DMHC Approves Aetna’s acquisition of Humana

The California Department of Managed Health Care (DHMC) approved Aetna’s acquisition of Humana under these conditions:

  • Aetna will keep premium rate increases to a minimum for HMO small group.
  • The DMHC will have increased oversight on rates.
  • Aetna will keep key functions and operations in the state, such as medical decision making and
  • enrollee grievance and appeals systems.
  • Aetna will improve quality of care measured through rating and oversight programs under the National Committee for Quality Assurance and Office of the Patient Advocate.

Over the next three years, Aetna will make several community investments to educate at-risk populations on their health care rights, increase access to care for low-income and underserved communities, and improve California’s health care infrastructure:

  • $6 million to support consumer assistance programs to help seniors and people with disabilities understand their health care rights.
  • $3 million to provide dental services in low-income and/or underserved communities and scholarships for dentists to be trained to serve young children (ages 0-3).
  • $23 million to strengthen and support the health care industry in the economically distressed community of Fresno through the expansion of a service center.
  • $1 million to expand telehealth services to increase access to mental health care and reduce unnecessary emergency room visits.
  • $16.5 million in California’s health care infrastructure to support accountable care organizations and pay for performance programs.

Insurance Regulation Shifting Toward Managed Care Agency


by David Gorn
The regulation of health insurance in California is shifting dramatically toward the Department of Managed Health Care, whose share of the commercial market has mushroomed in recent years. The change has come at the expense of the other agency in the state’s unusual bifurcated system, the California Department of Insurance, whose authority over commercial health plans plummeted from 20% of the market to about 12% between 2012 and 2014 — the most recent data available.

For a variety of reasons, the shrinking of the insurance department’s responsibilities is likely to continue, according to Katherine Wilson, CEO of Wilson Analytics, a health care consulting firm based in San Francisco. “It’s a huge shift, particularly in the individual market,” Wilson said. “And the change in the small-group market is huge too, just not as big.” In 2012, the insurance department regulated 71% of the individual market; by the end of 2014, that figure had plunged to just 18%. California is the only state in the U.S. with dual health insurance regulators.

Critics of the state’s divided approach note that it dilutes regulatory power by giving the insurance companies a wedge between the two agencies and creating needless inefficiencies in health care and how it’s paid for become increasingly complex.

“This dual structure contributes to consumer confusion, government and insurance carrier administrative burdens, and difficulty in monitoring what is being bought and sold in the insurance marketplace,” according to a 2011 paper by the Kelch Policy Group, published by the California Health Care Foundation. It also complicates the taxation of insurance companies: taxes on health plans regulated by the managed care agency are lower in many cases than they’d be if the same health plans were governed by the insurance department — an issue that is wending its way through state courts.

The Department of Insurance, led by Commissioner Dave Jones, has authority over old-fashioned indemnity plans and some PPOs. The managed care agency traditionally regulates HMOs, but recently it has picked up some types of PPOs. That has blurred the regulatory line between the two agencies. Perhaps more important, it has allowed some insurance companies the flexibility to essentially choose their regulator in many cases. That is a contributing factor in the shift of health plan supervision away from the insurance department.

Health insurers have said that consolidating policies under DMHC’s jurisdiction is more about achieving operational efficiencies and that the regulatory requirements are just as rigorous as insurance department rules.

But it’s also the case that some insurers feel uncomfortable with Jones, who is an elected politician with ambitions for higher office and does not shy away from public confrontation with the industry -– though as the data show, his influence over insurance companies is contracting.

Shelley Rouillard, appointed by Gov. Jerry Brown, has been director of the managed-care agency since December 2013. She has pursued several high-profile enforcement cases against health plans, including the failure to provide adequate mental-health treatment and giving patients inaccurate provider directories.

Neither agency, however, has the power to stop insurers from raising premiums, no matter how large the increases. Legislative efforts have been made to change the regulatory structure. Last session, for example, Assembly member Kevin McCarty introduced a bill that would have put all PPO insurance products under purview of the Department of Insurance. That proposal went nowhere, but it is a two-year bill so it could return during the legislative session. More likely, the Department of Managed Health Care will continue to assume a growing regulatory role, Wilson said. Over the years, there have been calls to end California’s bifurcated health insurance regulation, but if the trend continues it may resolve itself, she said. “It would be sort of a de facto single regulator.”

