2009 California Insurance Code - Section 10702-10718.7 :: Article 2. Small Employer Carrier Requirements

10702.  All carriers writing, issuing, or administering health
benefit plans that cover employees of small employers shall be
subject to this chapter if any one of the following conditions are
met:
   (a) Any portion of the premium for any health benefit plan or
benefits is paid by a small employer, or any covered individual is
reimbursed, whether through wage adjustments or otherwise, by a small
employer for any portion of the premium.
   (b) The health benefit plan is treated by the small employer or
any of the covered individuals as part of a plan or program for the
purposes of Section 106 or 162 of the Internal Revenue Code.

10702.1.  Any person or entity subject to the requirements of this
chapter shall comply with the standards set forth in Chapter 7
(commencing with Section 3750) of Part 1 of Division 9 of the Family
Code and Section 14124.94 of the Welfare and Institutions Code.

10703.  The commissioner shall have the authority to determine
whether a health benefit plan is covered by this chapter, and to
determine whether an employer is a small employer within the meaning
of Section 10700.

10704.  The commissioner may issue regulations that are necessary to
carry out the purposes of this chapter. Prior to the public comment
period required on the regulations under the Administrative Procedure
Act, the commissioner shall provide the Director of the Department
of Managed Health Care with a copy of the proposed regulations. The
Director of the Department of Managed Health Care shall have 30 days
to notify the commissioner in writing of any comments on the
regulations. The Director of the Department of Managed Health Care's
comments shall be included in the public notice issued on the
regulations. Any rules and regulations issued pursuant to this
subdivision may be adopted as emergency regulations in accordance
with the Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code). Until December 31, 1994, the adoption of these regulations
shall be deemed an emergency and necessary for the immediate
preservation of the public peace, health, safety, or general welfare.
The regulations shall be enforced by the director.

