BILL ANALYSIS
SENATE COMMITTEE ON INSURANCE
Senator Jackie Speier, Chair
AB 918 (Keeley) Hearing Date: July 7,
As Amended: July 1, 1999
Fiscal: Yes
Urgency: No
Assembly Health - 4/13/99 -- (14-0)
Assembly Floor - 5/25/99 -- (71-2)
SUMMARY
Would require health care service plans to annually update
the actuarial report required by regulations, and require
the report to contain an opinion of a qualified actuary as
to whether the capitation payments to providers are
computed appropriately.
DIGEST
Existing law
1. Provides for the licensure and regulation of health
plans by the Department of Corporations (DOC).
2. Imposes, by DOC regulation, requirements related to
plan actuarial reports:
a. Health and Safety Code (HSC) section 1351 sets
out plan licensure requirements and Section 1300.51 of
Title 10, California Code of Regulations (CCR), requires
a plan that intends to pay some or all providers on a
capitation basis, to provide a statement indicating the
percentage of contracting providers who will be
compensated on that basis, a description of the method
used to determine and adjust the capitation rates, and
substantiating by means of calculations or other
information that such capitation rates are adequate to
reasonably assure the continuance of the
applicant/provider relationship. [applicant is the plan]
b. Pursuant to HSC Section 1377, CCR Section
1200.77.2(d) requires DOC to have a signed declaration
of an actuary, who is a member of the American Academy
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of Actuaries, to support the actuarial estimate and the
assumptions used by a plan.
This bill
1. Would require each plan to annually update the
actuarial report required at the time of licensure and
amendment in a plan application as provided in the rules
and regulations promulgated by the DOC.
2. Would require 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. Would require the actuarial opinion to be based on
standards adopted by the Actuarial Standards Board and
DOC.
4. Would define "qualified actuary" as a member in good
standing of the American Academy of Actuaries, who also
meets any additional DOC standards adopted by
regulation.
5. Would provide that if a plan intends to pay some or
all of its providers on a capitation basis, the plan
shall attach to the actuarial report a statement
indicating 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, and substantiate that the capitation rates are
adequate to reasonably assure the continuance of the
relationship between the plan and provider.
6. Would not require DOC to approve the capitation rates
of a plan or to regulate providers in any manner.
COMMENTS
1. Purpose of the bill . The author states the bill will
codify existing regulations and requests information
that is currently required when a plan is submitting its
initial application and amendment to the DOC, that such
information be updated annually and that the report
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contain an opinion of a qualified actuary as to the
accuracy of the report. The author states that last
year's failure of FPA and the recent seizure of
MedPartners reflects that in many instances the
capitation rates are not sufficient to ensure patients
receive the quality and continuity of health care they
were promised, because if capitation rates are too low
there may be an incentive for providers to underutilize
services as it puts providers in the untenable position
of rationing resources.
2. Support . The California Medical Association (CMA)
states that like other insurance products, plans are
licensed and regulated to bear risk to assure that the
money to pay a claim will be available, and that
actuaries are necessary to assure that rates are not
excessive, inadequate or unfairly discriminatory. CMA
states that regardless of any existing confusion,
ambiguity, inconsistency or unfairness in the regulatory
oversight of HMOs, the bill sets forth clear guidelines
to follow that protect the consumer, are consistent with
every other insurance product in California, and assures
fair reimbursement for quality health care treatment.
The American Academy of Pediatrics states that if
capitation rates are not based on the actuarial
equivalent of the costs of the mandated services that
patients may be shortchanged, and that children are
particularly vulnerable as their developmental needs
require time and monitoring which is often ignored when
rates are set and that immunizations are frequently
underpaid. The California Dental Association adds that
the bill does not try to directly regulate rates, but
rather will shed some sunlight on the process. The
California Psychiatric Association points out that if
rates are too low, then the provider subsidizes the HMO
and/or goes bankrupt. The California Primary Care
Association believes that since rates are not regulated
then market pressures influence rates rather than
actuarial calculations.
3. Opposition . The California Association of Health Plans
(CAHP) agrees that current regulations require plans to
initially provide the actuarial report, as outlined in
the bill, but that this information is considered
proprietary and confidential and is held as confidential
by the DOC, and that if this information were released,
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then plans would not be able to bargain effectively for
rates and this would lead to higher premiums for
consumers. CAHP believes that there is no single,
"actuarial sound" price for a physician's service,
whether that service is a bundle of services under a
single rate (capitation) or individually priced services
(fee-for-service), and that plans do not possess
detailed information about the costs of individual
services. Health Net believes there is no justification
for government to use its police powers to compel plans
to provide otherwise privileged information to
providers, and that such disclosure is an inappropriate
insertion of government into negotiations between plans
and providers. Californians for Affordable Health
Reform and others believe that plans and providers are
and have negotiated rates which are sufficient to
deliver all services and still be profitable, and the
bill would give providers an unfair advantage which will
drive up premiums. PacificCare believes the bill would
create a huge administrative burden as it contracts with
350 medical groups and the bill would require the plan
to substantiate each contract as to its adequacy.
Pacific Care adds that it is difficult to oversee the
adequacy of rates without access to the administrative
costs of the groups which, is not available to them
currently.
4. Similar Legislation . This bill is similar to SB 317
(Calderon) that was vetoed last year.
5. Comments . Paragraph (f) which states that "nothing
in this section requires the department to approve the
capitation rates of a plan or to regulate providers in
any way" appears unnecessary. There already is no
statement in the text of the section to ask the
Department to act in that fashion. Furthermore, this
statement does not prevent the department from acting as
such. Therefore, it is an empty and unnecessary
statement, and the committee should consider an
amendment to delete paragraph (f).
In reference to the concern that a plan has 350
different payments rates, one might question the need
for that many different contracts considering Medicare
has a single payment rate that is simply adjusted by
geography, and Medi-Cal also has a single statewide
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payment schedule. Therefore the plans could reduce
their administrative burden by following the example of
a simplified contract system. Another possible option
that might be offered to the plans to avoid this
administrative burden would be to simply have the plan
assume ultimate financial solvency of the medical groups
and thus it would not be necessary to obtain the
capitation data.
POSITIONS
Support
California Medical Association (sponsor)
American Academy of Pediatrics
California Dental Association
California Psychiatric Association
California Primary Care Association
California Chapter, American College of Emergency
Physicians
Oppose
California Association of Health Plans
Californians for Affordable Health Reform
Health Insurance Association of America
Health Net
Pacific Care
Consultant: Michael Ashcraft