DMHC’s Year in Review

Shelley Rouillard, director of  the California Department of Managed Health Care (DMHC) provides a year in review. The following is a summary of her comments:

Merger Mania: This past year, we saw a wave of potential mergers and consolidations in the health care marketplace. In October, the DMHC approved Blue Shield’s acquisition of Care1st Health Plan. The DMHC’s approval included a series of commitments by Blue Shield to improve access and health care quality. Blue Shield also agreed to make investments to strengthen California’s health care delivery system. This includes $50 million toward a provider directory database project and an encounter data project, and $10 million for consumer assistance programs. Given the public interest in these mergers, the DMHC is committed to holding a public meeting on each significant merger even if it is not required. The Department held a public meeting on the acquisition of Health Net of California by Centene on December 7 and on the acquisition of Humana by Aetna on January 4. A public meeting will also be scheduled on the acquisition of Cigna by Anthem. For more information on these public meetings sign up for the DMHC list serve at

Alameda Alliance for Health Conservatorship: The DMHC ended its conservatorship of the Alameda Alliance for Health after Alameda met milestones outlined in a corrective action plan including launching a claims-processing system, meeting financial solvency requirements, and clearing a backlog of claims . The DMHC will continue to monitor the plan closely.

Premium Rate Review: Since January 2011, the DMHC has saved Californians more than $100 million in health care premiums through its premium rate review program. Under state law, proposed rate increases for individual or small group health plans must be filed with the DMHC. Department actuaries review all proposed rate increases. The DMHC does not have the authority to approve or deny rate increases. However, the department’s review often results in a reduction in the proposed rate increase. The DMHC found two premium rate increases unreasonable in 2015. The unreasonable findings were for increases in Aetna’s small group products.

Federal Mental Health Parity Compliance: In 2015, the DMHC completed the first of a two-phase approach to ensure compliance with the federal Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (MHPAEA). In phase one, health plans were required to submit compliance documents to the DMHC. The DMHC worked with plans to correct deficiencies. During phase one, the DMHC looked at three key parity indicators for compliance:
1. Cost-sharing charged for mental health and substance use disorder services.
2. Quantitative treatment limits, such as limits on the number of days or visits inpatient or outpatient services,
3. Non-quantitative treatment limits, such as authorization rules, drug formulary design, and provider qualifications.

The second phase involves on-site plan surveys, which are scheduled to begin in the spring.

Provider Directory Enforcement Actions: In November, the DMHC fined Blue Shield $350,000 and Anthem Blue Cross $250,000 for deficiencies provider directories. Blue Shield has already reimbursed more than $38 million to enrollees who incurred out-of-network costs.  Blue Shield and Anthem will report to the Department the final number of enrollees reimbursed and the total amount reimbursed. The DMHC has initiated follow-up surveys to assess the plans’ efforts to correct the deficiencies.

Help Center: The DMHC has helped more than 1.6 million Californians resolve health plan problems through the Help Center. The Help Center assisted more than 125,000 consumers in 2015, an increase of about 20% from 2014. Help Center patient rights advocates, health care professionals, and consumer service representatives help consumers in 148 different languages.

DMHC Approves Blue Shield’s Acquisition of Care 1st

The California Department of Managed Health Care (DMHC) approved Blue Shield of California’s acquisition of Care1st Health Plan. Blue Shield agreed to the following:

  • Invest $50 million to strengthen the Medi-Cal delivery system through programs that make finding information simpler for consumers and the public. These projects will help streamline information for plans, providers, consumers and the public.
  • Propose an industry approach to standardize encounter data submissions. Invite all California health plans to participate by December 15, 2016. The project will initially focus on Medi-Cal plans and providers.
  • Propose an approach to develop a statewide centralized provider directory. It would have a single portal for consumers to access information, for providers to access and update data, and for health plans to meet legal obligations regarding provider directories. Blue Shield will invite all California health plans to participate, including Medi-Cal managed care plans.
  • Give $140 million to the Blue Shield Foundation or other charitable organizations approved by the DMHC.
  • Give $10 million to local consumer assistance programs.
  • Improve its quality of care performance as measured by the Right Care Initiative and the Office of Patient Advocate Quality Report Card. Likewise, Care 1st agrees to improve its quality of care as measured by the Medi-Cal Managed Care Health Care Options Consumer Guide.
  • Improve the Care 1st network of contracted specialty providers and Care 1st’s enrollees’ access to specialty care. Blue Shield will also help Care 1st develop and maintain the Care 1st Medi-Cal network.

Care 1st agrees to ensure that Medi-Cal encounter data is submitted accurately and in a timely basis. Blue Shield and Care 1st agree to promote health literacy education and will file a plan with the Department specifying the programs for the Department to evaluate and approve prior to the plans initiating their participation.