10705.  Upon the effective date of this act:
   (a) No group or individual policy or contract or certificate of
group insurance or statement of group coverage providing benefits to
employees of small employers as defined in this chapter shall be
issued or delivered by a carrier subject to the jurisdiction of the
commissioner regardless of the situs of the contract or master
policyholder or of the domicile of the carrier nor, except as
otherwise provided in Sections 10270.91 and 10270.92, shall a carrier
provide coverage subject to this chapter until a copy of the form of
the policy, contract, certificate, or statement of coverage is filed
with and approved by the commissioner in accordance with Sections
10290 and 10291, and the carrier has complied with the requirements
of Section 10717.
   (b) Each carrier, except a self-funded employer, shall fairly and
affirmatively offer, market, and sell all of the carrier's benefit
plan designs that are sold to, offered through, or sponsored by,
small employers or associations that include small employers to all
small employers in each geographic region in which the carrier makes
coverage available or provides benefits. A carrier contracting to
participate in the Voluntary Alliance Uniting Employers Purchasing
Program shall be deemed to be in compliance with this requirement for
a benefit plan design offered through the program in those
geographic regions in which the carrier participates in the program
and the benefit plan design is offered exclusively through the
program.
   (1) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market or sell a benefit plan design to those who
are not members of the association. However, if the association
markets, offers or sells a benefit plan design to those who are not
members of the association it is subject to the requirements of this
section. This shall apply to an association that otherwise meets the
requirements of paragraph (5) formed by merger of two or more
associations after January 1, 1992, if the predecessor organizations
had been in active existence on January 1, 1992, and for at least
five years prior to that date and met the requirements of paragraph
(5).
   (2) A carrier which (A) effective January 1, 1992, and at least 20
years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer or sell any other individual, selected group, or group
policy or contract providing medical, hospital and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital and
surgical benefits to those who are not members of the association it
is subject to the requirements of this section.
   (3) Each carrier that sells health benefit plans to members of one
association pursuant to paragraph (2) shall submit an annual
statement to the commissioner which states that the carrier is
selling health benefit plans pursuant to paragraph (2) and which, for
the one association, lists all the information required by paragraph
(4).
   (4) Each carrier that sells health benefit plans to members of any
association shall submit an annual statement to the commissioner
which lists each association to which the carrier sells health
benefit plans, the industry or profession which is served by the
association, the association's membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.
   (5) For purposes of paragraphs (1) and (2), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, accepting for membership any individual or
small employer meeting its membership criteria, which do not
condition membership directly or indirectly on the health or claims
history of any person, which uses membership dues solely for and in
consideration of the membership and membership benefits, except that
the amount of the dues shall not depend on whether the member applies
for or purchases insurance offered by the association, which is
organized and maintained in good faith for purposes unrelated to
insurance, which has been in active existence on January 1, 1992, and
at least five years prior to that date, which has a constitution and
bylaws, or other analogous governing documents which provide for
election of the governing board of the association by its members,
which has contracted with one or more carriers to offer one or more
health benefit plans to all individual members and small employer
members in this state.
   (c) Each carrier shall make available to each small employer all
benefit plan designs that the carrier offers or sells to small
employers or to associations that include small employers.
Notwithstanding subdivision (d) of Section 10700, for purposes of
this subdivision, companies that are affiliated companies or that are
eligible to file a consolidated income tax return shall be treated
as one carrier.
   (d) Each carrier shall do all of the following:
   (1) Prepare a brochure that summarizes all of its benefit plan
designs and make this summary available to small employers, agents
and brokers upon request. The summary shall include for each benefit
plan design information on benefits provided, a generic description
of the manner in which services are provided, such as how access to
providers is limited, benefit limitations, required copayments and
deductibles, standard employee risk rates, an explanation of how
creditable coverage is calculated if a preexisting condition or
affiliation period is imposed, and a telephone number that can be
called for more detailed benefit information. Carriers are required
to keep the information contained in the brochure accurate and up to
date, and, upon updating the brochure, send copies to agents and
brokers representing the carrier. Any entity that provides
administrative services only with regard to a benefit plan design
written or issued by another carrier shall not be required to prepare
a summary brochure which includes that benefit plan design.
   (2) For each benefit plan design, prepare a more detailed evidence
of coverage and make it available to small employers, agents and
brokers upon request. The evidence of coverage shall contain all
information that a prudent buyer would need to be aware of in making
selections of benefit plan designs. An entity that provides
administrative services only with regard to a benefit plan design
written or issued by another carrier shall not be required to prepare
an evidence of coverage for that benefit plan design.
   (3) Provide to small employers, agents, and brokers, upon request,
for any given small employer the sum of the standard employee risk
rates and the sum of the risk adjusted standard employee risk rates.
When requesting this information, small employers, agents and brokers
shall provide the carrier with the information the carrier needs to
determine the small employer's risk adjusted employee risk rate.
   (4) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the brochure,
send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.
   (5) Notwithstanding subdivision (d) of Section 10700, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be
treated as one carrier.
   (e) Every agent or broker representing one or more carriers for
the purpose of selling health benefit plans to small employers shall
do all of the following:
   (1) When providing information on a health benefit plan to a small
employer but making no specific recommendations on particular
benefit plan designs:
   (A) Advise the small employer of the carrier's obligation to sell
to any small employer any of the benefit plan designs it offers to
small employers and provide them, upon request, with the actual rates
that would be charged to that employer for a given benefit plan
design.
   (B) Notify the small employer that the agent or broker will
procure rate and benefit information for the small employer on any
benefit plan design offered by a carrier for whom the agent or broker
sells health benefit plans.
   (C) Notify the small employer that, upon request, the agent or
broker will provide the small employer with the summary brochure
required in paragraph (1) of subdivision (d) for any benefit plan
design offered by a carrier whom the agent or broker represents.
   (2) When recommending a particular benefit plan design or designs,
advise the small employer that, upon request, the agent will provide
the small employer with the brochure required by paragraph (1) of
subdivision (d) containing the benefit plan design or designs being
recommended by the agent or broker.
   (3) Prior to filing an application for a small employer for a
particular health benefit plan:
   (A) For each of the benefit plan designs offered by the carrier
whose benefit plan design the agent or broker is presenting, provide
the small employer with the benefit summary required in paragraph (1)
of subdivision (d) and the sum of the standard employee risk rates
for that particular employer.
   (B) Notify the small employer that, upon request, the agent or
broker will provide the small employer with an evidence of coverage
brochure for each benefit plan design the carrier offers.
   (C) Notify the small employer that, from July 1, 1993 to July 1,
1996, actual rates may be 20 percent higher or lower than the sum of
the standard employee risk rates, and from July 1, 1996, and
thereafter, actual rates may be 10 percent higher or lower than the
sum of the standard employee risk rates depending on how the carrier
assesses the risk of the small employer's group.
   (D) Notify the small employer that, upon request, the agent or
broker will submit information to the carrier to ascertain the small
employer's sum of the risk adjusted standard employee risk rate for
any benefit plan design the carrier offers.
   (E) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by paragraph (3) of subdivision (e) and by Section 10716.
   (f) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of an
eligible employee meeting the definition in paragraph (1) of
subdivision (f) of Section 10700, is provided in connection with the
employee's employment or which, in the case of an eligible employee
as defined in paragraph (2) of subdivision (f) of Section 17000, is
provided in connection with a guaranteed association.
   (g) No carrier shall reject an application from a small employer
for a benefit plan design provided:
   (1) The small employer as defined by paragraph (1) of subdivision
(w) of Section 10700 offers health benefits to 100 percent of its
eligible employees as defined in paragraph (1) of subdivision (f) of
Section 10700. Employees who waive coverage on the grounds that they
have other group coverage shall not be counted as eligible employees.
   (2) The small employer agrees to make the required premium
payments.
   (h) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a carrier because of the health status,
claims experience, industry, occupation, or geographic location
within the carrier's approved service area of the small employer or
the small employer's employees.
   (2) Encourage or direct small employers to seek coverage from
another carrier or the program because of the health status, claims
experience, industry, occupation, or geographic location within the
carrier's approved service area of the small employer or the small
employer's employees.
   (i) No carrier shall, directly or indirectly, enter into any
contract, agreement, or arrangement with an agent or broker that
provides for or results in the compensation paid to an agent or
broker for a health benefit plan to be varied because of the health
status, claims experience, industry, occupation, or geographic
location of the small employer or the small employer's employees.
This subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on the
basis of percentage of premium, provided that the percentage shall
not vary because of the health status, claims experience, industry,
occupation, or geographic area of the small employer.
   (j) Except in the case of a late insured, or for satisfaction of a
preexisting condition clause in the case of initial coverage of an
eligible employee, a disability insurer may not exclude any eligible
employee or dependent who would otherwise be entitled to health care
services on the basis of any of the following: the health status, the
medical condition, including both physical and mental illnesses, the
claims experience, the medical history, the genetic information, or
the disability or evidence of insurability, including conditions
arising out of acts of domestic violence of that employee or
dependent. No health benefit plan may limit or exclude coverage for a
specific eligible employee or dependent by type of illness,
treatment, medical condition, or accident, except for preexisting
conditions as permitted by Section 10198.7 or 10708.
   (k) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.
   (l) (1) With respect to the obligation to provide coverage newly
issued under subdivision (d), the carrier may cease enrolling new
small employer groups and new eligible employees as defined by
paragraph (2) of subdivision (f) of Section 10700 if it certifies to
the commissioner that the number of eligible employees and
dependents, of the employers newly enrolled or insured during the
current calendar year by the carrier equals or exceeds: (A) in the
case of a carrier that administers any self-funded health benefits
arrangement in California, 10 percent of the total number of eligible
employees, or eligible employees and dependents, respectively,
enrolled or insured in California by that carrier as of December 31
of the preceding year, or (B) in the case of a carrier that does not
administer any self-funded health benefit arrangements in California,
8 percent of the total number of eligible employees, or eligible
employees and dependents, respectively, enrolled or insured by the
carrier in California as of December 31 of the preceding year.
   (2) Certification shall be deemed approved if not disapproved
within 45 days after submission to the commissioner. If that
certification is approved, the small employer carrier shall not offer
coverage to any small employers under any health benefit plans
during the remainder of the current year. If the certification is not
approved, the carrier shall continue to issue coverage as required
by subdivision (d) and be subject to administrative penalties as
established in Section 10718.

