-state plans. The ACA
also creates a new CO-OP program, which will allow new
nonprofit, member-run health insurance companies to be
eligible for grants and loans.
3)CO-OPs . As part of the CO-OP program, the federal government
will make $6 billion available to foster the creation of new
nonprofit, member-run health insurance issuers that will offer
qualified insurance in the individual and small group markets.
The funds will be distributed as loans, which may be repaid,
for start-up costs and grants for meeting solvency
requirements. Priority for the funds will go to applicants
that offer a QHP on a statewide basis that uses an integrated
care model, and has significant private support. The federal
Secretary of Health and Human Services (Secretary) will ensure
that there is sufficient funding to establish at least one
nonprofit issuer in each state. However if no one applies to
be a CO-OP within a state, the Secretary may use amounts
appropriated under the ACA for the awarding of grants to
encourage the establishment of a CO-OP or the expansion of a
CO-OP from another state. The federal law requires the
following of CO-OPs:
a) Be a nonprofit, member corporation under state law;
b) Not be an existing organization, affiliate, or successor
organization that provides insurance as of July 16, 2009;
c) Substantially all of its activities must consist of
issuing QHPs;
d) Not be sponsored by a state, county, or local government
or any government instrumentality;
e) Incorporate ethics and conflict of interest standards
protecting against insurance industry involvement;
f) Governance subject to majority vote of its membership;
g) Operated with strong consumer focus and accountability
to members in accordance with regulations to be promulgated
by the federal Secretary;
h) Profits used to lower premiums, improve benefits, or
other programs to improve quality of care;
i) Meet all licensure and solvency requirements, rules on
payment to providers, network adequacy standards, rate and
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form filing rules and any other applicable state law; and,
j) Coordinate with state insurance reforms by not offering
a health plan in the state until that state has in effect
the market reforms required under the law.
There is at least one (and perhaps a few more) applications
pending for CO-OP funding for California entities.
4)SUPPORT . According to the CDI, this bill would establish a
framework for health CO-OPs to mirror what currently exists in
the Insurance Code for mutual insurers and incorporate
provisions unique to the CO-OP framework established by the
ACA, including guidelines for formation, consumer governance,
incorporation of a unique form of capitalization which relies
on solvency loans from the federal government, and
participation in the Exchange. CDI indicates that this bill
would allow CO-OPs to become eligible for federal funding. To
date more than ten states have received funds for CO-OPs
located within their boundaries, including states such as New
York and Oregon. The California Asian Pacific Chamber of
Commerce believes the type of competition created by CO-OPs
should and would be based on quality and value, and ultimately
brings down prices for the policyholder. The Small Business
Majority supports this bill because entrepreneurs are looking
for innovative approaches to lower their health care costs
while providing their workers with meaningful coverage. The
Small Business Majority believes CO-OPs are a promising
component of the ACA and that California law lacks a clear
statutory framework for licensing CO-OPs.
5)OPPOSITION UNLESS AMENDED . Health Access California believes
CO-OPs will undercut the effectiveness of the Exchange because
federal law requires a state exchange to contract with a CO-OP
and because, in California, the Exchange has been given
authority to selectively contract with QHPs. Health Access
fears the Exchange will not have bargaining power and
consumers will be harmed if the Exchange cannot negotiate with
CO-OPs on cost and quality. Health Access also raises
questions about why this bill is needed, and if the Health and
Safety Code should be included to allow CO-OP licensure as an
HMO. Health Access doesn't believe a state must have a CO-OP.
