Health Access - AB2281: High Deductible Health Plans: Consumer Protections

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Fact Sheet: AB2281: High Deductible Health Plans: Consumer Protections
AB2281 Sample Support Letter

AB2281: High Deductible Health Plans: Consumer Protections
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Fact Sheet

PURPOSE

Establishes protections for consumers in response to the trend of health coverage products with high deductibles, sometimes referred to as High Deductible Health Plans (HDHPs). HDHPs are growing in the marketplace, billed as an affordable coverage option. More and more employers are offering these plans, some as the only health insurance choice. For many consumers, however, the coverage is an illusion, because when they really need it, they can't afford to pay their share of the costs. Unchecked, HDHPs are not an affordable option for working families, lower income individuals or the chronically ill.

SUMMARY

Limits annual out-of-pocket expenses (deductibles, copayments, coinsurance, and other amounts, not including premiums) to $5,000 for an individual and $10,000 for a family.
Requires coverage for preventive care services, as defined, with no deductible.
Limits copayments to no more than 30% of the cost of the services for in-network and 40% of the plan's allowable rate or 50% of the provider's charges whichever is less.
Requires amounts paid for emergency care to noncontracting providers to be counted toward the deductible.
Requires health plans/insurers to provide specified information to consumers:
Specific expenses and charges that count towards satisfying the deductible;
A clear notice that the plan/insurer will not pay any amounts on the policy until the consumer has paid out of their own pocket for health care up to the amount of the deductible;
How the plan/insurer will track and apply costs toward the deductible, including notifying consumers when they have satisfied their deductible;
The dollar amount remaining on the deductible, at least quarterly, and a notice when the deductible has been satisfied.
Requires DMHC and CDI to jointly develop by July 2007 a consumer guide on health coverage with deductibles.
Applies to health plans regulated by the Department of Managed Health Care (DMHC) and insurers regulated by the California Department of Insurance (CDI).

EXISTING LAW

There are currently no limits on the level of consumer cost sharing that can be sold as health insurance.

The Knox-Keene Act regulating health plans under DMHC establishes minimum basic benefits, requires plan contracts to cover all medically necessary basic services and requires health plans to assume full financial risk, giving DMHC some authority to review and revise plan benefits and limit cost sharing to some extent. By contrast, CDI has no meaningful authority to set limits on out-of-pocket costs or require minimum basic benefits .

BACKGROUND

The number of consumers who have health coverage requiring them to pay more out of their own pockets is rising.

According to The RAND Corporation, while 18% of California employers offered an HDHP in 2004, this figure could increase to more than one-third of employers within two years, if employers follow their reported intentions to add HDHPs to their health plan offerings.

In 2003, federal tax changes directly encouraged higher deductible policies by allowing individuals to establish tax-free Health Savings Accounts (HSAs), but only if the accounts are combined with an HDHP meeting federal standards. HDHPs paired with HSAs are sometimes referred to as "consumer-directed health plans."

This bill does not conflict with or eliminate the ability of California residents to gain a federal tax advantage through purchase of an HDHP with a health savings account (HSA).

A recent insurance industry survey estimated three million people nationally have HDHPs compatible with HSAs, but the trade publication, Inside Consumer-Directed Care, estimates that only about one million HSA accounts existed by January 1, 2006. Harris Interactive reports that of consumers with an HDHP, only 13% have an associated financial account. This could mean that many consumers with HDHP coverage will not have the funds available to cover their deductible should they need expensive medical care or hospitalization.

The impact of high out-of-pocket expenses for insured families can be devastating. Medical debt is a key ingredient in family bankruptcy even for insured families. The 2003 Commonwealth Fund Health Insurance Survey found that over half of those with a deductible of $1,000 or more had difficulty paying medical bills or were paying off accumulated medical debt. The problem is more severe for lower income persons. For those with incomes under $35,000, and deductibles of $500 or less, 55% reported having problems paying medical bills or had accumulated medical debt, compared with 37% of low income persons with lower deductibles and 27% of higher income persons with deductibles of $500 or more.

Research has consistently revealed that when consumers have to pay more of the costs, they reduce the health care services they use. However, research reveals that people delay or avoid necessary, essential services and treatments, not just inappropriate or discretionary services.

Data from the 2005 Strategic Health Perspectives found that 47% of employees currently enrolled in an HDHP said they did not have a choice of health plan at the last enrollment. In addition, 19% of individuals buying individual coverage reported they did not have a choice of plan.