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AB-3 Health care coverage.(2007-2008)

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AB3:v98#DOCUMENT

Amended  IN  Assembly  November 08, 2007

CALIFORNIA LEGISLATURE— 2007–2008 1st Ext.

Assembly Bill
No. 3

Introduced  by  Assembly Member Dymally

September 13, 2007

An act to amend Sections 1367.15 and 1373.6 of, to amend and repeal Section 1373.622 of, to add Sections 1356.2, 1373.63, and 1399.819 to, and to amend, repeal, and add Section 1366.35 of, the Health and Safety Code, and to amend Sections 10176.10, 12682.1, 12700, 12705, 12711, 12723, 12725, 12737, and 12739 of, to amend and repeal Section 10127.16 of, to amend, repeal, and add Sections 10785, 12712, and 12726 of, to add Sections 1827.86, 10127.19, 10901.10, 12711.3, 12714.1, and 12738 to, to add Chapter 9 (commencing with Section 12739.5) to Part 6.5 of Division 2 of, and to repeal and add Section 12718 of, the Insurance Code, relating to health care coverage, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


AB 3, as amended, Dymally. Health care coverage.
(1) Existing law establishes the California Major Risk Medical Insurance Program (MRMIP) that is administered by the Managed Risk Medical Insurance Board (MRMIB) to provide major risk medical coverage to persons who, among other matters, have been rejected for coverage by at least one private health plan. Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Under a pilot program ending on December 31, 2007, existing law requires a health care service plan and a health insurer to offer a standard benefit plan to certain individuals, and requires MRMIB to make payments from the Major Risk Medical Insurance Fund, a continuously appropriated fund, to health care service plans and insurers for the provision of health services under those standard benefit plans.
This bill would require a health care service plan and a health insurer to continue until January 1, 2009, to provide coverage to each individual who was terminated from the pilot program, with the benefits and premium for that coverage being determined by MRMIB, and to send those individuals a notice developed by MRMIB. The bill would, effective January 1, 2009, require a health care service plan and a health insurer to elect to either make available all of its group or individual health benefit plans to individuals in each service area, or to alternatively pay a fee covering its market share, as determined by MRMIB, of MRMIP’s costs. The bill would require plans and insurers that elect not to pay the fee to annually submit their proposed health benefit plan rates for approval to the Director of Managed Health Care or the Insurance Commissioner, as applicable. Because the fee would be deposited in the fund, the bill would make an appropriation by increasing the amount of revenue in a continuously appropriated fund. The bill would require MRMIB to appoint a panel to advise it regarding implementation of the fees. The bill would make conversion coverage and coverage for a federally eligible defined individual, on and after January 1, 2009, available through MRMIP, as specified, upon a waiver being obtained from the federal government and would make individuals with that coverage as well as those who were covered under the pilot program on or after July 1, 2008, eligible for enrollment in MRMIP, as specified. The bill would specify the manner in which the premium is calculated for a health care service plan contract or a health insurance policy that offers services through a preferred provider arrangement for a federally eligible defined individual. The bill would revise other provisions governing MRMIP. The bill would enact other related provisions.
(2) Existing law prohibits a health care service plan and a health insurer from closing a block of business, as defined, without taking specified actions. Under existing law particular types of coverage are exempt from these provisions.
This bill would specify that continuation coverage and certain guarantee issue coverage are also exempt from these provisions pertaining to a block of business closure.
(3) Existing law authorizes MRMIB to adopt rules and regulations, as specified.
This bill would require MRMIB to perform specified duties, including establishing guidelines for disease management, case management, care management, and other cost management strategies. The bill would make a provision inoperative on January 1, 2009, that ensures that MRMIP subsidy amounts not exceed the amounts deposited annually into the fund.
(4) Existing law requires specified amounts to be deposited in the fund from the Cigarette and Tobacco Products Surtax Fund.
This bill would increase those amounts, thereby making an appropriation.
The bill would make related changes, and would exempt MRMIB, the Department of Managed Health Care, and the Department of Insurance from certain procedural requirements necessary to adopt rules and regulations.
(5) Because the bill would increase the amount of revenue paid into the Major Risk Medical Insurance Fund and would expand the purposes for which it may be expended under MRMIP, the bill would make an appropriation. The bill would also impose a state-mandated local program by imposing new requirements on health care service plans, the willful violation of which would be a crime.
(6) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law does not provide a system of health care coverage for all California residents. Existing law provides for the creation of various programs to provide health care coverage to persons who have limited incomes and meet various eligibility requirements, including the Healthy Families Program and the Medi-Cal program. Existing law also establishes the California Major Risk Medical Insurance Program (MRMIP) that is administered by the Managed Risk Medical Insurance Board to provide major risk medical coverage to persons who, among other matters, have been rejected for coverage by at least one private health plan. Existing law provides for the regulation of health care service plans by the Department of Managed Health Care and health insurers by the Department of Insurance.

This bill would make various findings regarding health care coverage and MRMIP and declare the intent of the Legislature to enact reform legislation that ensures coverage for all individuals regardless of their medical history, which may include, among other things, reform of the private individual health insurance market and full funding for MRMIP.

Vote: MAJORITY   Appropriation: NOYES   Fiscal Committee: NOYES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature hereby finds and declares all of the following:
(a) For coverage of health care costs and expenses, Californians rely on a private health care coverage market where private health care service plans and health insurers make health care coverage available to individual and group purchasers.
(b) An essential feature of a market-based approach to the provision of health care coverage is that willing buyers are able to purchase coverage.
(c) However, existing underwriting and product rating practices in the private individual health care coverage market result in thousands of individuals who are denied access to individual coverage or are unable to purchase health care coverage at any price.
(d) In addition, underwriting and rating practices of health care service plans and health insurers that deny health care coverage to group purchasers or increase premiums on the basis of potential risk result in groups without health care coverage, causing thousands of employed individuals to seek individual health care coverage.
(e) When uninsurable persons cannot purchase health care coverage and cannot pay for the costs of their health care, it increases the level of uncompensated care in the state. These uncompensated care costs are ultimately borne by public and private providers and result in a cost shift to all purchasers of health care coverage.
(f) Since 1991, California has provided a mechanism for individuals without group coverage, who are not otherwise eligible for publicly sponsored health care coverage, to purchase subsidized health care coverage if they have been denied coverage or offered only high-cost individual coverage because of industry rating and underwriting practices. The California Major Risk Medical Insurance Program (MRMIP), administered by the Managed Risk Medical Insurance Board, offers coverage to medically uninsurable individuals through willing private health plans participating in the program on a voluntary basis. MRMIP offers coverage for uninsurable individuals at premium rates significantly higher than standard market rates and subsidizes the costs of coverage not paid by subscriber premiums through an allocation of state funds.
(g) California is one of 34 states operating a high-risk health insurance pool. MRMIP is the third largest pool in the country, exceeded only by Minnesota and Texas. MRMIP has served nearly 100,000 individuals since its inception in 1991, but for much of that time a waiting list for the program has existed. MRMIP premiums are subsidized through the Cigarette and Tobacco Surtax Fund (Proposition 99). Because the Proposition 99 appropriation (approximately forty million dollars ($40,000,000) per year) is limited, the total number of individuals who can participate depends on available funding.
(h) California is one of only three states that fund coverage for medically uninsurable individuals in high-risk pools solely with subscriber premiums and state funds, resulting in caps on pool enrollment. Other states address the problem of uninsurable individuals through various regulatory means, including requiring health care plans and health insurers to guarantee coverage to individuals regardless of their health status, often at regulated rates, or establishing an insurer of last resort that must accept all individuals for coverage. Thirty-two states establish a high-risk pool that provides coverage for those individuals, similar to MRMIP; of those states, 27 impose regulatory fees on health insurers to fund all or part of the costs of the high-risk pools.

(i)It is the intent of the Legislature to enact reform legislation that ensures coverage for all individuals regardless of their medical history, which may include, but not be limited to, one or more of the following:

(1)Reforms of the private individual health insurance market.

(2)Additional program revenues, which may include regulatory fees charged to health care service plans and health insurers.

(3)Full funding for MRMIP with no waiting lists, no 36-month time limit, improved benefit options, and premiums that are based on the ability of enrollees to pay.

(i) It is therefore the intent of the Legislature to establish MRMIP as the state-sponsored health care coverage program for all high-risk and medically uninsurable persons and to provide coverage through MRMIP for all individuals otherwise unable to obtain private health care coverage due to a preexisting health condition who are willing to voluntarily pay premiums and enroll in MRMIP. The Legislature further intends to reduce and potentially eliminate the need for a high-risk pool in California by ensuring that private individual health care coverage is guaranteed available to any individual willing to pay for that coverage regardless of his or her health status or medical condition. The Legislature intends to require every entity that offers health coverage in this state to make available to all individuals standardized coverage at standardized rates. The Legislature further intends that health care service plans and health insurers required to provide individual coverage on a guaranteed issue basis may elect, instead, to pay a fee to the state so that the state may arrange for and subsidize the costs of health care coverage for those persons who are denied private health care coverage because of their health history, health status, or health condition.
(j) It is not the intent of the Legislature to provide coverage through MRMIP for persons able to obtain adequate health care coverage in the private market.

SEC. 2.

 Section 1356.2 is added to the Health and Safety Code, to read:

1356.2.
 (a) In addition to the other fees and reimbursements required to be paid under this chapter, each licensed health care service plan, except for a specialized health care service plan, electing to pay the fee under Chapter 9 (commencing with Section 12739.5) of Part 6.5 of Division 2 of the Insurance Code, shall pay the fee to the director in the amount as determined by the Managed Risk Medical Insurance Board. The timely payment of the fee and the timely submission of information pursuant to Section 12739.7 of the Insurance Code shall be deemed to be among the prerequisites for obtaining and retaining a license as a health care service plan. The director shall transmit fees collected pursuant to this section to the Managed Risk Medical Insurance Board, in a manner determined by that board, within 30 days after the date on which the director receives those fees. The director shall permit health care service plans subject to the fee to remit payment on a quarterly basis.
(b) A health care service plan that has elected not to pay its share of program costs pursuant to Chapter 9 (commencing with Section 12739.5) of Part 6.5 of Division 2 of the Insurance Code, shall demonstrate to the satisfaction of the director that it is in compliance with subdivision (a) of Section 1373.63.

SEC. 3.