10705.1.  (a) Between July 26, 1993, and October 24, 1993, as well
as 60 days prior to the expiration of an existing contract that
expires prior to July 1, 1994, or, for contracts expiring after July
1, 1994, 60 days prior to July 1, 1994, an association that meets the
definition of guaranteed association, as set forth in Section 10700,
except for the requirement that 1,000 persons be covered, shall be
entitled to purchase small employer health coverage as if the
association were a guaranteed association, except that the coverage
shall be guaranteed only for those members of an association, as
defined in Section 10700, (1) who were receiving coverage or had
successfully applied for coverage through the association as of June
30, 1993, (2) who were receiving coverage through the association as
of December 31, 1992, and whose coverage lapsed at any time
thereafter because the employment through which coverage was received
ended or an employer's contribution to health coverage ended, or (3)
who were covered at any time between June 30, 1993, and July 1,
1994, under a contract that was in force on June 30 1993.
   (b) An association obtaining health coverage for its members
pursuant to this section shall otherwise be afforded all the rights
of a guaranteed association under this chapter including, but not
limited to, guaranteed renewability of coverage.
   (c) No later than August 25, 1993, carriers that, at any time
during the 1993 calendar year have provided coverage to associations
that would be eligible for coverage under this section shall notify
those associations of their rights under this section. Ninety days
prior to the expiration of a contract that expires prior to July 1,
1994, or, for contracts expiring after July 1, 1994, 90 days prior to
July 1, 1994, carriers that have in force coverage with an
association that would be eligible for coverage under this section
shall notify the association of its rights under this section.

10706.  Every carrier shall file with the commissioner the
reasonable participation requirements and employer contribution
requirements that are to be included in its health benefit plans.
Participation requirements shall be applied uniformly among all small
employer groups, except that a carrier may vary application of
minimum employer participation requirements by the size of the small
employer group and whether the employer contributes 100 percent of
the eligible employee's premium. Employer contribution requirements
shall not vary by employer size. A carrier shall not establish a
participation requirement that (1) requires a person who meets the
definition of a dependent in subdivision (e) of Section 10700 to
enroll as a dependent if he or she is otherwise eligible for coverage
and wishes to enroll as an eligible employee and (2) allows a
carrier to reject an otherwise eligible small employer because of the
number of persons that waive coverage due to coverage through
another employer. Members of an association eligible for health
coverage eligible under subdivision (z) of Section 10700 but not
electing any health coverage through the association shall not be
counted as eligible employees for purposes of determining whether the
guaranteed association meets a carrier's reasonable participation
standards.

