2010 California Code
Health and Safety Code
Article 3.1. Small Employer Group Access To Contracts For Health Care Services

1357.  As used in this article:
   (a) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health care plan contract
covering the employee, and includes dependents of guaranteed
association members if the association elects to include dependents
under its health coverage at the same time it determines its
membership composition pursuant to subdivision (o).
   (b) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, at the small employer's regular
places of business, who has met any statutorily authorized
applicable waiting period requirements. The term includes sole
proprietors or partners of a partnership, if they are actively
engaged on a full-time basis in the small employer's business and
included as employees under a health care plan contract of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis. It includes any eligible employee, as
defined in this paragraph, who obtains coverage through a guaranteed
association. Employees of employers purchasing through a guaranteed
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer. Permanent employees who work at least 20
hours but not more than 29 hours are deemed to be eligible employees
if all four of the following apply:
   (A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
   (B) The employer offers the employees health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (o).
   (c) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
   (d) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan and who subsequently requests
enrollment in a health benefit plan of that small employer, provided
that the initial enrollment period shall be a period of at least 30
days. It also means any member of an association that is a guaranteed
association as well as any other person eligible to purchase through
the guaranteed association when that person has failed to purchase
coverage during the initial enrollment period provided under the
terms of the guaranteed association's plan contract and who
subsequently requests enrollment in the plan, provided that the
initial enrollment period shall be a period of at least 30 days.
However, an eligible employee, any other person eligible for coverage
through a guaranteed association pursuant to subdivision (o), or an
eligible dependent shall not be considered a late enrollee if any of
the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan, the Healthy Families Program, the Access for Infants and
Mothers (AIM) Program, or the Medi-Cal program at the time the
individual was eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, the AIM Program, or the Medi-Cal program was the
reason for declining enrollment, provided that, if the individual was
covered under another employer health plan, the individual was given
the opportunity to make the certification required by this
subdivision and was notified that failure to do so could result in
later treatment as a late enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the individual
or of a person through whom the individual was covered as a
dependent, termination of the other plan's coverage, cessation of an
employer's contribution toward an employee or dependent's coverage,
death of the person through whom the individual was covered as a
dependent, legal separation, or divorce; or he or she has lost or
will lose coverage under the Healthy Families Program, the AIM
Program, or the Medi-Cal program.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan, or requests enrollment within
60 days after termination of Medi-Cal program coverage, AIM Program
coverage, or Healthy Families Program coverage.
   (2) The employer offers multiple health benefit plans and the
employee elects a different plan during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee, as defined in
paragraph (1) of subdivision (b), the plan cannot produce a written
statement from the employer stating that the individual or the person
through whom the individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed, acknowledgment of an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the plan to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion, unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an association member who did not purchase
coverage through a guaranteed association, the plan cannot produce a
written statement from the association stating that the association
sent a written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or meets the requirements of
paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or meets the requirements of paragraph (2) or (3), or
that he or she recently had a change in status that would make him or
her eligible and that application for enrollment was made within 30
days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted. For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 1373.621 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her coverage under the Healthy
Families Program, the AIM Program, or the Medi-Cal program and
requests enrollment within 60 days after termination of that
coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies. Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period. That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan. The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated. Upon enrollment, coverage shall
be effective not later than the first day of the first calendar month
beginning after the date the request for enrollment is received.
Notice of the special enrollment rights contained in this paragraph
shall be provided by the employer to an employee at or before the
time the employee is offered an opportunity to enroll in plan
coverage.
   (e) "New business" means a health care service plan contract
issued to a small employer that is not the plan's in force business.
   (f) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the employee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (g) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (h) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than six