Blue Shield announced in January 2015 that it had reached a $1.2 billion agreement to purchase Care 1st, a privately-held, for-profit health plan operating mostly Medi-Cal and Medicare business in Los Angeles and San Diego counties. Following the closing, Blue Shield will convert Care1st to a non-profit corporation. “This order brings Blue Shield into the Medi-Cal program and requires the plan to improve quality and access for Medi-Cal beneficiaries,” said DMHC director Shelley Rouillard.

“The Department’s approval includes commitments by Blue Shield that will improve the state’s health care delivery system, benefit consumers, and improve access in the Medi-Cal program. This includes $200 million in investments to strengthen the health care delivery system, particularly in Medi-Cal, and support consumer assistance programs. Blue Shield must also make improvements in the areas of health care quality and access.

“This agreement will provide important tools to standardize information about managed care and improve oversight of managed care services, for Medi-Cal members and all Californians,” said Jennifer Kent, Director of the California Department of Health Care Services (DHCS). DHCS administers the Medi-Cal program, which provides coverage to 12.5 million Californians, largely through managed care plans.

Sutter Health Expands

Sutter Health Plus, an HMO health plan that serves the greater Sacramento, Central Valley, and Sonoma County areas, now offers its competitively priced products to five new counties in the Bay Area. The announcement comes after receiving final approval from the Department of Managed Health Care. In January 2014, Sutter Health Plus initially launched in the Greater Sacramento and Central Valley. The HMO took its first step into the Bay Area when it added Sonoma County in March 2015. The latest expansion adds Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara counties to its service area. The Sutter Health Plus network in the Bay Area includes 16 hospitals and campuses, dozens of conveniently located care centers, and nearly 3,600 physicians. Physician organizations include the following:

  • Brown & Toland Physicians
  • Mills-Peninsula Medical Group
  • Palo Alto Medical Foundation
  • Sutter East Bay Medical Foundation
  • Sutter Pacific Medical Foundation

Blue Shield Of California Under Pressure

Blue Shield Of California Under Pressure
Blue Shield of California has been in the news lately and not in a good way. The Los Angeles Times originally broke the story that the company has been stripped of its tax-exempt status. Also in the news, the company’s former chief technology officer is suing after being dismissed before collecting on his $450,000 bonus.

Tax authorities stripped Blue Shield of California of its tax-exempt status in California and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars. Insurance commissioner Dave Jones said, “The Franchise Tax Board decision to terminate Blue Shield’s tax-exempt status confirms what I have said for years – that Blue Shield charges excessive rates and acts like a for-profit health insurer. Blue Shield is also dodging the payment of premium taxes by taking advantage of a legal loophole that allows Blue Shield to move its health insurance products from Department of Insurance regulation to Department of Managed Health Care regulation.”

The Department of Insurance collects premium taxes from all for-profit and non-profit health insurers. Jones said that Blue Shield has moved most of its health insurance policies over to the Department of Managed Health Care. “We need to pass AB 1434 by Assembly member Kevin McCarty to close the loophole that allows Blue Shield to move its health insurance products to the Department of Managed Health Care to avoid the strong consumer protection oversight of the Department of Insurance and avoid paying premium taxes,” he said. The Blue Shield loophole costs the state $100 million in premium taxes annually. As a tax-exempt company with surplus of $4.2 billion Blue Shield was able to accumulate an enormous amount of money on which it did not pay state taxes by evading the tax on the premiums it collects, he added.

Blue Shield of California issued the following statement in response: Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community. A longtime supporter of healthcare reform, we limit our net income to 2% of revenue and have contributed $325 million to our foundation’s efforts to improve the health safety net and address domestic violence. We pay federal income taxes, state gross premium tax and Affordable Care Act taxes and fees. We believe we meet the requirements for a state income tax exemption and have challenged the California Franchise Tax Board’s finding to revoke our tax exempt status. We filed California state income tax returns beginning in the 2013 tax year. The FTB decision has no bearing on our ability to continue to meet the needs of our members and community and we remain in strong financial health. Regardless of whether we prevail in our tax dispute, we will remain a not-for-profit.

California Insurers Are on the Brink of Change

changeCalifornia’s insurance market is set to undergo enormous changes as health reform takes full effect and millions become eligible for public insurance or private subsidies, according to a report by the California HealthCare Foundation. The report provides a snapshot of the insurance market in California at the end of 2013, just before the major provisions of the Affordable Care Act (ACA) took effect. It also includes some initial figures from 2014 that point to large shifts in Medi-Cal and individual coverage levels. Researchers looked at data from the Department of Managed Health Care (DMHC), the California Department of Insurance (CDI), and other sources to examine market share, enrollment, financial performance, premiums, public coverage, and consumer satisfaction. The following are Key findings:

  • Health insurance was a $123-billion business in California in 2013, with six carriers accounting for more than three-fourths of all revenues and most insurers operating in the black.
  • In 2013, enrollment shifts were small, except in the pre-ACA individual market.
  • State and federal policy actions brought significant growth to Medi-Cal managed care — about 2.8 million enrollees, a 58% increase in the 18 months ending in June 2014.
  • Covered California enrolled 1.4 million individuals in health insurance plans through 11 carriers in the first enrollment period ending March 31, 2014.
  • Product choice differed by market, with only 20% of individuals enrolled in HMOs and 79% of large group enrollees in HMOs in 2013. This could change in 2014 as the ACA implements sliding-scale premium subsidies and mandates freedom for individual enrollees to choose their product and insurer.