10706.5.  (a) After a small employer submits a completed
application, the carrier shall, within 30 days notify the employer of
the employer's actual rates in accordance with Section 10714. The
employer shall have 30 days in which to exercise the right to buy
coverage at the quoted rates.
   (b) When a small employer submits a premium payment, based on the
quoted rates, and that payment is delivered or postmarked, whichever
occurs earlier, within the first 15 days of a month, coverage shall
become effective no later than the first day of the following month.
When that payment is neither delivered nor postmarked until after the
15th day of a month, coverage shall become effective no later than
the first day of the second month following delivery or postmark of
the payment.
   (c) During the first 30 days of coverage, the small employer shall
have the option of changing coverage to a different benefit plan
design offered by the same carrier. If a small employer notifies the
carrier of the change within the first 15 days of a month, coverage
under the new benefit plan design shall become effective no later
than the first day of the following month. If a small employer
notifies the carrier of the change after the 15th day of a month,
coverage under the new benefit plan design shall become effective no
later than the first day of the second month following notification.
   (d) All eligible employees and dependents listed on the small
employer's completed application shall be covered on the effective
date of the health benefit plan.

10707.  Except in the case of a late enrollee, or for satisfaction
of a preexisting condition clause in the case of initial coverage of
an eligible employee, a carrier may not exclude any eligible employee
or dependent who would otherwise be covered, on the basis of an
actual or expected health condition of that employee or dependent. No
health benefit plan may limit or exclude coverage for a specific
eligible employee or dependent by type of illness, treatment, medical
condition, or accident, except for preexisting conditions as
permitted by Section 10708.

10708.  (a) Preexisting condition provisions of health benefit plans
shall not exclude coverage for a period beyond six months following
the individual's effective date of coverage and may only relate to
conditions for which medical advice, diagnosis, care, or treatment,
including the use of prescription medications, was recommended by or
received from a licensed health practitioner during the six months
immediately preceding the effective date of coverage.
   (b) A carrier that does not utilize a preexisting condition
provision may impose a waiting or affiliation period, not to exceed
60 days, before the coverage issued subject to this chapter shall
become effective. During the waiting or affiliation period, the
carrier is not required to provide health care benefits and no
premiums shall be charged to the subscriber or enrollee.
   (c) In determining whether a preexisting condition provision or a
waiting period applies to any person, a plan shall credit the time
the person was covered under creditable coverage, provided the person
becomes eligible for coverage under the succeeding plan contract
within 62 days of termination of prior coverage, exclusive of any
waiting or affiliation period, and applies for coverage with the
succeeding health benefit plan contract within the applicable
enrollment period. A plan shall also credit any time an eligible
employee must wait before enrolling in the health benefit plan,
including any postenrollment or employer-imposed waiting or
affiliation period. However, if a person's employment has ended, the
availability of health coverage offered through employment or
sponsored by an employer has terminated, or an employer's
contribution toward health coverage has terminated, a plan shall
credit the time the person was covered under creditable coverage if
the person becomes eligible for health coverage offered through
employment or sponsored by an employer within 180 days, exclusive of
any waiting or affiliation period, and applies for coverage under the
succeeding health benefit plan within the applicable enrollment
period.
   (d) Group health benefit plans may not impose a preexisting
conditions exclusion to the following:
   (1) To a newborn individual, who, as of the last day of the 30-day
period beginning with the date of birth, applied for coverage
through the employer-sponsored plan.
   (2) To a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-day
period beginning with the date of adoption or placement for adoption,
is covered under creditable coverage and applies for coverage
through the employer-sponsored plan. This provision shall not apply
if, for 63 continuous days, the child is not covered under any
creditable coverage.
   (3) To a condition relating to benefits for pregnancy or maternity
care.
   (e) A carrier providing aggregate or specific stop loss coverage
or any other assumption of risk with reference to a health benefit
plan shall provide that the plan meets all requirements of this
section concerning preexisting condition provisions and waiting or
affiliation periods.
   (f) In addition to the preexisting condition exclusions authorized
by subdivision (a) and the waiting or affiliation period authorized
by subdivision (b), carriers providing coverage to a guaranteed
association may impose on employers or individuals purchasing
coverage who would not be eligible for guaranteed coverage if they
were not purchasing through the association a waiting or affiliation
period, not to exceed 60 days, before the coverage issued subject to
this chapter shall become effective. During the waiting or
affiliation period, the carrier is not required to provide health
care benefits and no premiums shall be charged to the insured.

