Bills on Governor’s Desk Could Increase Health Care Premiums

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Two California Chamber of Commerce-opposed bills that could increase health care premiums are awaiting action on the Governor’s desk.

AB 339 (Gordon; D-Menlo Park) could drive up health care premiums by severely restricting the ability of health care issuers and pharmacy benefit managers to control health care costs on behalf of purchasers through their prescription drug benefit designs, and places strict caps on prescription drug copayments.

SB 546 (Leno; D-San Francisco) threatens employers with higher premiums by imposing unnecessary and burdensome new reporting requirements on health plans and insurers in the large group market. Job killer tag removed due to April 30 amendments eliminating authorization for state regulators to veto or unilaterally alter large-group rate changes, but CalChamber remains opposed.

AB 339: Increases Health Care Premiums

AB 339 (Gordon; D-Menlo Park) could drive up health care premiums by severely restricting the ability of health care issuers and pharmacy benefit managers to control health care costs on behalf of purchasers through their prescription drug benefit designs, and places strict caps on prescription drug copayments.

Rebates from drug makers are expected to save California purchasers $6 billion–$12 billion over the next five years, but AB 339 threatens to eliminate much of that potential savings.

Negotiating Lower Drug Prices

Drug makers generally offer their biggest discounts on drugs when health plans/pharmacy benefit managers “prefer” one drug over its therapeutic competitors by assigning it to a lower cost-sharing tier on their formularies. This preferred placement gives drug makers a competitive advantage because enrollees are more likely to choose a drug assigned to a lower cost tier than its competitors to save money.

In fact, drug makers are willing to offer deep discounts and rebates to earn this preferred status. Rebates on costly drugs can range up to 46%, saving purchasers and enrollees millions of dollars each year.

AB 339 will interfere by:

  • Capping cost-sharing requirements for formulary prescription drugs – minimizes the difference in cost between drugs on a lower tier and those on a higher tier, reducing the incentive enrollees have to choose a better-placed drug over its competitor in a higher cost tier.
  • Capping pharmacy deductibles – prevents health plans/pharmacy benefit managers from directing the extra costs they incur due to AB 339 to drug deductibles. Instead they must direct these costs to other benefits in the plan that may be more important to enrollees, i.e.: requiring higher co-payments for doctor’s visits or increasing the hospital deductible.
  • Mandating coverage for expensive single-tablet antiretroviral drugs even when they are no more effective or likely to result in adherence than a cheaper multi-tablet regimen – allows manufacturers of single-tablet antiretroviral drugs to charge more for their products without jeopardizing their spot on a plan’s formulary, and reduces the incentive for manufacturers of multi-tablet regimens to offer better discounts.
  • Imposing strict definitions — limited to the small group and individual markets — for drug formulary tiers and prohibiting more than four tiers – limits the ability of health plans/pharmacy benefit managers to build in other types of preferential treatment for drug manufacturers willing to offer substantial discounts or rebates. It also gives some drug makers a competitive advantage over others without having to reduce their price.

SB 546: Large Group Rate Review

SB 546 requires health care plans and insurers to provide regulators with unnecessary information about their large group products each year, and would require regulators to hold annual meetings to allow members of the public to comment about these large group rate filings.

Health insurance rates in the large-group market are calculated differently than rates in the small-group and individual markets, so trying to compare their rates and rate increases is misleading.

  • Premiums for large businesses take the claims history of each business’ employee population into account. This means two large employers with the same plan contract and the same number of employees could have different rates because the overall health and utilization rates are different for their different employee populations.
  • Premiums for large businesses also reflect the customization of benefits and plan design that is common in this group. This means few large employers actually offer identical coverage.

Knowing how the premiums of one large employer compare to the average rate for all large employers with the same carrier tells employers nothing about whether the premium rate is fair, again because every large employer’s rate reflects the scope and design of its benefits, and the overall health and utilization of its employee population.

Comparing one large employer’s premium increase to those experienced by the small group and individual markets as a whole is even more misleading because there is far less variety in the scope of coverage and benefit design for these two markets, and premiums are not experience rated.

SB 546 imposes an unnecessary administrative burden on plans and insurers to generate information that tells employers nothing about why their premiums are going up. In fact, it ignores the real cost drivers in the system that are causing premiums to rise, like the overall growth in health care utilization, the underlying cost of care, and higher drug costs. This new administrative burden will add more costs for plans and insurers, and do nothing to help control health care costs.

Action Needed

Costs for purchasers and enrollees are bound to rise no matter what, but AB 339 and SB 546 will ensure that the cost increase happens much faster.

The CalChamber is urging businesses to contact the Governor and urge him to veto AB 339 and SB 546.

Staff Contact: Mira Morton


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Anthony Samson has been the CalChamber policy advocate for environmental regulation, housing and land use issues since November 2013. He previously was an attorney at Harrison, Temblador, Hungerford, and Johnson LLP, a statewide law firm that specializes in mining, land use, and natural resources law. He earned a B.A. from the University of California at Santa Barbara, and a J.D. from Michigan State University College of Law, where he served as the articles editor of the Michigan State Law Review.