 Section 1366.35 of the Health and Safety Code is amended to read:

1366.35.
 (a) A health care service plan providing coverage for hospital, medical, or surgical benefits under an individual health care service plan contract may not, with respect to a federally eligible defined individual desiring to enroll in individual health insurance care coverage, decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion with respect to the coverage.
(b) For purposes of this section, “federally eligible defined individual” means an individual who, as of the date on which the individual seeks coverage under this section, meets all of the following conditions:
(1) Has had 18 or more months of creditable coverage, and whose most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002).
(2) Is not eligible for coverage under a group health plan, Medicare, or Medi-Cal, and does not have other health insurance care coverage.
(3) Was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud.
(4) If offered continuation coverage under COBRA or Cal-COBRA, has elected and exhausted that coverage.
(c) Every health care service plan shall comply with applicable federal statutes and regulations regarding the provision of coverage to federally eligible defined individuals, including any relevant application periods.
(d) A health care service plan shall offer the following health benefit plan contracts under this section that are designed for, made generally available to, are actively marketed to, and enroll, individuals: (1) either the two most popular products as defined in Section 300gg-41(c)(2) of Title 42 of the United States Code and Section 148.120(c)(2) of Title 45 of the Code of Federal Regulations or (2) the two most representative products as defined in Section 300gg-41(c)(3) of Title 42 of the United States Code and Section 148.120(c)(3) of Title 45 of the Code of Federal Regulations, as determined by the plan in compliance with federal law. A health care service plan that offers only one health benefit plan contract to individuals, excluding health benefit plans offered to Medi-Cal or Medicare beneficiaries, shall be deemed to be in compliance with this article if it offers that health benefit plan contract to federally eligible defined individuals in a manner consistent with this article.
(e) (1) In the case of a health care service plan that offers health insurance care coverage in the individual market through a network plan, the plan may do both of the following:
(A) Limit the individuals who may be enrolled under that coverage to those who live, reside, or work within the service area for the network plan.
(B) Within the service area of the plan, deny coverage to individuals if the plan has demonstrated to the director that the plan will not have the capacity to deliver services adequately to additional individual enrollees because of its obligations to existing group contractholders and enrollees and individual enrollees, and that the plan is applying this paragraph uniformly to individuals without regard to any health status related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A health care service plan, upon denying health insurance care coverage in any service area in accordance with subparagraph (B) of paragraph (1), may not offer coverage in the individual market within that service area for a period of 180 days after the coverage is denied.
(f) (1) A health care service plan may deny health insurance care coverage in the individual market to a federally eligible defined individual if the plan has demonstrated to the director both of the following:
(A) The plan does not have the financial reserves necessary to underwrite additional coverage.
(B) The plan is applying this subdivision uniformly to all individuals in the individual market and without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible individuals.
(2) A health care service plan, upon denying individual health insurance care coverage in any service area in accordance with paragraph (1), may not offer that coverage in the individual market within that service area for a period of 180 days after the date the coverage is denied or until the issuer has demonstrated to the director that the plan has sufficient financial reserves to underwrite additional coverage, whichever is later.
(g) The requirement pursuant to federal law to furnish a certificate of creditable coverage shall apply to health insurance care coverage offered by a health care service plan in the individual market in the same manner as it applies to a health care service plan in connection with a group health benefit plan.
(h) A health care service plan shall compensate a life agent or fire and casualty broker-agent whose activities result in the enrollment of federally eligible defined individuals in the same manner and consistent with the renewal commission amounts as the plan compensates life agents or fire and casualty broker-agents for other enrollees who are not federally eligible defined individuals and who are purchasing the same individual health benefit plan contract.
(i) Every health care service plan shall disclose as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the Health Insurance Portability and Accountability Act of 1996, including the necessity to enroll in and exhaust COBRA or Cal-COBRA benefits in order to become a federally eligible defined individual.
(j) No health care service plan may request documentation as to whether or not a person is a federally eligible defined individual other than is permitted under applicable federal law or regulations.
(k) This section shall not apply to coverage defined as excepted benefits pursuant to Section 300gg(c) of Title 42 of the United States Code.
(l) This section shall apply to health care service plan contracts offered, delivered, amended, or renewed on or after January 1, 2001.
(m) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 4.

 Section 1366.35 is added to the Health and Safety Code, to read:

1366.35.
 (a) A health care service plan providing coverage for hospital, medical, or surgical benefits under an individual health care service plan contract may not, with respect to a federally eligible defined individual desiring to enroll in individual health care coverage, decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion with respect to the coverage.
(b) For purposes of this section, “federally eligible defined individual” means an individual who, as of the date on which the individual seeks coverage under this section, meets all of the following conditions:
(1) Has had 18 or more months of creditable coverage, and the individual’s most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002).
(2) Is not eligible for coverage under a group health plan, Medicare, or Medi-Cal, and does not have other health care coverage.
(3) Was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud.
(4) If offered continuation coverage under COBRA or Cal-COBRA, has elected and exhausted that coverage.
(c) Every health care service plan shall comply with applicable federal statutes and regulations regarding the provision of coverage to federally eligible defined individuals, including any relevant application periods.
(d) A health care service plan shall offer the following health benefit plan contracts under this section that are designed for, made generally available to, are actively marketed to, and enroll, individuals: (1) either the two most popular products as defined in Section 300gg-41(c)(2) of Title 42 of the United States Code and Section 148.120(c)(2) of Title 45 of the Code of Federal Regulations or (2) the two most representative products as defined in Section 300gg-41(c)(3) of Title 42 of the United States Code and Section 148.120(c)(3) of Title 45 of the Code of Federal Regulations, as determined by the plan in compliance with federal law. A health care service plan that offers only one health benefit plan contract to individuals, excluding health benefit plans offered to Medi-Cal or Medicare beneficiaries, shall be deemed to be in compliance with this article if it offers that health benefit plan contract to federally eligible defined individuals in a manner consistent with this article.
(e) (1) In the case of a health care service plan that offers health care coverage in the individual market through a network plan, the plan may do both of the following:
(A) Limit the individuals who may be enrolled under that coverage to those who live, reside, or work within the service area for the network plan.
(B) Within the service area of the plan, deny coverage to individuals if the plan has demonstrated to the director that the plan will not have the capacity to deliver services adequately to additional individual enrollees because of its obligations to existing group contractholders and enrollees and individual enrollees, and that the plan is applying this paragraph uniformly to individuals without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A health care service plan, upon denying health care coverage in any service area in accordance with subparagraph (B) of paragraph (1), may not offer coverage in the individual market within that service area for a period of 180 days after the coverage is denied.
(f) (1) A health care service plan may deny health care coverage in the individual market to a federally eligible defined individual if the plan has demonstrated to the director both of the following:
(A) The plan does not have the financial reserves necessary to underwrite additional coverage.
(B) The plan is applying this subdivision uniformly to all individuals in the individual market and without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible individuals.
(2) A health care service plan, upon denying individual health care coverage in any service area in accordance with paragraph (1), may not offer that coverage in the individual market within that service area for a period of 180 days after the date the coverage is denied or until the issuer has demonstrated to the director that the plan has sufficient financial reserves to underwrite additional coverage, whichever is later.
(g) The requirement pursuant to federal law to furnish a certificate of creditable coverage shall apply to health care coverage offered by a health care service plan in the individual market in the same manner as it applies to a health care service plan in connection with a group health benefit plan.
(h) A health care service plan shall compensate a life agent or fire and casualty broker-agent whose activities result in the enrollment of federally eligible defined individuals in the same manner and consistent with the renewal commission amounts as the plan compensates life agents or fire and casualty broker-agents for other enrollees who are not federally eligible defined individuals and who are purchasing the same individual health benefit plan contract.
(i) Every health care service plan shall disclose as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the Health Insurance Portability and Accountability Act of 1996, including the necessity to enroll in and exhaust COBRA or Cal-COBRA benefits in order to become a federally eligible defined individual.
(j) No health care service plan may request documentation as to whether or not a person is a federally eligible defined individual other than is permitted under applicable federal law or regulations.
(k) This section shall not apply to coverage defined as excepted benefits pursuant to Section 300gg(c) of Title 42 of the United States Code.
(l) Notwithstanding any other provision of this article or of Article 11.5 (commencing with Section 1399.801), a health care service plan is not required to offer coverage pursuant to subdivision (a) or (d) to an individual who qualifies as a federally eligible defined individual on or after January 1, 2009.
(m) (1) A health care service plan shall inform all individuals applying for coverage pursuant to this section or Section 300gg-41 of Title 42 of the United States Code that if they are eligible for this coverage, the coverage will be provided through the California Major Risk Medical Insurance Program (Part 6.5 (commencing with Section 12700) of Division 2 of the Insurance Code) and that they are required to apply for that coverage within 63 days of becoming eligible for it.
(2) A health care service plan shall disclose, as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the California Major Risk Medical Insurance Program pursuant to paragraph (2) of subdivision (b) of Section 12725 of the Insurance Code.
(n) Subdivisions (l) and (m) shall be operative only if the state receives a waiver from the federal Centers for Medicare and Medicaid Services, or any other applicable federal agency, permitting the state to operate an acceptable alternative mechanism pursuant to Section 2744 of the Public Health Service Act (42 U.S.C. Sec. 300gg-44) by enrolling federally defined eligible individuals into the California Major Risk Medical Insurance Program in lieu of coverage described in subdivisions (a) and (d).
(o) Nothing in this section shall be construed to permit a health care service plan to terminate coverage for an otherwise eligible individual enrolled in a health benefit plan contract pursuant to this section prior to January 1, 2009.
(p) This section shall apply to a health care service plan contract offered, delivered, amended, or renewed on or after January 1, 2009.
(q) This section shall become operative on January 1, 2009.

SEC. 5.

 Section 1367.15 of the Health and Safety Code is amended to read:

1367.15.
 (a) This section shall apply to individual health care service plan contracts and plan contracts sold to employer groups with fewer than two eligible employees as defined in subdivision (b) of Section 1357 covering hospital, medical, or surgical expenses, which that is issued, amended, delivered, or renewed on or after January 1, 1994.
(b) As used in this section, “block of business” means individual plan contracts or plan contracts sold to employer groups with fewer than two eligible employees as defined in subdivision (b) of Section 1357, with distinct benefits, services, and terms. A “closed block of business” means a block of business for which a health care service plan ceases to actively offer or sell new plan contracts.

(c)No block of business shall be closed by a health care service plan unless (1) the plan permits an enrollee to receive health care services from any block of business that is not closed and which provides comparable benefits, services, and terms, with no additional underwriting requirement, or (2) the

(c) No block of business shall be closed by a health care service plan unless the plan takes either of the following actions:
(1) The plan permits an enrollee to receive health care services from any block of business that is not closed and that provides comparable benefits, services, and terms, with no additional underwriting requirement.
(2) The plan pools the experience of the closed block of business with all appropriate blocks of business that are not closed for the purpose of determining the premium rate of any plan contract within the closed block, with no rate penalty or surcharge beyond that which reflects the experience of the combined pool.
(d) A block of business shall be presumed closed if either of the following is applicable:
(1) There has been an overall reduction in that block of 12 percent in the number of in force plan contracts for a period of 12 months.
(2) That block has less than 1,000 enrollees in this state. This presumption shall not apply to a block of business initiated within the previous 24 months, but notification of that block shall be provided to the director pursuant to subdivision (e).
The fact that a block of business does not meet one of the presumptions set forth in this subdivision shall not preclude a determination that it is closed as defined in subdivision (b).
(e) A health care service plan shall notify the director in writing within 30 days of its decision to close a block of business or, in the absence of an actual decision to close a block of business, within 30 days of its determination that a block of business is within the presumption set forth in subdivision (d). When the plan decides to close a block, the written notice shall fully disclose all information necessary to demonstrate compliance with the requirements of subdivision (c). When the plan determines that a block is within the presumption, the written notice shall fully disclose all information necessary to demonstrate that the presumption is applicable. In the case of either notice, the plan shall provide additional information within 15 days after any request of the director.
(f) A health care service plan shall preserve for a period of not less than five years in an identified location and readily accessible for review by the director all books and records relating to any action taken by a plan pursuant to subdivision (c).
(g) No health care service plan shall offer or sell any contract, or provide misleading information about the active or closed status of a block of business, for the purpose of evading this section.
(h) A health care service plan shall bring any blocks of business closed prior to the effective date of this section into compliance with the terms of this section no later than December 31, 1994.
(i) This section shall not apply to health care service plan contracts providing small employer health coverage to individuals or employer groups with fewer than two eligible employees if that coverage is provided pursuant to Article 3.1 (commencing with Section 1357) and, with specific reference to coverage for individuals or employer groups with fewer than two eligible employees, is approved by the director pursuant to Section 1357.15, provided a plan electing to sell coverage pursuant to this subdivision shall do so until such time as the plan ceases to market coverage to small employers and complies with subdivision (c) of Section 1357.11.
(j) This section shall not apply to coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement, dental, vision, or conversion coverage or to coverage provided pursuant to Section 300gg-41 of Title 42 of the United States Code prior to January 1, 2009, or to continuation coverage provided pursuant to Section 1373.6 or 1373.621 prior to July 1, 2009.