10709.  (a) No health benefit plan may exclude late enrollees from
coverage for more than 12 months from the date of the late enrollee's
application for coverage. No premiums shall be charged to the late
enrollee until the exclusion period has ended.
   (b) A carrier providing aggregate or specific stop loss coverage
or any other assumption of risk with reference to a health benefit
plan shall provide that the plan meets all requirements of this
section concerning late enrollees.

10711.  No carrier shall be required by the provisions of this
chapter:
   (a) To offer coverage to, or accept applications from, a small
employer as defined in paragraph (1) of subdivision (w) of Section
10700, where the small employer is not physically located in a
carrier's approved service areas.
   (b) To offer coverage to or accept applications from a small
employer as defined in paragraph (2) of subdivision (w) of Section
10700 where the small employer is seeking coverage for eligible
employees who do not work or reside in a carrier's approved service
areas.
   (c) To include in a health benefits plan an otherwise eligible
employee or dependent, when the eligible employee or dependent does
not work or reside within a carrier's approved service area, except
as provided in Section 10702.1.
   (d) To offer coverage to, or accept applications from, a small
employer for a benefits plan design within an area if the
commissioner has found that the carrier will not have the capacity
within the area in its network of providers to deliver service
adequately to the eligible employees and dependents of that employee
because of its obligations to existing group contractholders and
enrollees and that the action is not unreasonable or clearly
inconsistent with the intent of this chapter.
   A carrier that cannot offer coverage to small employers in a
specific service area because it is lacking sufficient capacity may
not offer coverage in the applicable area to new employer groups with
more than 50 eligible employees until the carrier notifies the
commissioner that it has regained capacity to deliver services to
small employers, and certifies to the commissioner that from the date
of the notice it will enroll all small groups requesting coverage
from the carrier until the carrier has met the requirements of
subdivision (h) of Section 10705.
   (e) To offer coverage to a small employer, or an eligible employee
as defined in paragraph (2) of subdivision (g) of Section 10700, who
within 12 months of application for coverage terminated from a
health benefit plan offered by the carrier.

10712.  (a) A carrier shall not be required to offer coverage or
accept applications for benefit plan designs pursuant to this chapter
where the commissioner determines that the acceptance of an
application or applications would place the carrier in a financially
impaired condition.
   (b) The commissioner's determination shall follow an evaluation
that includes a certification by the commissioner that the acceptance
of an application or applications would place the carrier in a
financially impaired condition.
   (c) A carrier that has not offered coverage or accepted
applications pursuant to this chapter shall not offer coverage or
accept applications for any individual or group health benefit plan
until the commissioner has determined that the carrier has ceased to
be financially impaired.

10713.  All health benefit plans written, issued, or administered by
carriers on or after the effective date of this chapter, and all
health benefit plans in force on or after the effective date of this
chapter shall be renewable with respect to all eligible employees or
dependents at the option of the policyholder, contractholder, or
small employer except as follows:
   (a) For nonpayment of the required premiums by the policyholder,
contractholder, or small employer.
   (b) For fraud or misrepresentation by the policyholder,
contractholder, or small employer or, with respect to coverage of
individual enrollees, the enrollees or their representative.
   (c) For noncompliance with a carrier's participation or employer
contribution requirements at the time of renewal.
   (d) When the carrier ceases to write, issue, or administer new
small employer health benefit plans in this state, provided, however,
that the following conditions are satisfied:
   (1) Notice of the decision to cease writing, issuing, or
administering new or existing small employer health benefits plans in
this state is provided to the commissioner, and to either the
policyholder, contractholder, or small employer at least 180 days
prior to the discontinuation of the coverage.
   (2) Small employer health benefit plans subject to this chapter
shall not be canceled for 180 days after the date of the notice
required under paragraph (1). For that business of a carrier that
remains in force, any carrier that ceases to write, issue, or
administer new health benefit plans shall continue to be governed by
this chapter.
   (3) Except in the case where a certification has been approved
pursuant to subdivision (h) of Section 10705 or the commissioner has
made a determination pursuant to subdivision (a) of Section 10712, a
carrier that ceases to write, issue, or administer new health benefit
plans to small employers in this state after the passage of this
chapter shall be prohibited from writing, issuing, or administering
new health benefit plans to small employers in this state for a
period of five years from the date of notice to the commissioner.
   (e) When a carrier withdraws a benefit plan design from the small
employer market, provided that the carrier notifies all affected
policyholders, contractholders, or small employers and the
commissioner at least 90 days prior to the discontinuation of those
contracts, and that the carrier makes available to the small employer
all small employer benefit plan designs which it markets and
satisfies the requirements of paragraph (3) of subdivision (b) of
Section 10714.

