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<ns0:Id>20250SB__103798AMD</ns0:Id>
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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-11</ns0:ActionDate>
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<ns0:Action>
<ns0:ActionText>AMENDED_SENATE</ns0:ActionText>
<ns0:ActionDate>2026-04-07</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:MeasureNum>1037</ns0:MeasureNum>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Senator Weber Pierson</ns0:AuthorText>
<ns0:Authors>
<ns0:Legislator>
<ns0:Contribution>LEAD_AUTHOR</ns0:Contribution>
<ns0:House>SENATE</ns0:House>
<ns0:Name>Weber Pierson</ns0:Name>
</ns0:Legislator>
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<ns0:Title> An act to amend Sections 1385.01 and 1385.035 of the Health and Safety Code, and to amend Sections 10181 and 10181.35 of the Insurance Code, relating to health care coverage. </ns0:Title>
<ns0:RelatingClause>health care coverage</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Health care coverage: rate review. </ns0:Subject>
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<ns0:DigestText>
<html:p>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 violation of the act by a health care service plan a misdemeanor. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law defines “unreasonable rate increase,” for these purposes, to have the same meaning as in the federal Patient Protection and Affordable Care Act, which is that an unreasonable rate increase exists when the federal Centers for Medicare and Medicaid Services makes a determination that a rate increase is excessive, unjustified, or unfairly discriminatory, among other things.</html:p>
<html:p>This bill would
instead define “unreasonable rate increase,” for the above-described purposes, to mean a rate increase that the Director of the Department of Managed Health Care or the Insurance Commissioner, as applicable, determines is excessive, unjustified, unfairly discriminatory, or otherwise unreasonable.</html:p>
<html:p>Existing law requires a health care service plan or health insurer to submit rates to their regulating entity for review and to demonstrate the impact of any changes in the rate of growth of health care costs resulting from health care cost targets.</html:p>
<html:p>This bill would instead require a health care service plan or health insurer to demonstrate the impact of health care cost targets on rate development, including medical
trends, medical inflation, and medical administrative costs. If a plan or insurer asserts that aging, high-cost drugs, or other cost drivers explain a rate increase, the bill would require the plan or insurer to explain how it reconciles this information with analysis published by the Office of Health Care Affordability. Because a willful violation of these provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program.</html:p>
<html:p>Existing law requires the director or the commissioner, as applicable, in determining whether a rate is unreasonable or not justified for purposes of the above-described review, to consider the impact on changes in health care costs as a result of the health care cost targets described above.</html:p>
<html:p>This bill
would require the director or the commissioner, as applicable, to additionally consider any excessive tangible net equity of the plan or the insurer in the above-described determination. The bill would require the Department of Managed Health Care and the Department of Insurance, in collaboration with the Office of Health Care Affordability, to each conduct an enhanced rate review to determine if health care premiums are affordable for individual and group purchasers.
The bill would require the review to include the annual change in premiums and cost sharing for the prior 5 years, including deductibles, copayments, coinsurance, and any other cost sharing that impact actuarial value.</html:p>
<html:p>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.</html:p>
<html:p>This bill would provide that no reimbursement is required by this act for a specified reason.</html:p>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
<ns0:BillSection id="id_BC432A52-FFFA-4F30-8CBA-D4281D4B1CC9">
<ns0:Num>SECTION 1.</ns0:Num>
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Section 1385.01 of the
<ns0:DocName>Health and Safety Code</ns0:DocName>
is amended to read:
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<ns0:Num>1385.01.</ns0:Num>
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<html:p>For purposes of this article, the following definitions shall apply:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
“Blended” means a rating method that combines community rating and experience rating methods.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
“Community rated” means a rating method in the large group market that bases rates on the expected costs to a health care service plan of providing covered benefits to all enrollees, including both low-risk and high-risk enrollees. Premiums may vary according to the factors in this article.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
“Experience rated” means a rating method in the large group market under which a health care service plan calculates the premiums for a large group in whole or blended
based on the group’s prior experience.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
For individual and small group market products, “geographic region” has the same meaning as in Sections 1357.512 and 1399.855.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
For large group market products, “geographic region” means one of the following areas composed of the regions defined in Sections 1357.512 and 1399.855:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
An area composed of regions 2, 4, 5, 6, 7, and 8, which consist of the Counties of Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano, and Sonoma and the City and County of San Francisco.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
An area composed of regions 1 and 3, which consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Placer,
Plumas, Sacramento, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yolo, and Yuba.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
An area composed of regions 9 and 12, which consist of the Counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
An area composed of regions 10, 11, and 14, which consist of the Counties of Fresno, Kern, Kings, Madera, Mariposa, Merced, San Joaquin, Stanislaus, and Tulare.
</html:p>
<html:p>
(E)
<html:span class="EnSpace"/>
An area composed of regions 13 and 17, which consist of the Counties of Imperial, Inyo, Mono, Riverside, and San Bernardino.
</html:p>
<html:p>
(F)
<html:span class="EnSpace"/>
An area composed of regions 15 and 16, which consist of the County of Los Angeles.
</html:p>
<html:p>
(G)
<html:span class="EnSpace"/>
An area composed of regions 18 and 19, which consist of the
Counties of Orange and San Diego.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
“Large group health care service plan contract” means a group health care service plan contract other than a contract issued to a small employer, as defined in Section 1357, 1357.500, or 1357.600.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
“Small group health care service plan contract” means a group health care service plan contract issued to a small employer, as defined in Section 1357, 1357.500, or 1357.600.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
“PPACA” means Section 2794 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal Patient Protection and Affordable Care Act (Public Law (111-148)), and any subsequent rules, regulations, or guidance issued under that section.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
“Unreasonable rate increase”
means a rate increase that the director determines is any of the following:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
Excessive.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Unjustified.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
Unfairly discriminatory.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
Otherwise unreasonable.