months.
   (i) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (j) "Risk adjustment factor" means the percentage adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
cost of services. This factor may not be more than 120 percent or
less than 80 percent until July 1, 1996. Effective July 1, 1996, this
factor may not be more than 110 percent or less than 90 percent.
   (k) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family composition of
the employee, plus the health benefit plan selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the plan
contract will be primary or secondary to benefits provided by the
Medicare Program pursuant to Title XVIII of the federal Social
Security Act (42 U.S.C. Sec. 1395 et seq.).
   (2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:
   (A) Single.
   (B) Married couple.
   (C) One adult and child or children.
   (D) Married couple and child or children.
   (3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county, and
divide no county into more than two regions. Plans shall be deemed to
be operating statewide if their coverage area includes 90 percent or
more of the state's population. Geographic regions established
pursuant to this section shall, as a group, cover the entire state,
and the area encompassed in a geographic region shall be separate and
distinct from areas encompassed in other geographic regions.
Geographic regions may be noncontiguous.
   (B) (i) In determining rates for small employers, a plan that does
not operate statewide shall use no more than the number of
geographic regions in the state that is determined by the following
formula: the population, as determined in the last federal census, of
all counties that are included in their entirety in a plan's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No plan
shall have less than one geographic area.
   (ii) If the formula in clause (i) results in a plan that operates
in more than one county having only one geographic region, then the
formula in clause (i) shall not apply and the plan may have two
geographic regions, provided that no county is divided into more than
one region.
   Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan's existing service area.
   (l) "Small employer" means either of the following:
   (1) Any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least two, but no more than 50, eligible employees,
the majority of whom were employed within this state, that was not
formed primarily for purposes of buying health care service plan
contracts, and in which a bona fide employer-employee relationship
exists. In determining whether to apply the calendar quarter or
calendar year test, a health care service plan shall use the test
that ensures eligibility if only one test would establish
eligibility. However, for purposes of subdivisions (a), (b), and (c)
of Section 1357.03, the definition shall include employers with at
least three eligible employees until July 1, 1997, and two eligible
employees thereafter. In determining the number of eligible
employees, companies that are affiliated companies and that are
eligible to file a combined tax return for purposes of state taxation
shall be considered one employer. Subsequent to the issuance of a
health care service plan contract to a small employer pursuant to
this article, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually. Except as
otherwise specifically provided in this article, provisions of this
article that apply to a small employer shall continue to apply until
the plan contract anniversary following the date the employer no
longer meets the requirements of this definition. It includes any
small employer as defined in this paragraph who purchases coverage
through a guaranteed association, and any employer purchasing
coverage for employees through a guaranteed association.
   (2) Any guaranteed association, as defined in subdivision (n),
that purchases health coverage for members of the association.
   (m) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (n) "Guaranteed association" means 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 employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in paragraph (1) of subdivision (l), (2) does
not condition membership directly or indirectly on the health or
claims history of any person, (3) 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 to the association, (4) is
organized and maintained in good faith for purposes unrelated to
insurance, (5) has been in active existence on January 1, 1992, and
for at least five years prior to that date, (6) has included health
insurance as a membership benefit for at least five years prior to
January 1, 1992, (7) has a constitution and bylaws, or other
analogous governing documents that provide for election of the
governing board of the association by its members, (8) offers any
plan contract that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the plan contracts offered to the association provided that
the member has agreed to make the required premium payments, and
(10) covers at least 1,000 persons with the health care service plan
with which it contracts. The requirement of 1,000 persons may be met
if component chapters of a statewide association contracting
separately with the same carrier cover at least 1,000 persons in the
aggregate.
   This subdivision applies regardless of whether a contract issued
by a plan is with an association, or a trust formed for or sponsored
by an association, to administer benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (o) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion, it
also may include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include these persons as members of the
guaranteed association, the association shall make that election in
advance of purchasing a plan contract. Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
   (p) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.