10714.  Premiums for benefit plan designs written, issued, or
administered by carriers on or after the effective date of this act,
shall be subject to the following requirements:
   (a) (1) The premium for new business shall be determined for an
eligible employee in a particular risk category after applying a risk
adjustment factor to the carrier's standard employee risk rates. The
risk adjusted employee risk rate may not be more than 120 percent or
less than 80 percent of the carrier's applicable standard employee
risk rate until July 1, 1996. Effective July 1, 1996, the risk
adjusted employee risk rate may not be more than 110 percent or less
than 90 percent.
   (2) The premium charged a small employer for new business shall be
equal to the sum of the risk adjusted employee risk rates.
   (3) The standard employee risk rates applied to a small employer
for new business shall be in effect for no less than six months.
   (b) (1) The premium for in force business shall be determined for
an eligible employee in a particular risk category after applying a
risk adjustment factor to the carrier's standard employee risk rates.
The risk adjusted employee risk rates may not be more than 120
percent or less than 80 percent of the carrier's applicable standard
employee risk rate until July 1, 1996. Effective July 1, 1996, the
risk adjusted employee risk rate may not be more than 110 percent or
less than 90 percent. The factor effective July 1, 1996, shall apply
to in force business at the earlier of either the time of renewal or
July 1, 1997. The risk adjustment factor applied to a small employer
may not increase by more than 10 percentage points from the risk
adjustment factor applied in the prior rating period. The risk
adjustment factor for a small employer may not be modified more
frequently than every 12 months.
   (2) The premium charged a small employer for in force business
shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates shall be in effect for no less than
six months.
   (3) For a benefit plan design that a carrier has discontinued
offering, the risk adjustment factor applied to the standard employee
risk rates for the first rating period of the new benefit plan
design that the small employer elects to purchase shall be no greater
than the risk adjustment factor applied in the prior rating period
to the discontinued benefit plan design. However, the risk adjusted
employee rate may not be more than 120 percent or less than 80
percent of the carrier's applicable standard employee risk rate until
July 1, 1996. Effective July 1, 1996, the risk adjusted employee
risk rate may not be more than 110 percent or less than 90 percent.
The factor effective July 1, 1996, shall apply to in force business
at the earlier of either the time of renewal or July 1, 1997. The
risk adjustment factor for a small employer may not be modified more
frequently than every 12 months.
   (c) (1) For any small employer, a carrier may, with the consent of
the small employer, establish composite employee and dependent rates
for either new business or renewal of in force business. The
composite rates shall be determined as the average of the risk
adjusted employee risk rates for the small employer, as determined in
accordance with the requirements of subdivisions (a) and (b). The
sum of the composite rates so determined shall be equal to the sum of
the risk adjusted employee risk rates for the small employer.
   (2) The composite rates shall be used for all employees and
dependents covered throughout a rating period of no less than six
months, nor more than 12 months, except that a carrier may reserve
the right to redetermine the composite rates if the enrollment under
the health benefit plan changes by more than a specified percentage
during the rating period. Any redetermination of the composite rates
shall be based on the same risk adjusted employee risk rates used to
determine the initial composite rates for the rating period. If a
carrier reserves the right to redetermine the rates and the
enrollment changes more than the specified percentage, the carrier
shall redetermine the composite rates if the redetermined rates would
result in a lower premium for the small employer. A carrier
reserving the right to redetermine the composite rates based upon a
change in enrollment shall use the same specified percentage to
measure that change with respect to all small employers electing
composite rates.

10715.  Carriers shall apply standard employee risk rates
consistently with respect to all small employers.

10716.  In connection with the offering for sale of any benefit plan
design to small employers:
   Each carrier shall make a reasonable disclosure, as part of its
solicitation and sales materials, of the following:
   (a) The extent to which the premium rates for a specified small
employer are established or adjusted in part based upon the actual or
expected variation in claims costs or actual or expected variation
in health conditions of the employees and dependents of the small
employer.
   (b) The provisions concerning the carrier's ability to change
premium rates and the factors other than claim experience which
affect changes in premium rates.
   (c) Provisions relating to the guaranteed issue of policies and
contracts.
   (d) Provisions relating to the effect of any preexisting condition
provision.
   (e) Provisions relating to the small employer's right to apply for
any benefit plan design written, issued, or administered by the
carrier at the time of application for a new health benefit plan, or
at the time of renewal of a health benefit plan.
   (f) The availability, upon request, of a listing of all the
carrier's benefit plan designs, including the rates for each benefit
plan design.