SEC. 6.

 Section 1373.6 of the Health and Safety Code is amended to read:

1373.6.
 This section does not apply to a specialized health care service plan contract or to a plan contract that primarily or solely supplements Medicare. The director may adopt rules consistent with federal law to govern the discontinuance and replacement of plan contracts that primarily or solely supplement Medicare.
(a) (1) Every group contract entered into, amended, or renewed on or after September 1, 2003, that provides hospital, medical, or surgical expense benefits for employees or members shall provide that an employee or member whose coverage under the group contract has been terminated by the employer shall be entitled to convert to nongroup membership, without evidence of insurability, subject to the terms and conditions of this section.
(2) If the health care service plan provides coverage under an individual health care service plan contract, other than conversion coverage under this section, it shall offer one of the two plans that it is required to offer to a federally eligible defined individual pursuant to Section 1366.35. The plan shall provide this coverage at the same rate established under Section 1399.805 or 1399.819 for a federally eligible defined individual. A health care service plan that is federally qualified under the federal Health Maintenance Organization Act (42 U.S.C. Sec. 300e et seq.) may charge a rate for the coverage that is consistent with the provisions of that act.
(3) If the health care service plan does not provide coverage under an individual health care service plan contract, it shall offer a health benefit plan contract that is the same as a health benefit contract offered to a federally eligible defined individual pursuant to Section 1366.35. The health care service plan may offer either the most popular health maintenance organization model plan or the most popular preferred provider organization plan, each of which has the greatest number of enrolled individuals for its type of plan as of January 1 of the prior year, as reported by plans that provide coverage under an individual health care service plan contract to the department or the Department of Insurance by January 31, 2003, and annually thereafter. A health care service plan subject to this paragraph shall provide this coverage with the same cost-sharing terms and at the same premium as a health care service plan providing coverage to that individual under an individual health care service plan contract pursuant to Section 1399.805 or 1399.819. The health care service plan shall file the health benefit plan it will offer, including the premium it will charge and the cost-sharing terms of the plan, with the Department of Managed Health Care.
(b) A conversion contract shall not be required to be made available to an employee or member if termination of his or her coverage under the group contract occurred for any of the following reasons:
(1) The group contract terminated or an employer’s participation terminated and the group contract is replaced by similar coverage under another group contract within 15 days of the date of termination of the group coverage or the subscriber’s participation.
(2) The employee or member failed to pay amounts due the health care service plan.
(3) The employee or member was terminated by the health care service plan from the plan for good cause.
(4) The employee or member knowingly furnished incorrect information or otherwise improperly obtained the benefits of the plan.
(5) The employer’s hospital, medical, or surgical expense benefit program is self-insured.
(c) A conversion contract is not required to be issued to any person if any of the following facts are present:
(1) The person is covered by or is eligible for benefits under Title XVIII of the United States Social Security Act.
(2) The person is covered by or is eligible for hospital, medical, or surgical benefits under any arrangement of coverage for individuals in a group, whether insured or self-insured.
(3) The person is covered for similar benefits by an individual policy or contract.
(4) The person has not been continuously covered during the three-month period immediately preceding that person’s termination of coverage.
(d) Benefits of a conversion contract shall meet the requirements for benefits under this chapter.
(e) Unless waived in writing by the plan, written application and first premium payment for the conversion contract shall be made not later than 63 days after termination from the group. A conversion contract shall be issued by the plan which shall be effective on the day following the termination of coverage under the group contract if the written application and the first premium payment for the conversion contract are made to the plan not later than 63 days after the termination of coverage, unless these requirements are waived in writing by the plan.
(f) The conversion contract shall cover the employee or member and his or her dependents who were covered under the group contract on the date of their termination from the group.
(g) A notification of the availability of the conversion coverage shall be included in each evidence of coverage. However, it shall be the sole responsibility of the employer to notify its employees of the availability, terms, and conditions of the conversion coverage which responsibility shall be satisfied by notification within 15 days of termination of group coverage. Group coverage shall not be deemed terminated until the expiration of any continuation of the group coverage. For purposes of this subdivision, the employer shall not be deemed the agent of the plan for purposes of notification of the availability, terms, and conditions of conversion coverage. On and after January 1, 2009, the notification required by this subdivision shall explain that, in lieu of conversion coverage provided by the health care service plan, an individual eligible for conversion coverage is entitled to receive that coverage through the California Major Risk Medical Insurance Program pursuant to Section 12725 of the Insurance Code.
(h) As used in this section, “hospital, medical, or surgical benefits under state or federal law” do not include benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code, or Title XIX of the United States Social Security Act.
(i) Every group contract entered into, amended, or renewed before September 1, 2003, shall be subject to the provisions of this section as it read prior to its amendment by Assembly Bill 1401 of the 2001–02 Regular Session.
(j) On and after January 1, 2009, a health care service plan shall not be subject to the requirements described in subdivisions (a), (d), and (f) insofar as those subdivisions require the health care service plan to offer and sell coverage to an individual who would otherwise become eligible for that coverage on or after January 1, 2009, under this section.

SEC. 7.

 Section 1373.622 of the Health and Safety Code is amended to read:

1373.622.
 (a) After the termination of the pilot program under Section 1373.62, a health care service plan shall continue to provide coverage under the same terms and conditions specified in Section 1376.62 as it existed on January 1, 2006, including the terms of the standard benefit plan and the subscriber payment amount, to each individual who was terminated from the program Major Risk Medical Insurance Program pursuant to subdivision (f) of Section 12725 of the Insurance Code during the term of the pilot program and who enrolled or applied to enroll in a standard benefit plan within 63 days of termination. The Managed Risk Medical Insurance Board shall determine the benefits and the premium amounts for that continuation of coverage and shall continue to pay the amount described in Section 1376.62 for each of those individuals. A health care service plan shall not be required to offer the coverage described in Section 1373.62 after the termination of the pilot program to individuals not already enrolled in the pilot program.
(b) If the state fails to expend, pursuant to this section, sufficient funds for the state’s contribution amount to any health care service plan, the health care service plan may increase the monthly payments that its subscribers are required to pay for any standard benefit plan to the amount that the Managed Risk Medical Insurance Board would charge without a state subsidy for the same plan issued to the same individual within the program.
(c) On or before September 1, 2008, a health care service plan with one or more individuals enrolled in a standard benefit plan pursuant to subdivision (a) shall send all enrolled individuals and individuals enrolled on or after July 1, 2008, the notice and certification developed by the Managed Risk Medical Insurance Board pursuant to paragraph (2) of subdivision (g) of Section 12725 of the Insurance Code.
(d) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 8.

 Section 1373.63 is added to the Health and Safety Code, to read:

1373.63.
 (a) On and after January 1, 2009, except as provided in subdivision (e), every health care service plan, except for a specialized health care service plan, licensed in California, that provides individual or group coverage, shall fairly and affirmatively offer, market, and sell all of the benefit plans the health care service plan offers, whether available for groups or individuals, to individuals in each service area for which the plan provides or arranges for the provision of health care services.
(b) The amount paid by any individual for any benefit plan offered shall not vary because of the age, geographic location, health status, or claims experience of the individual. Every health plan shall annually submit to the director for review and approval the proposed rates for all of the benefit plans the health plan offers to individuals pursuant to this section.
(c) A health care service plan shall not deny or condition the offering or effectiveness, or the premium rates charged, for benefit plans required to be offered by this section on the health status, claims experience, receipt of health care, or medical condition of the applicant.
(d) Health plan contracts issued pursuant to this section shall be guaranteed renewable.
(e) A health care service plan shall not be subject to the requirements of this section if it instead elects to pay the fee under Section 12739.5 of the Insurance Code instead of offering a standard benefit plan under this section.
(f) The director may take all action authorized under this chapter, including, but not limited to, the imposition of fines or penalties against a health care service plan that does not comply with this section or Section 1356.2.

SEC. 9.

 Section 1399.819 is added to the Health and Safety Code, to read:

1399.819.
 On and after January 1, 2009, the premium for a health care service plan contract that offers services through a preferred provider arrangement pursuant to this article or Article 4.6 (commencing with Section 1366.35) shall be calculated as described in this article, except that it shall be based on the benefit design for the California Major Risk Medical Insurance Program (Part 6.5 (commencing with Section 12700) of Division 2 of the Insurance Code) in effect on December 31, 2008.

SEC. 10.

 Section 1827.86 is added to the Insurance Code, to read:

1827.86.
 (a) Every admitted health insurer that provides health insurance and that elects to pay the fee under Chapter 9 (commencing with Section 12739.5) of Part 6.5 shall pay the fee to the commissioner in the amount as determined by the Managed Risk Medical Insurance Board. The commissioner shall permit health insurers subject to the fee to remit payment on a quarterly basis. The timely payment of the fee and the timely submission of information pursuant to Section 12739.7 shall be deemed to be among the prerequisites for obtaining and retaining a certificate of authority or license issued by the commissioner, and in addition, deficiencies with respect to the timely payment or submission of information shall be grounds for the imposition of sanctions or the institution of disciplinary proceedings by the commissioner. The commissioner shall transmit fees collected pursuant to this section to the Managed Risk Medical Insurance Board, in a manner determined by that board, within 30 days after the date on which the commissioner receives those fees.
(b) A health insurer that has elected not to pay its share of program costs pursuant to Chapter 9 (commencing with Section 12739.5) of Part 6.5 shall demonstrate to the satisfaction of the commissioner that it is in compliance with subdivision (a) of Section 10127.19.
(c) The requirements of this section shall not apply to a Medicare supplement, vision-only, dental-only, or CHAMPUS supplement insurance or to hospital indemnity, hospital-only, accident-only, or specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis or to short-term limited duration health insurance.

SEC. 11.