1357.01.  Every health care service plan offering plan contracts to
small employer groups shall in addition to complying with the
provisions of this chapter and the rules adopted thereunder comply
with the provisions of this article.


1357.02.  (a) A health care service plan providing or arranging for
the provision of basic health care services to small employers shall
be subject to this article if either of the following conditions are
met:
   (1) Any portion of the premium 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.
   (2) The plan contract 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.
   (b) This article shall not apply to health plan contracts for
coverage of Medicare services pursuant to contracts with the United
States government, Medicare supplement, Medi-Cal contracts with the
State Department of Health Services, long-term care coverage, or
specialized health plan contracts.



1357.025.  Nothing in this article shall be construed to preclude
the application of this chapter to either of the following:
   (a) An association, trust, or other organization acting as a
"health care service plan" as defined under Section 1345.
   (b) An association, trust, or other organization or person
presenting information regarding a health care service plan to
persons who may be interested in subscribing or enrolling in the
plan.


1357.03.  (a) (1) Upon the effective date of this article, a plan
shall fairly and affirmatively offer, market, and sell all of the
plan's health care service plan contracts that are sold to small
employers or to associations that include small employers to all
small employers in each service area in which the plan provides or
arranges for the provision of health care services.
   (2) Each plan shall make available to each small employer all
small employer health care service plan contracts that the plan
offers and sells to small employers or to associations that include
small employers in this state.
   (3) No plan or solicitor shall induce or otherwise encourage a
small employer to separate or otherwise exclude an eligible employee
from a health care service plan contract that is provided in
connection with the employee's employment or membership in a
guaranteed association.
   (4) A plan contracting to participate in the voluntary purchasing
pool for small employers provided for under Article 4 (commencing
with Section 10730) of Chapter 8 of Part 2 of Division 2 of the
Insurance Code shall be deemed in compliance with the requirements of
paragraph (1) for a contract offered through the voluntary
purchasing pool established under Article 4 (commencing with Section
10730) of Chapter 8 of Part 2 of Division 2 of the Insurance Code in
those geographic regions in which plans participate in the pool, if
the contract is offered exclusively through the pool.
   (5) (A) A plan shall be deemed to meet the requirements of
paragraphs (1) and (2) with respect to a plan contract that qualifies
as a grandfathered health plan under Section 1251 of PPACA if all of
the following requirements are met:
   (i) The plan offers to renew the plan contract, unless the plan
withdraws the plan contract from the small employer market pursuant
to subdivision (e) of Section 1357.11.
   (ii) The plan provides appropriate notice of the grandfathered
status of the contract in any materials provided to an enrollee of
the contract describing the benefits provided under the contract, as
required under PPACA.
   (iii) The plan makes no changes to the benefits covered under the
plan contract other than those required by a state or federal law,
regulation, rule, or guidance and those permitted to be made to a
grandfathered health plan under PPACA.
   (B) For purposes of this paragraph, "PPACA" means the federal
Patient Protection and Affordable Care Act (Public Law 111-148), as
amended by the federal Health Care and Education Reconciliation Act
of 2010 (Public Law 111-152), and any rules, regulations, or guidance
issued thereunder. For purposes of this paragraph, a "grandfathered
health plan" shall have the meaning set forth in Section 1251 of
PPACA.
   (b) Every plan shall file with the director the reasonable
employee participation requirements and employer contribution
requirements that will be applied in offering its plan contracts.
Participation requirements shall be applied uniformly among all small
employer groups, except that a plan may vary application of minimum
employee 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 health care service plan shall not
establish a participation requirement that (1) requires a person who
meets the definition of a dependent in subdivision (a) of Section
1357 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 plan 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
under subdivision (o) of Section 1357, 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 plan's reasonable participation standards.
   (c) The plan shall not reject an application from a small employer
for a health care service plan contract if all of the following are
met:
   (1) The small employer, as defined by paragraph (1) of subdivision
(l) of Section 1357, offers health benefits to 100 percent of its
eligible employees, as defined by paragraph (1) of subdivision (b) of
Section 1357. 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.
   (3) The small employer agrees to inform the small employers'
employees of the availability of coverage and the provision that
those not electing coverage must wait one year to obtain coverage
through the group if they later decide they would like to have
coverage.
   (4) The employees and their dependents who are to be covered by
the plan contract work or reside in the service area in which the
plan provides or otherwise arranges for the provision of health care
services.
   (d) No plan or solicitor 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 plan because of the health status,
claims experience, industry, occupation of the small employer, or
geographic location provided that it is within the plan's approved
service area.
   (2) Encourage or direct small employers to seek coverage from
another plan or the voluntary purchasing pool established under
Article 4 (commencing with Section 10730) of Chapter 8 of Part 2 of
Division 2 of the Insurance Code because of the health status, claims
experience, industry, occupation of the small employer, or
geographic location provided that it is within the plan's approved
service area.
   (e) A plan shall not, directly or indirectly, enter into any
contract, agreement, or arrangement with a solicitor that provides
for or results in the compensation paid to a solicitor for the sale
of a health care service plan contract to be varied because of the
health status, claims experience, industry, occupation, or geographic
location of the small employer. This subdivision does not apply to a
compensation arrangement that provides compensation to a solicitor
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.
   (f) A policy or contract that covers two or more employees shall
not establish rules for eligibility, including continued eligibility,
of an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health
status-related factors:
   (1) Health status.
   (2) Medical condition, including physical and mental illnesses.
   (3) Claims experience.
   (4) Receipt of health care.
   (5) Medical history.
   (6) Genetic information.
   (7) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (8) Disability.
   (g) A plan shall comply with the requirements of Section 1374.3.



