|Budget Issue:||Proposal for additional resources related to ACA implementation|
|Program:||Department of Insurance|
|Finding or Recommendation:||Recommend approving 7 consumer services positions on a limited-term basis.|
This recommendation was changed on March 26, 2014 based on more recent data on the numbers of health-related complaints, which indicate a recent increase of about 8 percent.
California Department of Insurance Licenses and Regulates Insurers. The California Department of Insurance (CDI) is responsible for regulating insurance companies, brokers, and agents in order to protect businesses and consumers who purchase insurance. Various types of insurance are sold in California including health, homeowner’s, and automobile. Currently, there are about 1,800 insurance companies and 335,000 brokers and agents operating in the state and licensed by CDI.
Three Types of Commercial Health Insurance Are Regulated by Two State Agencies. There are three types of commercial health insurance offered in California: (1) a health maintenance organization (HMO) provides medical services to enrollees who prepay a fixed amount usually on a monthly or yearly basis; (2) a preferred provider organization (PPO) is a type of indemnity insurance where the insurer usually agrees to pay medical providers, such as physicians and hospitals, for a portion of the health services related to an enrollee’s illness or injury; and (3) other indemnity health insurance policies, such as catastrophic health insurance, that are available in California. Two state agencies, CDI and the Department of Managed Health Care (DMHC), regulate health insurance. State law authorizes the elected Insurance Commissioner, who heads CDI, to regulate companies that offer indemnity insurance—including some preferred provider organizations (PPOs). State law authorizes the DMHC, which is overseen by a director appointed by the Governor, to regulate HMOs and some PPOs. While health care plans and indemnity insurers are subject to different regulatory requirements, both DMHC and CDI are generally responsible for oversight and enforcement of state law and regulations related to health insurance. Some other health insurance—such as that offered by employers who self-insure and Medicare—is generally not subject to state health insurance regulation. CDI also regulates reinsurance companies who provide stop-loss insurance for employers who self-insure.
CDI Regulates Health Insurance Companies That Primarily Cover Individuals and Small Groups. Purchasers of health insurance generally fall into three different categories: (1) individuals, (2) small groups (typically employers with fewer than 50 employees), and (3) large groups (typically employers with more than 50 employees). Companies regulated by CDI insure about three quarters of the individual health insurance market and half of the small-group market, but only a small portion of the large-group market. Of the nearly 23 million Californians that have state-regulated health insurance, approximately 3 million (12 percent) are insured by companies regulated by CDI. (The remaining approximately 20 million are insured by companies regulated by DMHC.)
Federal Health Care Reform Expected to Increase Number of Health-Related Inquiries. The federal Patient Protection and Affordable Care Act (ACA) is increasing the number of Californians who purchase health insurance policies. The CDI expects the number of telephone calls, inquiries, and complaints to increase significantly as the number of Californians insured by state-regulated companies increases. The CDI reports that its staff members are contacted by enrollees who are insured by companies regulated by both CDI and DMHC. Additionally, CDI staff receive general inquiries regarding health care and health insurance. Data provided by CDI indicates that there was no increase in the number of health-related complaints between 2008-09 and 2012-13. However, CDI has reported a surge in health-related telephone calls in the first eight months of the current fiscal year. The number of health-related complaints per month in January and February have increased by nearly 33 percent above the average over the preceding four and a half years.
In its 2014-15 budget plan, the administration proposes appropriating $1 million from the Insurance Fund to CDI for 9 positions related to ACA implementation. Specifically, 7 new permanent positions are requested to address an expected increase in the volume of consumer complaints related to expanded health insurance coverage. In addition, 2 one-year limited-term attorney positions are budgeted. One of these limited-term attorneys will prepare and prosecute enforcement actions resulting from the increased number of consumer complaints. The other limited-term attorney will be responsible for working with the DMHC to formulate new regulations.
Approve Consumer Services Positions on a Limited-Term Basis. We recommend that the Legislature approve the 7 positions to address an expected increase in the volume of health-related consumer complaints on a two-year limited-term basis. At this time, it is unclear how ACA implementation will (a) affect consumer complaints relative to past experience and (b) change the share of Californians enrolled in CDI-regulated individual market health insurance products relative to health insurance products regulated by DMHC. Approving these positions on a limited-term basis would allow the Legislature to reexamine CDI’s need for these 7 positions, or a smaller or greater number, on a permanent basis in several years once the permanent impacts to CDI of federal health care reform are better understood.