Increasing Transparency & Controlling Health Care Costs
To require rate review and prior approval of rates for health plans and insurers that sell coverage in the large group market. Rate changes impact the premiums, co-pays, deductibles, and covered benefits that purchasers and members pay. The bill will protect large employers and workers from unjustified increases in the cost of their health benefits.
The rising cost of health care threatens unions’ ability to organize new workers and bargain good contracts. Workers forgo wage increases as health care eats up an increasing share of employers’ and workers’ budgets. As the gap between what union employers and non-union employers pay for health coverage grows, businesses have even more incentive to fight union drives. Rising costs also make it harder for union employers to compete against employers who cut health benefits and shift workers onto publicly-subsidized health care programs.
Premiums for employer health insurance plans have risen 185% since 2002, more than five times the increase in the state’s overall inflation. One in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care.
The situation has become even more urgent because of the looming excise tax. In 2018, the ACA imposes a tax of 40% on plans over a certain “high cost” threshold. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now 5%-15% more than the national average. The threat of the tax increases pressure on large purchasers, including public sector purchasers like CalPERS, to contain costs to stay under the taxation thresholds.
Law already exists to protect individuals and small business from excessive rate increases. California passed SB 1163 (Leno) in 2011, which requires health plans and insurers file a justification and documentation with the state regulator before a rate change is implemented. The increased scrutiny and public attention of rate review has saved individuals and small business $349 million since the law was enacted. An estimated 1.3 million Californians annually saw reduced health coverage premiums due to rate review.
California also passed SB 1182 (Leno) in 2014, which increases transparency for large purchasers. This bill requires all health plans to disclose to a large purchaser claims data or data used to rate premiums for the group. This information helps large purchasers to understand what is driving their health care costs and to bargain effectively with health plans over health care quality and costs.
However, the large group has largely been left to grapple with dramatic rate increases on their own. Health plans in the large group market do not have to disclose any information or justification when they increase rates. Purchasers have very little information on how rates are set and even what factors are used to set rates. As a result, they are at the mercy of health plans and insurers that can implement double digit rate increases with no explanation.
Without intervention to reduce costs, joint Labor- Management funds will continue to struggle to provide high-quality health benefits at the same level. Employers will demand more cuts to coverage and shift more of the cost to workers. The entire future of employer-sponsored insurance hangs in the balance as cost increases become unsustainable.
What this bill will do
SB 546 extends rate review to the large group market and requires prior approval by a state regulator for increases that hit a certain threshold. Specifically, the bill will:
- Require health plans and insurers that sell to large employers to file detailed data with the state regulators, the Department of Insurance, or the Department of Managed Health Care for all rate changes.
- Include factors used to modify the rate, including geography, industry, annual medical trend assumptions, among other factors.
- Require an annual public meeting by each regulator on large group rate changes.
- Allow prior approval of proposed rate increases to a specific employer or union trust fund upon purchaser request.
- Trigger prior approval of excessive rate increases to large purchasers if the rate change is higher than the average rate increase for either Covered California or CalPERS.
- Require prior approval if the rate increase triggers the excise tax imposed by the ACA for the purchaser.
SB 546 brings increased transparency to the large group market. It also gives regulators the tools to address excessive and unjustified rate changes. The increased scrutiny of health care rates will help hold down increases and stop the shifting of costs onto large purchasers.
- California Labor Federation (Co-Sponsor)
- UNITE HERE (Co-Sponsor)
- Teamsters (Co-Sponsor)
- California Professional Firefighters