1357.035.  (a) Between July 26, 1993, and October 24, 1993, as well
as 60 days prior to the expiration of an existing plan contract that
expires prior to July 1, 1994, or, for plan 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 1357, 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 1357, (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, plans 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 plan contract that expires prior to July 1,
1994, or, for plan contracts expiring after July 1, 1994, 90 days
prior to July 1, 1994, health plans 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.



1357.04.  (a) After a small employer submits a completed application
form for a plan contract, the plan shall, within 30 days, notify the
employer of the employer's actual premium charges for that plan
contract established in accordance with Section 1357.12. The employer
shall have 30 days in which to exercise the right to buy coverage at
the quoted premium charges.
   (b) When a small employer submits a premium payment, based on the
quoted premium charges, and that payment is delivered or postmarked,
whichever occurs earlier, within the first 15 days of the month,
coverage under the plan contract 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 after the effective date of the plan
contract, the small employer shall have the option of changing
coverage to a different plan contract offered by the same health care
service plan. If a small employer notifies the plan of the change
within the first 15 days of a month, coverage under the new plan
contract shall become effective no later than the first day of the
following month. If a small employer notifies the plan of the change
after the 15th day of a month, coverage under the new plan contract
shall become effective no later than the first day of the second
month following notification.



1357.05.  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 plan may not exclude any eligible employee
or dependent who would otherwise be entitled to health care services
on the basis of an actual or expected health condition of that
employee or dependent. No plan contract 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 1357.06.



1357.06.  (a) (1) Preexisting condition provisions of a plan
contract 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 prescription drugs, was recommended or received
from a licensed health practitioner during the six months immediately
preceding the effective date of coverage.
   (2) Notwithstanding paragraph (1), a plan contract offered to a
small employer shall not impose any preexisting condition provision
upon any child under 19 years of age.
   (b) A plan 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 article shall become
effective. During the waiting or affiliation period no premiums shall
be charged to the enrollee or the subscriber.
   (c) In determining whether a preexisting condition provision or a
waiting or affiliation 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 plan contract within the applicable
enrollment period. A plan shall also credit any time an eligible
employee must wait before enrolling in the plan, including any
affiliation 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 plan contract
within the applicable enrollment period.
   (d) In addition to the preexisting condition exclusions authorized
by subdivision (a) and the waiting or affiliation period authorized
by subdivision (b), health plans 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 article shall become effective. During the waiting or
affiliation period, no premiums shall be charged to the enrollee or
the subscriber.
   (e) An individual's period of creditable coverage shall be
certified pursuant to subdivision (e) of Section 2701 of Title XXVII
of the federal Public Health Services Act (42 U.S.C. Sec. 300gg(e)).
   (f) A health care service plan issuing group coverage may not
impose a preexisting condition exclusion to a condition relating to
benefits for pregnancy or maternity care.



1357.07.  No plan contract may exclude late enrollees from coverage
for more than 12 months from the date of the late enrollees
application for coverage. No premium shall be charged to the late
enrollee until the exclusion period has ended.