 Section 10127.16 of the Insurance Code is amended to read:

10127.16.
 (a) After the termination of the pilot program under Section 10127.15, a health insurer shall continue to provide coverage under the same terms and conditions specified in Section 10127.15 as it existed on January 1, 2006, including the terms of the standard benefit plan and the subscriber payment amount, to each individual who was terminated from the program Major Risk Medical Insurance Program, pursuant to subdivision (f) of Section 12725 of the Insurance Code during the term of the pilot program and who enrolled or applied to enroll in a standard benefit plan within 63 days of termination. The Managed Risk Medical Insurance Board shall determine the benefits and the premium amounts for that continuation of coverage and shall continue to pay the amount described in Section 10127.15 for each of those individuals. A health insurer shall not be required to offer the coverage described in Section 10127.15 after the termination of the pilot program to individuals not already enrolled in the pilot program.
(b) If the state fails to expend, pursuant to this section, sufficient funds for the state’s contribution amount to any health insurer, the health insurer may increase the monthly payments that its subscribers are required to pay for any standard benefit plan to the amount that the Managed Risk Medical Insurance Board would charge without a state subsidy for the same insurance product issued to the same individual within the program.
(c) On or before September 1, 2008, a health insurer with one or more individuals enrolled in a standard benefit plan pursuant to subdivision (a) shall send all enrolled individuals and individuals enrolled on or after July 1, 2008, the notice and certification developed by the Managed Risk Medical Insurance Board pursuant to paragraph (2) of subdivision (g) of Section 12725.
(d) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 12.

 Section 10127.19 is added to the Insurance Code, to read:

10127.19.
 (a) On and after January 1, 2009, except as provided in subdivision (e), every health insurer that provides individual or group health insurance as defined in Section 106 to residents of this state shall fairly and affirmatively offer, market, and sell all of the benefit plans the insurer offers, whether available to groups or individuals in each service area for which the insurer provides coverage of health care services.
(b) The amount paid by any individual for the standard benefit plan shall not vary because of the age, geographic location, health status, or claims experience of the individual. Every health insurer shall annually submit to the commissioner for review and approval the proposed rates for all of the benefit plans the insurer offers to individuals.
(c) A health insurer shall not deny or condition the offering or effectiveness, or the premium rates charged, for benefits required to be offered by this section on the health status, claims experience, receipt of health care, or medical condition of the applicant.
(d) Health insurance policies issued pursuant to this section shall be guaranteed renewable.
(e) A health insurer shall not be subject to the requirements of this section if it instead elects to pay the fee under Section 12739.5 instead of offering benefits under this section.
(f) The commissioner may take all action authorized under this chapter, including, but not limited to, the imposition of fines or penalties against a health insurer that does not comply with this section or Section 1827.86.

SEC. 13.

 Section 10176.10 of the Insurance Code is amended to read:

10176.10.
 (a) On or after January 1, 1994, no disability insurer issuing policies covering hospital, surgical, or medical expenses delivered or renewed in this state or certificates of group disability insurance delivered or renewed in this state pursuant to a master group policy delivered or renewed in another state, to individuals, or to employer groups with fewer than two eligible employees, as defined in subdivision (g) (f) of Section 10700, shall close a block of business without complying with this section.
(b) As used in this section, “block of business” means individual, group, or blanket disability insurance contracts covering hospital, medical, or surgical expenses of a particular policy form that has distinct benefits or marketing methods. “Closed block of business” means a block of business for which an insurer ceases to actively market and sell new contracts under a particular policy form in this state.
(c) Notwithstanding subdivision (b), a block of business shall be presumed closed if either of the following applies:
(1) There has been an overall reduction of 12 percent in the number of in force policies of a particular form for a period of 12 months.
(2) The block has less than 2,000 insured insureds nationally or 1,000 insureds in California. This presumption shall not apply to a block of business initiated within the previous 24 months, but notification of that block shall be provided to the commissioner. The notification shall not be subject to the approval required by subdivision (d).
An insurer may present evidence for consideration by the commissioner that the presumption in the particular case is incorrect. Should the determination be made that the block is closed, the insurer shall be given those remedy options contained in subdivision (d). The fact that a block of business does not meet one of the presumptions set forth in this subdivision shall not preclude a determination that it is closed as defined in subdivision (b).
(d) An insurer shall notify the commissioner within 30 days of its decision to close a block or, in the absence of an actual decision to close a block of business, within 30 days of its determination that the block is within the presumptions set forth in subdivision (c). The commissioner may notify an insurer that he or she has determined that the presumptions contained in subdivision (c) apply to a block. No insurer providing disability insurance covering hospital, medical, or surgical expenses shall close a policy form or group certificate without notification to the commissioner. That notification shall include a plan to permit an insured to move to any open block, providing comparable benefits with no additional underwriting requirement or, alternatively, the insurer shall be required to pool the closed block’s experience with all appropriate open forms for purposes of renewal rate determination, with no rate penalty or surcharge, beyond that which reflects the experience of the combined pool. When the insurer chooses to pool, the notice shall include the insurer’s plan for pooling the closed block’s experience. The insurer may implement the pooling plan if 30 days expire after the submission is filed without written notice from the commissioner specifying the reasons for his or her opinion that the pooling plan does not comply with the requirements of this section, or, prior to that time, if the commissioner provides the insurer written notice that the pooling plan complies with the requirements of this section.
The approval shall be based upon consideration of the accumulative recent and expected future experience of the closed form and those with which the closed form is to be combined.
(e) No insurer shall offer or sell any form nor provide misleading information about the active or closed status of its business for the purpose of evading this section.
(f) An insurer shall bring any blocks of business closed prior to the effective date of this section into compliance with the terms of this section no later than December 31, 1994.
(g) This section shall not apply to small employer carriers providing small employer health insurance to individuals or employer groups with fewer than two eligible employees if that coverage is provided pursuant to Chapter 14 8 (commencing with Section 10700) of Part 2 of Division 2, and with specific reference to coverage for individuals or employer groups with fewer than two eligible employees, is approved by the commissioner pursuant to Section 10705, provided a carrier electing to sell coverage pursuant to this subdivision shall continue to do so until such time as the carrier ceases to market coverage to small employers and complies with subdivision (c) of Section 10713.
(h) This section shall not apply to accident only coverage, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, long-term care insurance, dental, vision, or conversion coverage, coverage issued as a supplement to liability insurance, or automobile medical payment insurance or to coverage provided pursuant to Section 300gg-41 of Title 42 of the United States Code prior to January 1, 2009, or to continuation coverage provided pursuant to Part 6.1 (commencing with Section 12670) prior to January 1, 2009.

SEC. 14.

 Section 10785 of the Insurance Code is amended to read:

10785.
 (a) A disability health insurer that covers hospital, medical, or surgical expenses under an individual health benefit plan as defined in subdivision (a) of Section 10198.6 may not, with respect to a federally eligible defined individual desiring to enroll in individual health insurance coverage, decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion with respect to the coverage.
(b) For purposes of this section, “federally eligible defined individual” means an individual who, as of the date on which the individual seeks coverage under this section, meets all of the following conditions:
(1) Has had 18 or more months of creditable coverage, and whose most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002).
(2) Is not eligible for coverage under a group health plan, Medicare, or Medi-Cal, and does not have other health insurance coverage.
(3) Was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud.
(4) If offered continuation coverage under COBRA or Cal-COBRA, has elected and exhausted that coverage.
(c) Every disability health insurer that covers hospital, medical, or surgical expenses shall comply with applicable federal statutes and regulations regarding the provision of coverage to federally eligible defined individuals, including any relevant application periods.
(d) A disability health insurer shall offer the following health benefit plans under this section that are designed for, made generally available to, are actively marketed to, and enroll, individuals: (1) either the two most popular products as defined in Section 300gg-41(c)(2) of Title 42 of the United States Code and Section 148.120(c)(2) of Title 45 of the Code of Federal Regulations or (2) the two most representative products as defined in Section 300gg-41(c)(3) of Title 42 of the United States Code and Section 148.120(c)(3) of Title 45 of the Code of Federal Regulations, as determined by the insurer in compliance with federal law. An insurer that offers only one health benefit plan to individuals, excluding health benefit plans offered to Medi-Cal or Medicare beneficiaries, shall be deemed to be in compliance with this chapter if it offers that health benefit plan contract to federally eligible defined individuals in a manner consistent with this chapter.
(e) (1) In the case of a disability health insurer that offers health benefit plans in the individual market through a network plan, the insurer may do both of the following:
(A) Limit the individuals who may be enrolled under that coverage to those who live, reside, or work within the service area for the network plan.
(B) Within the service area covered by the health benefit plan, deny coverage to individuals if the insurer has demonstrated to the commissioner that the insured will not have the capacity to deliver services adequately to additional individual insureds because of its obligations to existing group policyholders, group contractholders and insureds, and individual insureds, and that the insurer is applying this paragraph uniformly to individuals without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A disability health insurer, upon denying health insurance coverage in any service area in accordance with subparagraph (B) of paragraph (1), may not offer health benefit plans through a network in the individual market within that service area for a period of 180 days after the coverage is denied.
(f) (1) A disability health insurer may deny health insurance coverage in the individual market to a federally eligible defined individual if the insurer has demonstrated to the commissioner both of the following:
(A) The insurer does not have the financial reserves necessary to underwrite additional coverage.
(B) The insurer is applying this subdivision uniformly to all individuals in the individual market and without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A disability health insurer, upon denying individual health insurance coverage in any service area in accordance with paragraph (1), may not offer that coverage in the individual market within that service area for a period of 180 days after the date the coverage is denied or until the insurer has demonstrated to the commissioner that the insurer has sufficient financial reserves to underwrite additional coverage, whichever is later.
(g) The requirement pursuant to federal law to furnish a certificate of creditable coverage shall apply to health benefits plans offered by a disability health insurer in the individual market in the same manner as it applies to an insurer in connection with a group health benefit plan policy or group health benefit plan contract.
(h) A disability health insurer shall compensate a life agent or fire and casualty broker-agent whose activities result in the enrollment of federally eligible defined individuals in the same manner and consistent with the renewal commission amounts as the insurer compensates life agents or fire and casualty broker-agents for other enrollees who are not federally eligible defined individuals and who are purchasing the same individual health benefit plan.
(i) Every disability health insurer shall disclose as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the Health Insurance Portability and Accountability Act of 1996, including the necessity to enroll in and exhaust COBRA or Cal-COBRA benefits in order to become a federally eligible defined individual.
(j) No disability health insurer may request documentation as to whether or not a person is a federally eligible defined individual other than is permitted under applicable federal law or regulations.
(k) This section shall not apply to coverage defined as excepted benefits pursuant to Section 300gg(c) of Title 42 of the United States Code.
(l) This section shall apply to policies or contracts offered, delivered, amended, or renewed on or after January 1, 2001.
(m) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 15.

