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) Senate Insurance - 7/7/99 - (5-2) 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 AB 918, Page 2 of an actuary, who is a member of the American Academy 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 AB 918, Page 3 information be updated annually and that the report 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 AB 918, Page 4 by the DOC, and that if this information were released, 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 AB 918, Page 5 geography, and Medi-Cal also has a single statewide 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