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<ns0:Num>SEC. 2.</ns0:Num>
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Section 1385.035 of the
<ns0:DocName>Health and Safety Code</ns0:DocName>
is amended to read:
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<ns0:Num>1385.035.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
It is the intent of the Legislature in enacting this section to ensure that enrollees and subscribers benefit from reductions in the rate of growth in health care costs as a result of the establishment of the Office of Health Care Affordability.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
In submitting rates for review consistent with this article, a health care service plan shall demonstrate the impact of cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division
107 on rate development, including medical trends, medical inflation, and medical administrative costs. If a plan asserts that aging, high-cost drugs, or other cost drivers explain a rate increase in part or in whole, the plan shall explain how it reconciles this information with analysis published by the Office of Health Care Affordability.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
In determining whether a rate is unreasonable or not justified, the director shall consider any excessive tangible net equity of the plan and the impact on changes in health care costs as a result of the health care cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The department, in
collaboration with the Office of Health Care Affordability, shall conduct an enhanced rate review to determine if health care premiums are affordable for individual and group purchasers. The review shall include the annual change in premiums and cost sharing for the prior five years, including, but not limited to, deductibles, copayments, coinsurance, and any other cost sharing that impact actuarial value.
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<ns0:Num>SEC. 3.</ns0:Num>
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Section 10181 of the
<ns0:DocName>Insurance Code</ns0:DocName>
is amended to read:
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<ns0:LawSection id="id_41975EAE-30B3-48A5-8644-DCB1D90D4E8D">
<ns0:Num>10181.</ns0:Num>
<ns0:LawSectionVersion id="id_75746CE0-76D8-45A6-AE60-A4D2621A9B2C">
<ns0:Content>
<html:p>For purposes of this article, the following definitions shall apply:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
“Blended” means a rating method that combines community rating and experience rating methods.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
“Community rated” means a rating method in the large group market that bases rates on the expected costs to a health insurer of providing covered benefits to all insureds, including both low-risk and high-risk insureds. Premiums may vary according to the factors in this article.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
“Experience rated” means a rating method in the large group market under which a health insurer calculates the premiums for a large group in whole or blended based on the group’s
prior experience.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
For individual and small group market products, “geographic region” has the same meaning as in Sections 10753.14 and 10965.9.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
For large group market products, “geographic region” means one of the following areas, composed of the regions defined in Sections 10753.14 and 10965.9:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
An area composed of regions 2, 4, 5, 6, 7, and 8, which consist of the Counties of Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano, and Sonoma and the City and County of San Francisco.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
An area composed of regions 1 and 3, which consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Placer, Plumas, Sacramento,
Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yolo, and Yuba.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
An area composed of regions 9 and 12, which consist of the Counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
An area composed of regions 10, 11, and 14, which consist of the Counties of Fresno, Kern, Kings, Madera, Mariposa, Merced, San Joaquin, Stanislaus, and Tulare.
</html:p>
<html:p>
(E)
<html:span class="EnSpace"/>
An area composed of regions 13 and 17, which consist of the Counties of Imperial, Inyo, Mono, Riverside, and San Bernardino.
</html:p>
<html:p>
(F)
<html:span class="EnSpace"/>
An area composed of regions 15 and 16, which consist of the County of Los Angeles.
</html:p>
<html:p>
(G)
<html:span class="EnSpace"/>
An area composed of regions 18 and 19, which consist of the Counties of Orange and
San Diego.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
“Large group health insurance policy” means a group health insurance policy other than a policy issued to a small employer, as defined in Section 10700, 10753, or 10755.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
“Small group health insurance policy” means a group health insurance policy issued to a small employer, as defined in Section 10700, 10753, or 10755.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
“PPACA” means Section 2794 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal Patient Protection and Affordable Care Act (Public Law 111-148), and any subsequent rules, regulations, or guidance issued pursuant to that law.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
“Unreasonable rate increase”
means a rate increase that the commissioner determines is any of the following:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
Excessive.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Unjustified.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
Unfairly discriminatory.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
Otherwise unreasonable.
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<ns0:Num>SEC. 4.</ns0:Num>
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Section 10181.35 of the
<ns0:DocName>Insurance Code</ns0:DocName>
is amended to read:
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<ns0:Num>10181.35.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
It is the intent of the Legislature in enacting this section to ensure that insureds benefit from reductions in the rate of growth in health care costs as a result of the establishment of the Office of Health Care Affordability.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
In submitting rates for review consistent with this article, a health insurer shall demonstrate the impact of the health care cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107 of the Health and Safety
Code on rate development, including medical trends, medical inflation, and medical administrative costs. If an insurer asserts that aging, high-cost drugs, or other cost drivers explain a rate increase in part or in whole, the insurer shall explain how it reconciles this information with analysis published by the Office of Health Care Affordability.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
In determining whether a rate is unreasonable or not justified, the commissioner shall consider any excessive tangible net equity of the insurer and the impact on changes in health care costs as a result of the health care cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107 of the Health and Safety Code.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The department, in collaboration with the Office of Health Care Affordability, shall conduct an enhanced rate review to determine if health care premiums are affordable for individual and group purchasers. The review shall include the annual change in premiums and cost sharing for the prior five years, including, but not limited to, deductibles, copayments, coinsurance, and any other cost sharing that impact actuarial value.
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<ns0:Num>SEC. 5.</ns0:Num>
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No reimbursement is required by this act pursuant to Section 6 of Article XIII
<html:span class="ThinSpace"/>
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
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B of the California Constitution.
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