California Small Group Law AB1672

Type of law: State.

Who's affected: Small employers in California, defined as businesses with 2 to 50 employees. (Technically the law applies not to employers themselves, but to the insurance carriers that sell small group health coverage.)

What it does: If you are a small employer in California with 2 to 50 employees, an insurer cannot deny you group medical coverage based on the health status of your employees, and premiums can only be slightly higher than average if employees have health problems. The law's key provisions are:

• Guaranteed issue and renewal of small group policies,
• Rules on small group rates,
• Limitations on pre-existing condition exclusions, and
• Requirement that plans and brokers provide fair information about all products.

The requirements apply whenever an employer pays directly for any portion, however small, of an employee's coverage.

Guaranteed Issue and Renewal

Every small employer has the right to buy any health insurance "product" sold by a health plan to small employers. Think of a "product" as a package containing a list of benefits (what's covered) and a type of service delivery (for example, HMO or PPO). This is what's known as "guaranteed issue."

"Guaranteed renewal" means that a health plan may not cancel a small group's coverage just because one or more enrollees got very sick and generated high health plan costs. A plan may cancel coverage for fraud or failure to pay premiums only.

Rating Protections

No law sets rates, nor requires rates to be approved by state regulators. California law does limit a health plan's ability to charge low rates to groups whose members are all in good health, and high rates to groups that include sicker individuals. These rating protections operate by basing premium calculations on a "standard" rate that every health plan develops according to certain allowable factors. Plans must set actual premiums no more than 10 percent above or below the standard rate. This creates a "rate band" that allows the health plan to adjust employer rates for risk factors such as previous use of health services or industry type.

The law does not restrict health plans' average annual premium increases, but does restrict group premium increases due to changes in health status or other risk factors that would be above and beyond the overall average premium increase. Health plans may not increase the Risk Adjustment Factor (RAF) more than 0.10 (10 percent) in a single year. For example, a group that was assigned a RAF of 0.9 in the first year could receive a RAF no higher than 1.0 in the second year.

Give me a call today so that we can discuss the details of your situation and send you a customized quote. You can also email us at johnbaskett@sbcglobal.net