 Section 10785 is added to the Insurance Code, to read:

10785.
 (a) A health insurer that covers hospital, medical, or surgical expenses under an individual health benefit plan as defined in subdivision (a) of Section 10198.6 shall not, with respect to a federally eligible defined individual desiring to enroll in individual health insurance coverage, decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion with respect to the coverage.
(b) For purposes of this section, “federally eligible defined individual” means an individual who, as of the date on which the individual seeks coverage under this section, meets all of the following conditions:
(1) Has had 18 or more months of creditable coverage, and the individual’s most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002).
(2) Is not eligible for coverage under a group health plan, Medicare, or Medi-Cal, and does not have other health insurance coverage.
(3) Was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud.
(4) If offered continuation coverage under COBRA or Cal-COBRA, has elected and exhausted that coverage.
(c) Every health insurer that covers hospital, medical, or surgical expenses shall comply with applicable federal statutes and regulations regarding the provision of coverage to federally eligible defined individuals, including any relevant application periods.
(d) A health insurer shall offer the following health benefit plans under this section that are designed for, made generally available to, are actively marketed to, and enroll, individuals: (1) either the two most popular products as defined in Section 300gg-41 (c)(2) of Title 42 of the United States Code and Section 148.120(c)(2) of Title 45 of the Code of Federal Regulations or (2) the two most representative products as defined in Section 300gg-41(c)(3) of Title 42 of the United States Code and Section 148.120(c)(3) of Title 45 of the Code of Federal Regulations, as determined by the insurer in compliance with federal law. An insurer that offers only one health benefit plan to individuals, excluding health benefit plans offered to Medi-Cal or Medicare beneficiaries, shall be deemed to be in compliance with this chapter if it offers that health benefit plan contract to federally eligible defined individuals in a manner consistent with this chapter.
(e) (1) In the case of a health insurer that offers health benefit plans in the individual market through a network plan, the insurer may do both of the following:
(A) Limit the individuals who may be enrolled under that coverage to those who live, reside, or work within the service area for the network plan.
(B) Within the service area covered by the health benefit plan, deny coverage to individuals if the insurer has demonstrated to the commissioner that the insured will not have the capacity to deliver services adequately to additional individual insureds because of its obligations to existing group policyholders, group contractholders and insureds, and individual insureds, and that the insurer is applying this paragraph uniformly to individuals without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A health insurer, upon denying health insurance coverage in any service area in accordance with subparagraph (B) of paragraph (1), may not offer health benefit plans through a network in the individual market within that service area for a period of 180 days after the coverage is denied.
(f) (1) A health insurer may deny health insurance coverage in the individual market to a federally eligible defined individual if the insurer has demonstrated to the commissioner both of the following:
(A) The insurer does not have the financial reserves necessary to underwrite additional coverage.
(B) The insurer is applying this subdivision uniformly to all individuals in the individual market and without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
(2) A health insurer, upon denying individual health insurance coverage in any service area in accordance with paragraph (1), may not offer that coverage in the individual market within that service area for a period of 180 days after the date the coverage is denied or until the insurer has demonstrated to the commissioner that the insurer has sufficient financial reserves to underwrite additional coverage, whichever is later.
(g) The requirement pursuant to federal law to furnish a certificate of creditable coverage shall apply to health benefits plans offered by a disability insurer in the individual market in the same manner as it applies to an insurer in connection with a group health benefit plan policy or group health benefit plan contract.
(h) A health insurer shall compensate a life agent or fire and casualty broker-agent whose activities result in the enrollment of federally eligible defined individuals in the same manner and consistent with the renewal commission amounts as the insurer compensates life agents or fire and casualty broker-agents for other enrollees who are not federally eligible defined individuals and who are purchasing the same individual health benefit plan.
(i) Every health insurer shall disclose as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the Health Insurance Portability and Accountability Act of 1996, including the necessity to enroll in and exhaust COBRA or Cal-COBRA benefits in order to become a federally eligible defined individual.
(j) No health insurer may request documentation as to whether or not a person is a federally eligible defined individual other than is permitted under applicable federal law or regulations.
(k) This section shall not apply to coverage defined as excepted benefits pursuant to Section 300gg(c) of Title 42 of the United States Code.
(l) Notwithstanding any other provision of this chapter, a health insurer is not required to offer coverage pursuant to subdivision (a) or (d) to an individual who qualifies as a federally eligible defined individual on or after January 1, 2009.
(m) (1) A health insurer shall inform all individuals applying for coverage pursuant to this section or Section 300gg-41 of Title 42 of the United States Code that, if they are eligible for this coverage, the coverage will be provided through the California Major Risk Medical Insurance Program (Part 6.5 (commencing with Section 12700)) and that they are required to apply for that coverage within 63 days of becoming eligible for it.
(2) A health insurer shall disclose, as part of its COBRA or Cal-CORBA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the California Major Risk Medical Insurance Program pursuant to paragraph (2) of subdivision (b) of Section 12725.
(n) Subdivisions (l) and (m) shall be operative only if the state receives a waiver from the federal Centers for Medicare and Medicaid Services, or any other applicable federal agency, permitting the state to operate an acceptable alternative mechanism pursuant to Section 2744 of the Public Health Service Act (42 U.S.C. Sec. 300gg-44) by enrolling federally defined eligible individuals into the California Major Risk Medical Insurance Program in lieu of coverage described in subdivisions (a) and (d).
(o) Nothing in this section shall be construed to permit a health insurer to terminate coverage for an otherwise eligible individual enrolled in a health insurance policy pursuant to this section prior to January 1, 2009.
(p) This section shall apply to a policy or contract offered, delivered, amended, or renewed on or after January 1, 2009.
(q) This section shall become operative on January 1, 2009.

SEC. 16.

 Section 10901.10 is added to the Insurance Code, to read:

10901.10.
 On and after January 1, 2009, the premium for a health insurance policy that offers services through a preferred provider arrangement pursuant to this chapter or Article 4.6 (commencing with Section 1366.35) of Chapter 2.2 of Division 2 of the Health and Safety Code shall be calculated as described in this chapter, except that it shall be based on the benefit design for the California Major Risk Medical Insurance Program, (Part 6.5 (commencing with Section 12700)) in effect on December 31, 2008.

SEC. 17.

 Section 12682.1 of the Insurance Code is amended to read:

12682.1.
 This section does not apply to a policy that primarily or solely supplements Medicare. The commissioner may adopt rules consistent with federal law to govern the discontinuance and replacement of plan policies that primarily or solely supplement Medicare.
(a) (1) Every group policy entered into, amended, or renewed on or after September 1, 2003, that provides hospital, medical, or surgical expense benefits for employees or members shall provide that an employee or member whose coverage under the group policy has been terminated by the employer shall be entitled to convert to nongroup membership, without evidence of insurability, subject to the terms and conditions of this section.
(2) If the health insurer provides coverage under an individual health insurance policy, other than conversion coverage under this part, it shall offer one of the two health insurance policies that the insurer is required to offer to a federally eligible defined individual pursuant to Section 10785. The health insurer shall provide this coverage at the same rate established under Section 10901.3 or 10901.10 for a federally eligible defined individual.
(3) If the health insurer does not provide coverage under an individual health insurance policy, it shall offer a health benefit plan contract that is the same as a health benefit contract offered to a federally eligible defined individual pursuant to Section 1366.35 10785. The health insurer shall offer the most popular preferred provider organization plan that has the greatest number of enrolled individuals for its type of plan as of January 1 of the prior year, as reported by plans by January 31, 2003, and annually thereafter, that provide coverage under an individual health care service plan contract to the department or the Department of Managed Health Care. A health insurer subject to this paragraph plan shall provide this coverage with the same cost-sharing terms and at the same premium as a health care service plan insurer providing coverage to that individual under an individual health care service plan contract insurance policy pursuant to Section 1399.805 10901.3 or 10901.10. The health insurer shall file the health benefit plan contract it will offer, including the premium it will charge and the cost-sharing terms of the contract, with the Department of Insurance.
(b) A conversion policy shall not be required to be made available to an employee or insured if termination of his or her coverage under the group policy occurred for any of the following reasons:
(1) The group policy terminated or an employer’s participation terminated and the insurance is replaced by similar coverage under another group policy within 15 days of the date of termination of the group coverage or the employer’s participation.
(2) The employee or insured failed to pay amounts due the health insurer.
(3) The employee or insured was terminated by the health insurer from the policy for good cause.
(4) The employee or insured knowingly furnished incorrect information or otherwise improperly obtained the benefits of the policy.
(5) The employer’s hospital, medical, or surgical expense benefit program is self-insured.
(c) A conversion policy is not required to be issued to any person if any of the following facts are present:
(1) The person is covered by or is eligible for benefits under Title XVIII of the United States Social Security Act.
(2) The person is covered by or is eligible for hospital, medical, or surgical benefits under any arrangement of coverage for individuals in a group, whether insured or self-insured.
(3) The person is covered for similar benefits by an individual policy or contract.
(4) The person has not been continuously covered during the three-month period immediately preceding that person’s termination of coverage.
(d) Benefits of a conversion policy shall meet the requirements for benefits under this chapter.
(e) Unless waived in writing by the insurer, written application and first premium payment for the conversion policy shall be made not later than 63 days after termination from the group. A conversion policy shall be issued by the insurer which that shall be effective on the day following the termination of coverage under the group contract if the written application and the first premium payment for the conversion contract are made to the insurer not later than 63 days after the termination of coverage, unless these requirements are waived in writing by the insurer.
(f) The conversion policy shall cover the employee or insured and his or her dependents who were covered under the group policy on the date of their termination from the group.
(g) A notification of the availability of the conversion coverage shall be included in each evidence of coverage or other legally required document explaining coverage. However, it shall be the sole responsibility of the employer to notify its employees of the availability, terms, and conditions of the conversion coverage which responsibility shall be satisfied by notification within 15 days of termination of group coverage. Group coverage shall not be deemed terminated until the expiration of any continuation of the group coverage. For purposes of this subdivision, the employer shall not be deemed the agent of the insurer for purposes of notification of the availability, terms, and conditions of conversion coverage. On and after January 1, 2009, the notification required by this subdivision shall explain that, in lieu of conversion coverage provided by the insurer, an individual eligible for conversion coverage is entitled to receive that coverage through the California Major Risk Medical Insurance Program pursuant to Section 12725.
(h) As used in this section, “hospital, medical, or surgical benefits under state or federal law” do not include benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code, or Title XIX of the United States Social Security Act.
(i) This section shall become operative on September 1, 2003 On and after January 1, 2009, a health insurer shall not be subject to the requirements described in subdivisions (a), (d), and (f) insofar as those subdivisions require the health insurer to offer and sell coverage to an individual who would otherwise become eligible for that coverage on or after January 1, 2009, under this section.

SEC. 18.