1357.08.  All health care service plan contracts offered to a small
employer shall provide to subscribers and enrollees at least all of
the basic health care services included in subdivision (b) of Section
1345, and in Section 1300.67 of the California Code of Regulations.



1357.09.  No plan shall be required to offer a health care service
plan contract or accept applications for the contract pursuant to
this article in the case of any of the following:
   (a) To a small employer, if the small employer is not physically
located in a plan's approved service areas, or if an eligible
employee and dependents who are to be covered by the plan contract do
not work or reside within a plan's approved service areas.
   (b) (1) Within a specific service area or portion of a service
area, if a plan reasonably anticipates and demonstrates to the
satisfaction of the director that it will not have sufficient health
care delivery resources to assure that health care services will be
available and accessible to the eligible employee and dependents of
the employee because of its obligations to existing enrollees.
   (2) A plan that cannot offer a health care service plan contract
to small employers because it is lacking in sufficient health care
delivery resources within a service area or a portion of a service
area may not offer a contract in the area in which the plan is not
offering coverage to small employers to new employer groups with more
than 50 eligible employees until the plan notifies the director that
it has the ability to deliver services to small employer groups, and
certifies to the director that from the date of the notice it will
enroll all small employer groups requesting coverage in that area
from the plan unless the plan has met the requirements of subdivision
(d).
   (3) Nothing in this article shall be construed to limit the
director's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity has become
impaired.
   (c) Offer coverage to a small employer or an eligible employee as
defined under paragraph (2) of subdivision (b) of Section 1357 that,
within 12 months of application for coverage, disenrolled from a plan
contract offered by the plan.
   (d) (1) The director approves the plan's certification that the
number of eligible employees and dependents enrolled under contracts
issued during the current calendar year equals or exceeds either of
the following:
   (A) In the case of a plan that administers any self-funded health
coverage arrangements in California, 10 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year.
   (B) In the case of a plan that does not administer any self-funded
health coverage arrangements in California, 8 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year. If that certification is approved, the plan shall not
offer any health care service plan contract to any small employers
during the remainder of the current year.
   (2) If a health care service plan treats an affiliate or
subsidiary as a separate carrier for the purpose of this article
because one health care service plan is qualified under the federal
Health Maintenance Organization Act (42 U.S.C. Sec. 300e et seq.) and
does not offer coverage to small employers, while the affiliate or
subsidiary offers a plan contract that is not qualified under the
federal Health Maintenance Organization Act (42 U.S.C. Sec. 300e et
seq.) and offers plan contracts to small employers, the health care
service plan offering coverage to small employers shall enroll new
eligible employees and dependents, equal to the applicable percentage
of the total enrollment of both the health care service plan
qualified under the federal Health Maintenance Organization Act (42
U.S.C. Sec. 300e et seq.) and its affiliate or subsidiary.
   (3) (A) The certified statement filed pursuant to this subdivision
shall state the following:
   (i) Whether the plan administers any self-funded health coverage
arrangements in California.
   (ii) The plan's total enrollment as of December 31 of the
preceding year.
   (iii) The number of eligible employees and dependents enrolled
under contracts issued to small employer groups during the current
calendar year.
   (B) The director shall, within 45 days, approve or disapprove the
certified statement. If the certified statement is disapproved, the
plan shall continue to issue coverage as required by Section 1357.03
and be subject to disciplinary action as set forth in Article 7
(commencing with Section 1386).
   (e) A health care service plan that, as of December 31 of the
prior year, had a total enrollment of fewer than 100,000 and 50
percent or more of the plan's total enrollment have premiums paid by
the Medi-Cal program.
   (f) A social health maintenance organization, as described in
subdivision (a) of Section 2355 of the federal Deficit Reduction Act
of 1984 (P.L. 98-369), that, as of December 31 of the prior year, had
a total enrollment of fewer than 100,000 and has 50 percent or more
of the organization's total enrollment premiums paid by the Medi-Cal
program or Medicare programs, or by a combination of Medi-Cal and
Medicare. In no event shall this exemption be based upon enrollment
in Medicare supplement contracts, as described in Article 3.5
(commencing with Section 1358).