10717.  (a) No carrier shall provide or renew coverage subject to
this chapter until it has done all of the following:
   (1) A statement has been filed with the commissioner listing all
of the carrier's benefit plan designs currently in force that are
offered or proposed to be offered for sale in this state, identified
by form number, and, if previously approved by the commissioner, the
date approved by the commissioner as well as the standard employee
risk rate for each risk category for each benefit plan design and the
highest and lowest risk adjustment factors that the carrier intends
to use in determining rates for each benefit plan design. When filing
a new benefit plan design pursuant to Section 10705, carriers may
submit both the policy form and the standard employee risk rates for
each risk category at the same time.
   (2) Either:
   (A) Thirty days expires after that statement is filed without
written notice from the commissioner specifying the reasons for his
or her opinion that the carrier's risk categories or risk adjustment
factors do no comply with the requirements of this chapter.
   (B) Prior to that time the commissioner gives the carrier written
notice that the carrier's risk categories and risk adjustment factors
as filed comply with the requirements of this chapter.
   (b) No carrier shall issue, deliver, renew, or revise a benefit
plan design lawfully provided pursuant to subdivision (a), and no
carrier shall change the risk categories, risk adjustment factors, or
standard employee risk rates for any benefit plan design until all
of the following requirements are met:
   (1) The carrier files with the commissioner a statement of the
specific changes which the carrier proposes in the risk categories,
risk adjustment factors, or standard employee risk rates.
   (2) Either:
   (A) Thirty days expires after such statement is filed without
written notice from the commissioner specifying the reasons for his
or her opinion that the carrier's risk categories or risk adjustment
factors do not comply with the requirements of this chapter.
   (B) Prior to that time the commissioner gives the carrier written
notice that the carrier's risk categories and risk adjustment factors
as filed comply with the requirements of this chapter.
   (c) Notwithstanding any provision to the contrary, when a carrier
is changing the standard employee risk rates of a benefit plan design
lawfully provided under (a) or (b) above but is not changing the
risk categories or risk adjustment factors which have been previously
authorized, the carrier need not comply with the requirements of
paragraph (2) of subdivision (b), but instead shall submit the
revised standard employee risk rates for the benefit plan design
prior to offering or renewing the benefit plan design.
   (d) When submitting filings under subdivision (a), (b), or (c), a
carrier may also file with the commissioner at the time of the
filings a statement of the standard employee risk rate for each risk
category the carrier intends to use for each month in the 12 months
subsequent to the date of the filing. Once the requirements of the
applicable subdivision (a), (b), or (c), have been met, these rates
shall be used by the carrier for the 12-month period unless the
carrier is otherwise informed by the commissioner in his or her
response to the filings submitted under subdivision (a), (b), or (c),
provided that any subsequent change in the standard employee risk
rates charged by the carrier which differ from those previously filed
with the commissioner must be newly filed in accordance with this
subdivision and provided that the carrier does not change the risk
categories or risk adjustment factors for the benefit plan design.
   (e) If the commissioner notifies the carrier, in writing, that the
carrier's risk categories or risk adjustment factors do not comply
with the requirements of this chapter, specifying the reasons for his
or her opinion, it is unlawful for the carrier, at any time after
the receipt of such notice, to utilize the noncomplying health
benefit plan, benefit plan design, risk categories, or risk
adjustment factors in conjunction with the health benefit plans or
benefit plan designs for which the filing was made.
   (f) Each carrier shall maintain at its principal place of business
copies of all information required to be filed with the commissioner
pursuant to this section.
   (g) Each carrier shall make the information and documentation
described in this section available to the commissioner upon request.
   (h) Nothing in this section shall be construed to permit the
commissioner to establish or approve the rates charged to
policyholders for health benefit plans.

10718.  (a) In addition to any other remedy permitted by law, the
commissioner shall have the administrative authority to assess
penalties against carriers, insurance producers, and other entities
engaged in the business of insurance or other persons or entities for
violations of this chapter.
   (b) Upon a showing of a violation of this chapter in any civil
action, a court may also assess the penalties described in this
chapter, in addition to any other remedies provided by law.
   (c) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that violates this
chapter is liable for administrative penalties of not more than two
hundred fifty dollars ($250) for the first violation.
   (d) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that engages in
practices prohibited by this chapter a second or subsequent time, or
who commits a knowing violation of this chapter, is liable for
administrative penalties of not less than one thousand dollars
($1,000) and not more than two thousand five hundred dollars ($2,500)
for each violation.
   (e) Any carrier that violates this chapter is liable for
administrative penalties of not more than two thousand five hundred
dollars ($2,500) for the first violation and not more than five
thousand dollars ($5,000) for each subsequent violation.
   (f) Any carrier that violates this chapter with a frequency that
indicates a general business practice or commits a knowing violation
of this chapter, is liable for administrative penalties of not less
than fifteen thousand dollars ($15,000) and not more than one hundred
thousand dollars ($100,000) for each violation.
   (g) An act or omission that is inadvertent and that results in
incorrect premium rates being charged to more than one policyholder
shall be a single violation for the purpose of this section.