 Section 12700 of the Insurance Code is amended to read:

12700.
 The Legislature finds and declares all of the following:
(a) That many Californians, do not have employer-sponsored group health care coverage and are unable to secure adequate health care coverage for themselves and their dependents because of preexisting medical conditions, and a number of employer sponsored employer-sponsored groups have difficulty obtaining or maintaining their health care coverage because some members of the group either have, or are viewed as being at risk for having, high medical costs.
(b) That, even where uninsured persons with preexisting conditions are able to secure coverage, the cost of coverage is prohibitively high or is secured only by waiving coverage for the preexisting conditions for which they are most likely to need care.
(c) That adverse selection precludes private health plans regulated by the State of California from enrolling medically uninsurable persons in the face of the escalating health care costs, and a highly competitive market.
(d) That, left to face the cost of major medical care without health care coverage, all but the extremely affluent uninsured persons must ultimately look to publicly funded programs including the Medi-Cal program or MISP the Medically Indigent Services Program in the event of severe illness or injury.
(e) That a one prudent means of making comprehensive major medical coverage available to individuals presently who are unable to purchase it private health care coverage when they are denied that coverage because of their health risk, health history, or health status, is to subsidize their purchase of arrange for and subsidize private health coverage from participating health plans using a combination of public and private funding.
(f) That a prudent means of making major affordable, comprehensive health care coverage products compatible with their medical coverage needs should be available to groups presently unable to for purchase by all Californians, including those who are, or having difficulty maintaining major are viewed by carriers as being, at high risk because of preexisting medical conditions, and that information about these coverage is options should be readily available to facilitate purchase of private health coverage from participating health plans consumers.
(g) That the structure of coverage for medically uninsurable persons should encourage broad participation of private health care service plans and health insurers in providing that coverage and should, at a minimum, not create a disincentive for health care service plans and health insurers to participate in the state’s program for high-risk and uninsurable persons.
(h) That on and after January 1, 2009, sufficient funding from a combination of public and private sources shall be available so that the program can provide health care coverage to all eligible persons willing to pay premiums and without the need for waiting lists.

SEC. 19.

 Section 12705 of the Insurance Code is amended to read:

12705.
 For The following definitions apply for the purposes of this part, the following terms have the following meanings:
(a) “Applicant” means an individual who applies for major risk medical coverage through the program.
(b) “Board” means the Managed Risk Medical Insurance Board.
(c) “Fund” means the Major Risk Medical Insurance Fund, from which the program may authorize expenditures to pay for medically necessary services which that exceed subscribers’ contributions, and for administration of the program.
(d) “Major risk medical coverage” means the payment for comprehensive, medically necessary services compatible with the medical needs of medically uninsurable persons, provided by institutional and professional providers and structured in a manner that does not provide a disincentive for accessing needed health care.
(e) “Participating health plan” means a private health insurer (1) holding a valid outstanding certificate of authority from the Insurance Commissioner, a nonprofit hospital service plan qualifying under Chapter 11A (commencing with Section 11491) of Part 2 of Division 2, a nonprofit membership corporation lawfully operating under the Nonprofit Corporation Law (Division 2 (commencing with Section 5000) of the Corporations Code), or a health care service plan as defined under subdivision (f) of Section 1345 of the Health and Safety Code, which is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal health care services under insurance policies or contracts, medical and hospital service agreements, or membership contracts, in consideration of premiums or other periodic charges payable to it, and (2) which that contracts with the program board to administer major risk medical coverage to program subscribers and, pursuant to the terms of its contract with the board, provides, arranges, pays for, or reimburses the costs of health care services.
(f) “Payer” means an entity described in Section 1373.63 of the Health and Safety Code or Section 10127.19 that elects to pay its share of program costs, as described in Chapter 9 (commencing with Section 12739.5).

(f)

(g) “Plan rates” means the total monthly amount charged by a participating health plan for a category of risk.

(g)

(h) “Program” means the California Major Risk Medical Insurance Program.
(i) “Program costs” means the anticipated costs of operating the program for the year, including, but not limited to, the cost of providing covered benefits to all prospective eligible subscribers; administrative costs, including the costs of staff and overhead operations for the program; and a reasonable amount to establish and maintain a prudent reserve for the program. For purposes of this section, administrative costs for the program may not be expended to support any other program administered by the board.

(h)

(j) “Subscriber” means an individual who is eligible for and receives major risk medical coverage through the program, and includes a member of a federally recognized California Indian tribe.

(i)

(k) “Subscriber contribution” means the portion of participating health plan rates paid by the subscriber, or paid on behalf of the subscriber by a federally recognized California Indian tribal government. If a federally recognized California Indian tribal government makes a contribution on behalf of a member of the tribe, the tribal government shall ensure that the subscriber is made aware of all the health plan options available in the county where the member resides.

SEC. 20.

 Section 12711 of the Insurance Code is amended to read:

12711.
 The board shall have the following authority:
(a) To determine the eligibility of applicants.
(b) To determine the major risk medical coverage to be provided program subscribers. The major risk medical coverage shall comply with the provisions of Section 12718.
(c) To research and assess the needs of persons not adequately covered by existing private and public health care delivery systems and promote means of assuring ensuring the availability of adequate health care services.
(d) To approve subscriber contributions, and plan rates, and to establish program contribution amounts and the types of covered lives that shall be reported by plans and insurers, and to determine and administer fees imposed pursuant to Chapter 9 (commencing with Section 12739.5).
(e) To provide major risk medical coverage for subscribers or to contract with a participating health plan or plans to provide or administer major risk medical coverage for subscribers.
(f) To authorize expenditures from the fund to pay program expenses which exceed subscriber contributions.
(g) To contract for administration of the program or any portion thereof with any public agency, including any agency of state government, or with any private entity.
(h) To issue rules and regulations to carry out the purposes of this part.
(i) To authorize expenditures from the fund or from other moneys appropriated in the annual Budget Act for purposes relating to Section 10127.15 of this code or Section 1373.62 of the Health and Safety Code.
(j) To apply for any federal funding the board determines to be cost effective, and to negotiate with the federal Centers for Medicare and Medicaid Services to secure the federal funding.
(k) To contract with a reinsurer to obtain reinsurance or stop-loss coverage for the program.
(l) To establish reasonable participation requirements for subscribers.

(j)

(m) To exercise all powers reasonably necessary to carry out the powers and responsibilities expressly granted or imposed upon it under this part.

SEC. 21.

 Section 12711.3 is added to the Insurance Code, to read:

12711.3.
 The board, subject to the approval of the Department of Finance, may obtain loans from the General Fund for all necessary and reasonable expenses related to the administration of the fund. The board shall repay principal and interest, using the pooled money investment account rate of interest, to the General Fund no later than January 1, 2016.

SEC. 22.

 Section 12712 of the Insurance Code is amended to read:

12712.
 The board shall, pursuant to perform the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), adopt all necessary rules and regulations to carry out this part, including the following functions:
(a) Establishing Establish the scope and content of adequate major medical coverage to be offered by the program, including guidelines, as appropriate, for disease management, case management, care management or other cost management strategies to ensure cost-effective, high-quality health care services for subscribers.
(b) Determining Determine reasonable minimum standards for participating health plans.
(c) Determining Determine the time, manner, method, and procedures for withdrawing program approval from a plan or limiting subscriber enrollment in a participating health plan.
(d) Researching Research and assessing assess the needs of persons without adequate health coverage, and promoting promote means of assuring ensuring the availability of adequate health care services.
(e) Administering Administer the program so as to ensure that the program subsidy amount does not exceed amounts transferred to the fund pursuant to Chapter 8 (commencing with Section 12739).
(f) Issuing Issue appropriate rules and regulations for any other matters it may be authorized or required to provide for by this part. In adopting these rules and regulations, the board shall be guided by the needs and welfare of persons unable to secure adequate health coverage for themselves and their dependents, and prevailing practices among private health plans.
(g) This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 23.

 Section 12712 is added to the Insurance Code, to read:

12712.
 The board shall perform the following functions:
(a) Establish the scope and content of adequate major medical coverage to be offered by the program, including guidelines, as appropriate, for disease management, case management, care management, or other cost management strategies to ensure cost-effective, high-quality health care services for subscribers.
(b) Determine reasonable minimum standards for participating health plans.
(c) Determine the time, manner, method, and procedures for withdrawing program approval from a plan or limiting subscriber enrollment in a participating health plan.
(d) Research and assess the needs of persons without adequate health coverage, and promote means of ensuring the availability of adequate health care services.
(e) Issue appropriate rules and regulations for matters it may be authorized or required to provide for by this part. In adopting these rules and regulations, the board shall be guided by the needs and welfare of persons unable to secure adequate health coverage for themselves and their dependents, and prevailing practices among private health plans.
(f) Implement strategies to ensure program integrity and to ensure that the program serves the target population of uninsurable individuals. Strategies may include, but are not limited to, ensuring that applicants have provided adequate evidence of their inability to obtain health care coverage and requiring subscribers to attest that they do not have health care coverage that meets their medical needs and is less costly than coverage available to them in the program.
(g) This section shall become operative on January 1, 2009.

SEC. 24.

 Section 12714.1 is added to the Insurance Code, to read:

12714.1.
 (a) The board shall appoint an eight-member panel to advise it regarding implementation of the fees established pursuant to Chapter 9 (commencing with Section 12739.5). Appointments to the panel shall be completed, and the panel shall be prepared to perform its duties, within 30 days of the operative date of this section.
(b) The membership of the panel shall be composed of all of the following persons:
(1) Four representatives of health care service plans and health insurers.
(2) Two representatives of medically uninsurable consumers.
(3) One physician and surgeon.
(4) One representative of the business community.
(c) The Director of the Department of Managed Health Care, or his or her designee, and the commissioner, or his or her designee, shall participate in the panel as nonvoting members.
(d) The panel members shall have demonstrated expertise in the provision of health-related services to medically uninsurable individuals.
(e) The initial term of the panel members shall be staggered, with four members being appointed for a two-year term and four members being appointed for a four-year term. Upon the expiration of the initial term, all panel members shall be appointed for a four-year term.
(f) The panel shall elect, from among its members, its chair who shall regularly report to the board, during the board’s public meetings, on behalf of the panel.
(g) The panel shall have all of the following powers and duties:
(1) To advise the board on all policies, regulations, and program operations that affect the fee described in Chapter 9 (commencing with Section 12739.5).
(2) To review the budget for the program and advise the board on appropriate fee amounts.
(3) To review program operations and make recommendations to improve the quality and cost-effectiveness of health care provided to subscribers in the program.
(4) To meet at least quarterly, unless deemed unnecessary by the chair.
(h) The panel shall provide written recommendations to the board. The board shall consider recommendations of the panel at its next meeting following submission of the recommendations and respond to the panel in writing when it rejects a written recommendation made by the panel.
(i) All members of the advisory panel shall serve without compensation. The representatives of medically uninsurable consumers and the business community and the physician and surgeon member shall be reimbursed for all necessary travel expenses associated with the activities of the panel.

SEC. 25.

 Section 12718 of the Insurance Code is repealed.
12718.

Benefits under this chapter or Chapter 5 (commencing with Section 12720) shall be subject to required subscriber copayments and deductibles as the board may authorize. Any authorized copayments shall not exceed 25 percent and any authorized deductible shall not exceed an annual household deductible amount of five hundred dollars ($500). However, health plans not utilizing a deductible may be authorized to charge an office visit copayment of up to twenty-five dollars ($25). If the board contracts with participating health plans pursuant to Chapter 5 (commencing with Section 12720), copayments or deductibles shall be authorized in a manner consistent with the basic method of operation of the participating health plans. The aggregate amount of deductible and copayments payable annually under this section shall not exceed two thousand five hundred dollars ($2,500) for an individual and four thousand dollars ($4,000) for a family.