Legislation Would End Misleading Health Provider Directories

Senator Ed Hernandez, O.D. (D-West Covina) introduced SB 137 to require health plans and insurers to post accurate health care provider directories on their Websites. During last year’s open enrollment, many people had a hard time determining which plans their providers were in and some felt misled by the plans they chose. While this problem is not a new issue, it has garnered significant attention in the media with the implementation of the Affordable Care Act (ACA). The problem was so bad that Covered California had to take its provider search tool off-line and it is not known when it will be reinstated. Many people complained that they were misled about which plans had contracted with their providers. Due to consumer complaints, DMHC surveyed two large California health plans and issued four deficiencies for each plan because providers were listed in error or not available at the listed addresses. The carriers are disputing some of DMHC’s findings.

“In a world where we compel people to purchase health insurance, we must empower consumers to make accurate and informed decisions about the plans and policies they are choosing,” said Hernandez.

Existing California law only requires health plans to provide a list of providers, upon request, that includes which providers have notified the plan that they have closed practices or are otherwise not accepting new patients. The law requires plans to indicate that the list is subject to change without notice. “The California law on the books for provider directories was written in the dark ages of paper directories,” said Betsy Imholz, special projects director for Consumers Union, a division of nonprofit Consumer Reports.

The bill would require the provider directories to indicate if the provider or staff speaks any non-English language. California consumers come from diverse backgrounds and speak multiple languages, said Sarah de Guia, executive director of the California Pan-Ethnic Health Network. This bill will help meet the needs of our diverse communities by helping them identify providers that speak their language. “We don’t allow other products to be sold with an inaccurate listing of ingredients. We can’t have consumers spending significant dollars on premiums for plans with inaccurate listings of their providers. The bill would make sure provider directors are accurate and standardized, so consumers can know what they are buying and make the right decisions,” said Anthony Wright, executive director of Health Access California. The bill is sponsored by California Pan-Ethnic Health Network, Consumers Union, and Health Access California and will be heard in the Senate Health Committee in April.

DMHC Stops Carriers from Denying Speech and Occupational Therapy

The California Department of Managed Health Care (DMHC) ordered Health Net, Anthem Blue Cross, and Blue Shield of California to cease and desist from denying their members access to medically necessary speech therapy and/or occupational therapy. DMHC said the plans denied coverage without determining whether the services were medically necessary. DMHC issued a $300,000 fine against Health Net for repeatedly mischaracterizing requests for services as coverage issues rather than medical necessity issues.

DMHC Director Brent Barnhart said, “Today’s actions will ensure that members get the care required by law. Additionally, the plans will be required to identify and reimburse members who paid out-of-pocket for medically necessary therapy after those services were inappropriately denied.”

Appeals Court Says HMO Regulator Cannot Discriminate Against Autistic Children

In a complex opinion issued yesterday, the California Court of Appeal ended the Department of Managed Health Care’s (DMHC) discriminatory practice of allowing HMOs to deny treatment for autistic children of state employees and low-income families enrolled in the Healthy Families program on the basis that such treatment can only be administered through state-licensed providers.

The case was brought by the non-profit Consumer Watchdog and Strumwasser & Woocher LLP. The treatment at issue, known as Applied Behavioral Analysis (ABA), has been found to be the most effective treatment for autistic children. After the lawsuit was filed, the California Legislature agreed with Consumer Watchdog by passing a law in 2011 clarifying that HMOs and health insurers must provide coverage for ABA for children enrolled in private health insurance plans and that such treatment could be provided through providers who are certified by a national board, but not state-licensed. However, the Legislature did not include public employees and Healthy Families enrollees.

The remaining issue to be decided by the Court of Appeal was whether the DMHC could allow HMOs to deny ABA for children enrolled in public health plans if an ABA provider does not hold a state license.  As Consumer Watchdog and Strumwasser & Woocher LLP pointed out in the lawsuit, no state licensing currently exists for ABA therapists. For more information, visit

Last Updated 10/20/2021

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