BILL ANALYSIS
AB 918
Page 1
ASSEMBLY THIRD READING
AB 918 (Keeley)
As Amended April 19, 1999
Majority vote
HEALTH 14-0 APPROPRIATIONS 19-2
-----------------------------------------------------------------
|Ayes:|Gallegos, Granlund, |Ayes:|Migden, Ashburn, |
| |Aanestad, Bates, Corbett, | |Campbell, Cedillo, Davis, |
| |Firebaugh, Kuehl, | |Granlund, Hertzberg, |
| |Steinberg, Strickland, | |Kuehl, Maldonado, Romero, |
| |Thomson, Vincent, Wayne, | |Runner, Shelley, |
| |Wildman, Thompson | |Steinberg, Thomson, |
| | | |Wesson, Wiggins, Wright, |
| | | |Zettel, Washington |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Brewer, Papan |
| | | | |
-----------------------------------------------------------------
SUMMARY : Requires that health care service plan (health plan)
capitation payments to providers be computed appropriately by a
qualified actuary; requires health plans to annually update an
actuarial report required by regulations. Specifically, this
bill :
1)Requires every health plan to annually update the actuarial
report required in a health plan application at the time of
licensure and amendment as provided in the rules and
regulations promulgated by the Department of Corporations
(DOC).
2)Requires any actuarial report to contain an opinion of a
qualified actuary as to whether the capitation-based payment
arrangements are computed appropriately, as specified, and to
comply with applicable laws, including DOC regulations.
3)Requires the actuary opinion to be based on standards adopted
by the Actuarial Standards Board and DOC.
4)Defines "qualified actuary" as a member in good standing of
the American Academy of Actuaries, who also meets any
additional DOC standards adopted by regulation.
AB 918
Page 2
5)Provides if a health plan intends to pay some or all of its
providers on a capitated basis, the health plan must attach,
to the actuarial report, a statement with specified
information including the percentage of contracting providers
who will be compensated on that basis and a description of the
method used to determine and adjust the capitation rates.
6)Provides that the statement attached to the actuarial report
also substantiate that the capitation rates are adequate to
reasonably assure the continuance of the relationship between
the plan and provider.
7)Provides that nothing in this bill requires DOC to approve the
capitation rates of a health plan or to regulate providers in
any manner.
EXISTING LAW :
1)Provides for the licensure and regulation of health plans by
DOC.
2)Imposes, by DOC regulation, requirements related to health
plan actuarial reports.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis, minor enforcement costs to DOC. State costs
that would result from an increase in health plan premiums would
probably be minor.
COMMENTS : This bill is sponsored by the California Medical
Association (CMA). The sponsor points out that health plans
charge and receive money up front to pay for treatment to be
rendered in the future, and that the actual costs of future
health care are uncertain. This poses a risk that requires
actuarial evaluation. CMA argues that an actuarial evaluation
will determine whether the health plan has adequately "spread
its risk" through the use of pooling, sufficient stop-loss
insurance, and re-insurance, and has the financial wherewithal
(e.g., adequate reserves) for any eventuality. The sponsor
notes that when actuaries review health plan capitation rates
paid to providers, they are looking for any indication that such
rates are not sound. For example, if capitation rates to
providers are too low, then there may be underutilization of
health care services, or physicians may not be adequately
reimbursed for treatments given to enrollees. Evaluations may
AB 918
Page 3
disclose that excessive risk has been transferred by health
plans to physicians. CMA notes last year's bankruptcy of a
large medical group and the recent DOC seizure of Med Partners
as indications that health plan capitation payments may not be
sufficient to ensure that patients receive the quality and
continuity of care they were promised. CMA notes that this bill
is consistent with the treatment of other health insurance
products that require actuarial soundness.
Supporters argue that this bill creates a mechanism for
evaluating the appropriateness of capitation rates which will
provide a check and balance system to prevent abuse. Providers
are not given actuarial information on capitation rates which
puts them at a disadvantage in negotiating contracts with HMOs.
This bill will protect providers from artificially low
capitation rates. Supporters note that recent bankruptcies of
large medical groups make it clear that in many instances
capitation rates paid to physicians are inadequate to ensure
that patients receive the level of quality care they have been
promised. This bill is needed to enable physicians to review
capitation rates to determine whether they are adequate to cover
the projected cost of caring for patients.
The California Association of Health Plans (CAHP) opposes this
bill unless amended. CAHP argues that this bill improperly
requires the disclosure of confidential, proprietary,
competitive information and trade secrets and that such
disclosure would put health plans at a disadvantage when
negotiating with their contracting providers. CAHP argues that
there is no value in having an actuary certifying capitation
rates because they are based on negotiations, market competition
and individual physician income expectations, there is no
"actuarially sound" price for physician services. CAHP
concludes that this bill will result in higher costs which would
divert funds away from medical care. United Healthcare
maintains that the mandatory disclosure of capitation rate
setting methodologies is an improper intrusion into freely
negotiated contracts and will result in health plans having to
provide higher reimbursement rates.
This bill is similar to SB 317 (Calderon) that was vetoed last
year. In his veto message, the Governor stated, "Providers can
and do retain actuaries and employ negotiators now, without
legislative mandate, if they feel it necessary to do so."
AB 918
Page 4
Analysis Prepared by : Michael Shapiro / HEALTH / (916) 319-2097
FN: 0000654