SEC. 26.

 Section 12718 is added to the Insurance Code, to read:

12718.
 (a) Benefits under this chapter shall be determined by the board, in consultation with the advisory panel established pursuant to Section 12714.1, and shall be subject to required copayments and deductibles as the board may authorize. Benefits in the program shall provide comprehensive coverage, including lower subscriber cost sharing for primary and preventive health care services, and the medications necessary for the treatment and management of chronic health care conditions. Benefits, subscriber cost sharing, and out-of-pocket costs shall be appropriate for a program serving high-risk and medically uninsurable persons, as determined by the board. To the greatest extent possible, the board shall establish benefits that are compatible with comprehensive coverage products offered in the individual health insurance market, but in no event shall benefits for the program be less than the minimum benefits required to be offered by health plans licensed under the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code) plus coverage for prescription drugs. The board may offer more than one benefit design option with different subscriber cost sharing in the form of copayments, deductibles and annual out-of-pocket costs.
(b) Major risk medical coverage in the program shall meet all of the following requirements:
(1) Have no annual limits on total coverage.
(2) Have a limit on covered benefits over the lifetime of each subscriber of no less than one million dollars ($1,000,000).
(3) The aggregate amount of deductible and copayments payable annually under this section shall not exceed two thousand five hundred dollars ($2,500) for an individual and four thousand dollars ($4,000) for a family.

SEC. 27.

 Section 12723 of the Insurance Code is amended to read:

The participating health plans with which the program shall contract, if available, shall include:

(a)One or more statewide service benefit plans under which payment is made by a carrier under contracts with physicians, hospitals, or other providers of health services rendered to subscribers.

(b)One or more statewide indemnity benefit plans under which a carrier agrees to pay certain sums of money, not in excess of actual expenses incurred, for health services.

(c)Comprehensive group-practice prepayment plans which offer benefits, in whole or in substantial part, on a prepaid basis, with professional services thereunder provided by physicians or other providers of health services practicing as a group in a common center or centers. This group shall include physicians representing at least three major medical specialties who receive all or a substantial part of their professional income from the prepaid funds.

(d)Individual practice prepayment plans which offer health services in whole or in part on a prepaid basis, with professional services thereunder provided by individual physicians or other providers of health services who agree, under such conditions as may be prescribed by the board, to accept the payments provided by the plans as full payment for covered services rendered by them.

12723.
 (e)Cost containment and cost reduction incentive programs which involve If the subscriber as an active participant, along board contracts with the participating health plan and providers, in a joint effort toward containing and reducing plans or insurers to provide or administer major risk coverage, the cost board shall contract with either health insurers holding valid, outstanding certificates of providing medical and hospital authority from the commissioner, or health care services service plans licensed under the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code).

SEC. 28.

 Section 12725 of the Insurance Code is amended to read:

12725.
 (a) Each resident of the state meeting the eligibility criteria of this section and who is unable to secure adequate private health coverage is eligible to apply for major risk medical coverage through the program. For these purposes, “resident” includes a member of a federally recognized California Indian tribe.
(b) To be eligible for enrollment in the program, an applicant shall have meet at least one of the following criteria:
(1) Has been rejected for health care coverage by at least one private health plan. An applicant shall be deemed to have been rejected if the only private health coverage that the applicant could secure would do one of the following:

(1)

(A) Impose substantial waivers that the program determines would leave a subscriber without adequate coverage for medically necessary services.

(2)

(B) Afford limited coverage that the program determines would leave the subscriber without adequate coverage for medically necessary services.

(3)

(C) Afford coverage only at an excessive price, which the board determines is significantly above standard average individual coverage rates.
(2) Is eligible for, or enrolled in, guaranteed individual coverage pursuant to Section 300gg-41 of Title 42 of the United States Code on or after January 1, 2009.
(3) Has exhausted federal and state COBRA benefits under a group health care service plan contract or a group health insurance policy and is eligible for, or enrolled, in, conversion coverage pursuant to Section 1373.6 of the Health and Safety Code or Section 12682.1 on or after January 1, 2009.
(4) During the period of January 1, 2009, to December 31, 2009, inclusive, is an individual who was enrolled on or after July 1, 2008, in coverage that had been provided pursuant to Section 1373.62 of the Health and Safety Code or Section 10127.15, pursuant to the pilot project established by Chapter 794 of the Statutes of 2002, and the person is otherwise eligible for the program as determined by the board.
(c) Rejection for policies or certificates of specified disease or policies or certificates of hospital confinement indemnity, as described in Section 10198.61, shall not be deemed to be rejection for the purposes of eligibility for enrollment.
(d) The board may permit dependents of eligible subscribers to enroll in major risk medical coverage through the program if the board determines the enrollment can be carried out in an actuarially and administratively sound manner.
(e) Notwithstanding the provisions of this section, the board shall by regulation prescribe a period of time during which a resident is ineligible to apply for major risk medical coverage through the program if the resident either voluntarily disenrolls from, or was terminated for nonpayment of the premium from, a private health plan after enrolling in that private health plan pursuant to either Section 10127.15 or Section 1373.62 of the Health and Safety Code. On and after January 1, 2009, the board shall not apply the regulation it adopted pursuant to this subdivision.
(f) For the period commencing September 1, 2003, to December 31, 2007, inclusive, subscribers and their dependents receiving major risk coverage through the program may receive that coverage for no more than 36 consecutive months. Ninety days before a subscriber or dependent’s eligibility ceases pursuant to this subdivision, the board shall provide the subscriber and any dependents with written notice of the termination date and written information concerning the right to purchase a standard benefit plan from any health care service plan or health insurer participating in the individual insurance market pursuant to Section 10127.15 or Section 1373.62 of the Health and Safety Code. This subdivision shall become inoperative on December 31, 2007.
(g) (1) On or before September 1, 2008, the board shall notify all individuals who have been disenrolled pursuant to subdivision (f), by writing to them at their last known address that, whether or not they are currently enrolled in coverage pursuant to Section 1373.62 of the Health and Safety Code or Section 10127.15, they may be eligible to reenroll in the program through either the standard application process or through an abbreviated process developed by the board.
(2) The board shall also develop the notice and certification to be sent by all health care service plans and health insurers pursuant to subdivision (c) of Section 1373.622 of the Health and Safety Code and subdivision (c) of Section 10127.16, to all individuals enrolled in standard benefit plans. The notice and certification shall provide the language and form in which health care service plans and health insurers shall inform individuals enrolled in standard benefit plans about the expiration of coverage under Section 1373.62 of the Health and Safety Code and Section 10127.15, shall provide them with evidence of having been enrolled in standard benefit plans for purposes of reenrollment in the program, and shall describe the process for applying to reenroll in the program.
(h) Notwithstanding the provisions of this section, the board may by regulation prescribe a period of time during which an individual is ineligible to apply for major risk medical coverage through the program if the individual either voluntarily disenrolls from a participating health plan or was terminated from a participating health plan for nonpayment of the premium, unless the board determines that an individual applying for the program had good cause for disenrolling from a participating health plan and reapplying for coverage in the program.

SEC. 29.

 Section 12726 of the Insurance Code is amended to read:

12726.
 The board may permit the exclusion of coverage or benefits for charges or expenses incurred by a subscriber during the first six months of enrollment in the program for any condition for which, during the six months immediately preceding enrollment in the program medical advice, diagnosis, care, or treatment was recommended or received as to the condition during that period.
However, the exclusion from coverage of this section shall be waived to the extent to which the subscriber was covered under any creditable coverage, as defined in Section 10900, that was terminated, provided the subscriber has applied for enrollment in the program not later than 63 days following termination of the prior coverage, or within 180 days of termination of coverage if the subscriber lost his or her previous creditable coverage because the subscriber’s employment ended, the availability of health coverage offered through employment or sponsored by an employer terminated, or an employer’s contribution toward health coverage terminated. The exclusion from coverage of this section shall also be waived as to any condition of a subscriber previously receiving coverage under a plan of another state similar to the program established by this part if the subscriber was eligible for benefits under that other-state coverage for the condition. The board may establish alternative mechanisms applicable to enrollment in participating health plans described in subdivision (c) or (d) of Section 12723 that do not utilize a preexisting condition provision. These mechanisms may include, but are not limited to, a postenrollment waiting period.
This section shall remain in effect only until January 1, 2009, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2009, deletes or extends that date.

SEC. 30.

 Section 12726 is added to the Insurance Code, to read:

12726.
 (a) The board shall permit the exclusion of coverage or benefits for charges or expenses incurred by a subscriber during the first six months of enrollment in the program for any condition for which, during the six months immediately preceding enrollment in the program medical advice, diagnosis, care, or treatment was recommended or received as to the condition during that period.
(b) The exclusion from coverage of this section shall be waived to the extent to which the subscriber was covered under any creditable coverage, as defined in Section 10900, or under the federal Health Insurance Portability and Accountability Act of 1996, or under other creditable coverage as defined by the board that was terminated, if the subscriber has applied for enrollment in the program not later than 63 days following termination of the prior coverage, or within 180 days of termination of coverage if the subscriber lost his or her previous creditable coverage because the subscriber’s employment ended, the availability of health coverage offered through employment or sponsored by an employer terminated, or an employer’s contribution toward health coverage terminated. The exclusion from coverage of this section shall also be waived as to any condition of a subscriber previously receiving coverage under a plan of another state similar to the program established by this part if the subscriber was eligible for benefits under that other-state coverage for the condition.
(c) The board shall allow a participating health plan that does not utilize a preexisting condition provision to impose a waiting or affiliation period, not to exceed 90 days, before the coverage it issued shall become effective. During the waiting or affiliation period a subscriber shall not be required to make the contribution for program coverage.
(d) This section shall become operative on January 1, 2009.

SEC. 31.

 Section 12737 of the Insurance Code is amended to read:

12737.
 (a) The board shall establish program contribution amounts for each category of risk for each participating health plan. The program contribution amounts shall be based on the average amount of subsidy funds required for the program as a whole. To determine the average amount of subsidy funds required, the board shall calculate a loss ratio, including all medical costs, administration fees, and risk payments, for the program in the prior calendar year. The loss ratio shall be calculated using 125 percent of the standard average individual rates for comparable coverage as the denominator, and all medical costs, administration fees, and risk payments as the numerator. The average amount of subsidy funds required is calculated by subtracting 100 percent from the program loss ratio. For purposes of calculating the program loss ratio, no participating health plan’s loss ratio shall be less than 100 percent and participating health plans with fewer than 1,000 program members shall be excluded from the calculation coverage provided by each participating health plan.

Subscriber contributions shall be established to encourage members to select those health plans requiring subsidy funds at or below the program average subsidy. Subscriber contribution amounts shall be established so that no subscriber receives a subsidy greater than the program average subsidy, except that:

(1)In all areas of the state, at least one plan shall be available to program participants at an average subscriber contribution of 125 percent of the standard average individual rates for comparable coverage.

(2)No subscriber contribution shall be increased by more than 10 percent above 125 percent of the standard average individual rates for comparable coverage.