10718.5.  (a) (1) In addition to any other remedy permitted by law,
whenever the commissioner shall have reason to believe that any
carrier, production agent, or other person or entity engaged in the
business of insurance has violated this chapter, and that a
proceeding by the commissioner in respect thereto would be in the
interest of the public, the commissioner may issue and serve upon
that entity an order to show cause containing a statement of the
charges, a statement of the entity's potential liability under this
chapter, and a notice of a public hearing thereon before the
Administrative Law Bureau of the department to be held at a time and
place fixed therein, which shall not be less than 30 days after the
service thereof, for the purpose of determining whether the
commissioner should issue an order to that entity to pay the penalty
imposed by this chapter and such order or orders as shall be
reasonably necessary to correct, eliminate, or remedy the alleged
violations of this chapter, including, but not limited to, an order
to cease and desist from the specified violations of this chapter.
   (2) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act, Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, and the commissioner shall have all the powers
granted therein.
   (b) (1) Whenever it appears to the commissioner that irreparable
loss and injury has occurred or may occur to an insured, employer,
employee, or other member of the public because a carrier, production
agent, or other person or entity engaged in the business of
insurance has violated this chapter, the commissioner may, before
hearing, but after notice and opportunity to submit relevant
information, issue and cause to be served upon the entity such order
or orders as shall be reasonably necessary to correct, eliminate, or
remedy the alleged violations of this chapter, including, but not
limited to, an order requiring the entity to forthwith cease and
desist from engaging further in the violations which are causing or
may cause such irreparable injury.
   (2) At the same time an order is served pursuant to paragraph (1)
of this subdivision, the commissioner shall issue and also serve upon
the person a notice of public hearing before the Administrative Law
Bureau of the department to be held at a time and place fixed
therein, which shall not be less than 30 days after the service
thereof.
   (3) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act, Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, and the commissioner shall have all the powers
granted therein.
   (4) At any time prior to the commencement of a hearing as provided
in this subdivision, the entity against which the commissioner has
served an order may waive the hearing and have judicial review of the
order by means of any remedy afforded by law without first
exhausting administrative remedies or procedures.
   (c) If, after hearing as provided by subdivision (a) or (b), the
charges, or any of them, that an entity has violated this chapter are
found to be justified, the commissioner shall issue and cause to be
served upon that entity an order requiring that entity to pay the
penalty imposed by this chapter and such order or orders as shall be
reasonably necessary to correct, eliminate, or remedy the alleged
violations of this chapter, including, but not limited to, an order
to cease and desist from the specified violations of this chapter.
   (d) In addition to any other penalty provided by law or the
availability of any administrative procedure, if a carrier, after
notice and hearing, is found to have violated this chapter knowingly
or as a general business practice the commissioner may suspend the
carrier's certificate of authority to transact disability insurance.
The order of suspension shall prescribe the period of such
suspension. The proceedings shall be conducted in accordance with the
Administrative Procedure Act, Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code and
the commissioner shall have all the powers granted therein.

10718.55.  (a) Carriers may enter into contractual agreements with
qualified associations, as defined in subdivision (b), under which
these qualified associations may assume responsibility for performing
specific administrative services, as defined in this section, for
qualified association members. Carriers that enter into agreements
with qualified associations for assumption of administrative services
shall establish uniform definitions for the administrative services
that may be provided by a qualified association or its third-party
administrator. The carrier shall permit all qualified associations to
assume one or more of these functions when the carrier determines
the qualified association demonstrates that it has the administrative
capacity to assume these functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the carrier or
through a third-party administrator on a commission basis or an agent
or solicitor workforce on a commission basis.
   Each carrier that enters into an agreement with any qualified
association for the provision of administrative services shall offer
all qualified associations with which it contracts the same premium
discounts for performing those services the carrier has permitted the
qualified association or its third-party administrator to assume.
The carrier shall apply these uniform discounts to the carrier's risk
adjusted employee risk rates after the carrier has determined the
qualified association's risk adjusted employee risk rates pursuant to
Section 10714. The carrier shall report to the department its
schedule of discounts for each administrative service.
   In no instance may a carrier provide discounts to qualified
associations that are in any way intended to, or materially result
in, a reduction in premium charges to the qualified association due
to the health status of the membership of the qualified association.
In addition to any other remedies available to the commissioner to
enforce this chapter, the commissioner may declare a contract between
a carrier and a qualified association for administrative services
pursuant to this section null and void if the commissioner determines
any discounts provided to the qualified association are intended to,
or materially result in, a reduction in premium charges to the
qualified association due to the health status of the membership of
the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership, directly or indirectly, on
the health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer any plan contract only to association
members.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by
association-sponsored plans immediately prior to enactment of Chapter
1128 of the Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with the requirements set
forth in Section 10198.9.

10718.7.  Notwithstanding any other provision of law, no provision
of this chapter shall be construed to limit the applicability of any
other provision of the Insurance Code unless such provision is in
conflict with the requirements of this chapter.