Health Access points out that a CO-OP is not an alternative
to the public option and that CO-OPs are an alternative that
violate many of the fundamental premises of the public option
supported by consumer advocates. Health Access suggests the
following concepts be considered in possible amendments, if
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this legislation moves forward:
a) Impose the same requirements on CO-OPs as other
"participating carriers" that contract with Exchange,
specifically Sections 100503, 100504, and 100505 of the
Government Code.
b) If a CO-OP refuses to accept any of the requirements of
the Exchange or the CO-OP fails to offer a bid competitive
with the bids offered by other participating carriers, the
Exchange may impose on the CO-OP the same price,
requirements, terms, conditions, and any other element of
the contract imposed on other participating carriers.
c) Require that the members of the CO-OP be the individual
consumers rather than employers.
d) Determine if the CO-OP should be a mutual benefit
corporation under the Corporations Code in which the
policyholders are the shareholders. California law allows
three types of non-profit corporations: nonprofit public
benefit corporations, nonprofit mutual benefit
corporations, and nonprofit religious corporations.
Nonprofit public benefit corporations include many
hospitals and educational institutions. Some insurers are
mutual benefit corporations in which the policyholders are
the shareholders.
e) Require a vote of the members to elect the CO-OP board.
f) Prohibit any individual with financial interest in or
income from an insurer, health plan or Multiple Employer
Welfare Arrangement.
g) Public disclosure of financial interests similar to what
is required for state boards and commissions: this is more
limited than disclosure required of legislators and elected
officials because it is limited to financial interests
relevant to the pertinent board or commission.
h) Codify in California law all of the requirements of
federal law.
i) Apply to Health and Safety Code as well the Insurance
Code.
j) Require network adequacy standards that are in the
Health and Safety Code and require medical surveys of
network adequacy every three years.
aa) Access to out-of-network specialists at the same cost
sharing as in-network if the network does not include the
appropriate specialist.
bb) Access to out-of-network emergency care with no balance
billing.
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6)PREVIOUS LEGISLATION .
a) AB 1602 (John a. Pérez), Chapter 655, Statutes of 2010,
establishes the Exchange as an independent public entity to
purchase health insurance on behalf of Californians,
including those with incomes of between 100% and 400% FPL,
and small businesses. Clarifies the powers and duties of
the board governing the Exchange relative to the
administration of the Exchange, determining eligibility and
enrollment in the Exchange, and arranging for coverage
under qualified carriers.
b) SB 900 (Alquist), Chapter 659, Statues of 2010,
establishes the Exchange and requires the Exchange to be
governed by a five-member board, as specified.
7)AUTHOR'S AMENDMENTS . The author intends to request the
committee adopt amendments to include the following intent
language:
It is the intent of the Legislature to ensure that all
insureds in any Consumer Operated and Oriented Plan (CO-OP) be
afforded the numerous consumer protections available to all
other individuals covered by health insurance. It is the
intent of the Legislature that any CO-OP operated in
California be subject to all state requirements applicable to
health insurers, including but not limited to, certificates of
authority, state reserve, risk based capital requirements, and
financial statement filings. It is the intent of the
Legislature that before any CO-OP may offer any qualified
health plan through the California Health Benefit Exchange
that CO-OP must adhere to any California-specific standards
established by the California Health Benefit Exchange. It is
the intent of the Legislature that a CO-OP must be subject to
the California Health Benefit Exchange's selective contracting
requirements, including rate negotiations. The Legislature
intends and declares that a CO-OP must comply with the same
State and Federal standards as other health insurers.
8)POLICY QUESTIONS .
a) Does California need to develop a statutory framework
for CO-OPs? If a CO-OP is to be licensed to provide health
insurance or act as a health care service plan in
California, existing licensing structures are already in
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place and it is unnecessary to establish a separate
framework. If however, the state wishes to develop
standards for CO-OPs beyond standard licensure for health
insurers and health plans to put federal CO-OP standards in
California law or to establish additional state standards,
then legislation would be necessary to do this. This
appears to be the sponsor's and author's intent with this
bill.
b) Should the Health and Safety Code also be amended to
incorporate federal CO-OP standards or additional state
standards for CO-OP entities wishing to be licensed as
health plans? The committee may wish to request the author
include amendments to this bill that would apply to DMHC
licensed plans as well.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (sponsor)
California Asian Pacific Chamber of Commerce
Small Business Majority
Oppose Unless Amended
Health Access California
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097