(3)Subscriber contributions for participating health plans joining the program after January 1, 1997, shall be established at 125 percent of the standard average individual rates for comparable coverage for the first two benefit years the plan participates in the program.

(b)The program shall pay program contribution amounts to participating health plans from the Major Risk Medical Insurance Fund.

(b) For the period January 1, 2008, to December 31, 2008, inclusive, subscriber contributions shall be established at not more than 125 percent of the standard average individual rate for comparable coverage, as determined by the board. On and after January 1, 2009, subscriber contributions shall be established at 120 percent of the standard average individual rates for comparable coverage, as determined by the board, for a subscriber with a family income above 300 percent of the federal poverty level and at 110 percent of the standard average individual rates for comparable coverage, as determined by the board, for a subscriber with a family income at or below 300 percent of the federal poverty level. The board shall not include the portion of the standard average individual rate attributable to the difference between coverage with a seventy-five thousand dollar ($75,000) annual benefit maximum and coverage with no annual maximum benefit in its determination of the standard average individual rates for comparable coverage.

SEC. 32.

 Section 12738 is added to the Insurance Code, to read:

12738.
 (a) On or before July 1, 2011, the board shall report to the Legislature on the implementation of this chapter, including the number and type of persons enrolled in the program, program costs and revenues, average per capita costs for program subscribers, and annual increases in the costs of coverage provided to program subscribers as a reflection of rate changes in the individual market.
(b) The board shall also include in the report an implementation and transition plan for an alternative approach to ensuring quality coverage for high risk, potentially high cost individuals, other than a segregated high risk pool, that may include a reinsurance mechanism or a risk adjustment mechanism, or both. The transition plan shall outline the steps the board will need to take in order to replace the program with an alternative mechanism by January 1, 2012. The report shall include anticipated costs and expected per covered life fees for health plans and insurers who have elected to pay the fee pursuant to Section 1376.63 of the Health and Safety Code or Section 10127.19 of this code to support the costs of the alternative mechanism.

SEC. 33.

 Section 12739 of the Insurance Code is amended to read:

12739.
 (a) There is hereby created in the State Treasury a special fund known as the Major Risk Medical Insurance Fund that is, notwithstanding Section 13340 of the Government Code, continuously appropriated to the board for the purposes specified in Sections 10127.15 and 12739.1 and Chapter 9 (commencing with Section 12739.5) and Section 1373.62 of the Health and Safety Code.
(b) After June 30, 1991 January 1, 2008, the following amounts shall be deposited annually in the Major Risk Medical Insurance Fund:
(1) Eighteen million dollars ($18,000,000) Twenty-four million three hundred ninety-three thousand dollars ($24,393,000) from the Hospital Services Account in the Cigarette and Tobacco Products Surtax Fund.
(2) (A) Eleven million dollars ($11,000,000) Fourteen million six hundred seven thousand dollars ($14,607,000) from the Physician Services Account in the Cigarette and Tobacco Products Surtax Fund.
(B) Notwithstanding subparagraph (A), for the 2007–08 fiscal year only, the Controller shall reduce the amount deposited into the Major Risk Medical Insurance Fund from the Physician Services Account in the Cigarette and Tobacco Products Surtax Fund to one million dollars ($1,000,000).
(3) One million dollars ($1,000,000) from the Unallocated Account in the Cigarette and Tobacco Products Surtax Fund.
(4) Funds received as a result of the collection of the fees imposed pursuant to Chapter 9 (commencing with Section 12739.5).
(c) Notwithstanding any other provision of law, any money in the fund that is attributable to monetary penalties imposed pursuant to this part shall not be continuously appropriated and shall be available for expenditure as provided in this chapter only upon appropriation by the Legislature.

SEC. 34.

 Chapter 9 (commencing with Section 12739.5) is added to Part 6.5 of Division 2 of the Insurance Code, to read:
CHAPTER  9. Contribution Requirements

12739.5.
 No later than February 1 of each year, commencing February 1, 2008, each health care service plan subject to Section 1373.63 of the Health and Safety Code and each health insurer subject to Section 10127.19 shall notify the board of its election either to guarantee issuance and renewal to all individual applicants regardless of health status and in strict compliance with the rating requirements and limitations of Section 1373.63 of the Health and Safety Code or Section 10127.19, as applicable, or to be a payer. The board shall notify the Director of Managed Health Care and the commissioner of the entities that have elected to be a payer and the amount of the fee each entity is required to pay.

12739.6.
 (a) The board shall establish the anticipated program costs and the level of fees to be paid by health plans and health insurers who have elected to be payers pursuant to Section 1373.63 of the Health and Safety Code and Section 10127.19 on a per covered life per month basis. Effective January 1, 2009, each health plan and health insurer shall pay the fee determined by the board based on their relative number of covered lives.
(b) The board shall complete the following actions pursuant to subdivision (a):
(1) Estimate the anticipated cost of operating the program during the next state fiscal year, including, but not limited to, the cost of providing all covered benefits to all prospective eligible subscribers; administrative costs, including the board’s staff and overhead for the program; and a reasonable sum to establish and maintain a prudent reserve.
(2) Estimate the total revenue anticipated to be available for program operation during the next state fiscal year. The estimate shall include anticipated state appropriations, subscriber contributions, and revenue from all other sources, but shall exclude revenue anticipated to be received from payers pursuant to this chapter.
(3) Subtract the estimate described in paragraph (2) from the estimate described in paragraph (1). The difference between the two estimates shall be the total aggregate amount of program costs to be contributed by payers.

12739.7.
 (a) On or before March 1 of each year, beginning in 2008, each health care service plan subject to Section 1373.63 of the Health and Safety Code and each health insurer subject to Section 10127.19 shall report to the board the following information:
(1) The total number of covered lives as of the preceding December 31, as determined by the board.
(A) For purposes of this chapter, “covered lives” include individuals who receive health care coverage provided, indemnified, or administered by a health care service plan or health insurer subject to this chapter and individuals who receive health care services pursuant to an agreement by which the health care service plan or health insurer rents or leases a contracted network of providers. Each named enrollee, insured, or covered person, including primary subscribers or policyholders, covered spouses, domestic partners, and each covered dependent shall count separately as a covered life. Covered lives shall not include persons covered under the Medi-Cal program, Medicare, the Healthy Families Program (Part 6.2 (commencing with Section 12693)), this program, the Access for Infants and Mothers Program (Part 6.3 (commencing with Section 12695)), the California Cooperative Health Insurance Purchasing Program, the California Children and Families Act of 1998 (Division 108 (commencing with Section 130100) of the Health and Safety Code), accident-only, specified disease, long-term care, CHAMPUS supplement, hospital indemnity, Medicare supplement, dental-only, or vision-only insurance policies or specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis or short-term limited duration health insurance, or by a local, nonprofit program or county serving children whose annual household income is below 400 percent of the federal poverty level who are under the age of 18 years and who are not eligible for the Medi-Cal program, the Access for Infants and Mothers Program, or the Healthy Families Program.
(B) For purposes of this chapter, covered lives shall include individual coverage, conversion coverage, guaranteed issue coverage pursuant to the federal Health Insurance Portability and Accountability Act of 1996, small group coverage, other group coverage, government employee coverage, other government coverage, association coverage, services provided by an administrator of health benefits coverage, and other coverage. For purposes of this section, “administrator of health benefits coverage” means a licensed health insurer or health care service plan, or any person or entity affiliated with, or a subsidiary of, a health insurer or health care service plan, that collects any charge or premium from, or who adjusts or settles claims on behalf of, residents of the state or who leases contracted provider networks to purchasers.
(2) Other related information as the board, in consultation with the advisory panel established by Section 12714.1, may require to implement and administer this chapter. The board may specify form, format, and other requirements for this report, in consultation with the advisory panel established pursuant to Section 12714.1. The absence of these specifications by the board does not relieve a health care service plan or health insurer from reporting the information in a timely fashion.
(b) The board may determine, at its discretion, an amount of program costs to be covered by a health care service plan or health insurer subject to this section that fails to report to the board by March 1 of any year, the number of covered lives as required by this section.

12739.8.
 (a) The board shall calculate the share of program costs to be covered each year, beginning in 2008, for the year 2009, by a health care service plan and a health insurer subject to this chapter on a per covered life basis, based on its share of the health care coverage market, but in no event shall a health care service plan or a health insurer cover program costs in excess of one dollar and fifty cents ($1.50) per covered life per month, unless a higher amount is approved by the Legislature.
(b) The board shall calculate the share of program costs required by each health care service plan and health insurer by multiplying the estimate, described in paragraph (3) of subdivision (b) of Section 12739.6 by a fraction, the numerator of which shall be the number of covered lives reported by March 1 of that year by the plan or insurer and the denominator of which shall be the total number of covered lives reported by March 1 of that year by all plans and insurers. The product shall be the market share for the plan or insurer.
(c) By June 1 of each year, the board shall produce a schedule showing the share of the total program costs for each plan and insurer based on its market share as determined under subdivision (b). Each plan and insurer shall have the affirmative duty of obtaining that schedule from the board no later than June 10 of each year, beginning in 2008.

12739.9.
 (a) A health care service plan and a health insurer shall either offer all of the plan’s or insurer’s health coverage products to all individuals at standard average rates as required in Section 1373.63 of the Health and Safety Code or Section 10127.19 or be a payer, as elected pursuant to Section 12739.5.
(b) A health care service plan that is a payer and a health insurer that is a payer shall pay its share of program costs calculated under Section 12739.8 prior to January 1 of each year, beginning in 2009. A health care service plan shall make its payment to the Director of Managed Health Care, and a health insurer shall make its payment to the commissioner.

12739.11.
 If the board determines that the costs for the operation of the program exceed or are likely to exceed the estimate it made pursuant to Section 12739.6, the board, in consultation with the advisory panel established by Section 12714.1, may adjust the amount of program costs required from a payer by multiplying the amount of the insufficiency by the fraction described in Section 12739.8. The numerator and denominator of the fraction shall be based on information submitted by the plan or insurer pursuant to Section 12739.7 for the preceding March 1.

12739.12.
 Each payer’s share of any fee imposed by the board pursuant to this section shall constitute a fee payable in accordance with Section 1356.2 of the Health and Safety Code, for payers licensed by the Department of Managed Health Care, or Section 1827.86, for payers having a certificate of authority or license issued by the commissioner.

12739.13.
 If revenues collected pursuant to this chapter exceed the amount actually required for the operation of the program for any fiscal year, the excess shall be retained in the fund and shall be used by the board to reduce the share of program costs paid by health care service plans and health insurers in the subsequent fiscal year.

SEC. 35.SEC. 35.Until January 1, 2010, the adoption and readoption of any rules and regulations issued by the Managed Risk Medical Insurance Board, the Department of Managed Health Care, or the Department of Insurance to implement this act shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the Managed Risk Medical Insurance Board, the Department of Managed Health Care, and the Department of Insurance are hereby exempted from the requirements to describe specific facts showing the need for immediate action and from review by the Office of Administrative Law.SEC. 35.

SEC. 36.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.