1357.10.  The director may require a plan to discontinue the
offering of contracts or acceptance of applications from any small
employer or group with more than 50 employees upon a determination by
the director that the plan does not have sufficient financial
viability, or organizational and administrative capacity to assure
the delivery of health care services to its enrollees. In determining
whether the conditions of this section have been met, the director
shall consider, but not be limited to, the plan's compliance with the
requirements of Section 1367, Article 6 (commencing with Section
1375), and the rules adopted thereunder.




1357.12.  Premiums for contracts offered or delivered by plans on or
after the effective date of this article 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 plan'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 plan's applicable standard employee risk
rate until July 1, 1996. Effective July 1, 1996, this factor 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 plan'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 plan's applicable standard
employee risk rate until July 1, 1996. Effective July 1, 1996, this
factor 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 contract that a plan has discontinued offering, the risk
adjustment factor applied to the standard employee risk rates for
the first rating period of the new contract 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
contract. However, the risk adjusted employee risk rate may not be
more than 120 percent or less than 80 percent of the plan's
applicable standard employee risk rate until July 1, 1996. Effective
July 1, 1996, this factor 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 plan 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 plan may reserve the
right to redetermine the composite rates if the enrollment under the
contract 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 plan
reserves the right to redetermine the rates and the enrollment
changes more than the specified percentage, the plan shall
redetermine the composite rates if the redetermined rates would
result in a lower premium for the small employer. A plan 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.




1357.13.  Plans shall apply standard employee risk rates
consistently with respect to all small employers.



1357.14.  In connection with the offering for sale of any plan
contract to a small employer, each plan shall make a reasonable
disclosure, as part of its solicitation and sales materials, of the
following:
   (a) The extent to which premium rates for a specified small
employer are established or adjusted in part based upon the actual or
expected variation in service costs or actual or expected variation
in health condition of the employees and dependents of the small
employer.
   (b) The provisions concerning the plan's right to change premium
rates and the factors other than provision of services experience
that affect changes in premium rates.
   (c) Provisions relating to the guaranteed issue and renewal of
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 contract written, issued, or administered by the plan at the
time of application for a new health care service plan contract, or
at the time of renewal of a health care service plan contract.
   (f) The availability, upon request, of a listing of all the plan's
contracts and benefit plan designs offered to small employers,
including the rates for each contract.
   (g) At the time it offers a contract to a small employer, each
plan shall provide the small employer with a statement of all of its
plan contracts offered to small employers, including the rates for
each plan contract, in the service area in which the employer's
employees and eligible dependents who are to be covered by the plan
contract work or reside. For purposes of this subdivision, plans that
are affiliated plans or that are eligible to file a consolidated
income tax return shall be treated as one health plan.
   (h) Each plan shall do all of the following:
   (1) Prepare a brochure that summarizes all of its plan contracts
offered to small employers and to make this summary available to any
small employer and to solicitors upon request. The summary shall
include for each contract 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 the manner in which creditable coverage is calculated
if a preexisting condition or affiliation period is imposed, and a
phone number that can be called for more detailed benefit
information. Plans are required to keep the information contained in
the brochure accurate and up to date and, upon updating the brochure,
send copies to solicitors and solicitor firms with whom the plan
contracts to solicit enrollments or subscriptions.
   (2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.
   (3) Provide to small employers and solicitors, upon request, for
any given small employer the sum of the standard employee risk rates
and the sum of the risk adjusted employee risk rates. When requesting
this information, small employers, solicitors, and solicitor firms
shall provide the plan with the information the plan needs to
determine the small employer's risk adjusted employee risk rate.
   (4) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.
   For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.
   (i) Every solicitor or solicitor firm contracting with one or more
plans to solicit enrollments or subscriptions from small employers
shall do all of the following:
   (1) When providing information on contracts to a small employer
but making no specific recommendations on particular plan contracts:
   (A) Advise the small employer of the plan's obligation to sell to
any small employer any plan contract it offers to small employers and
provide them, upon request, with the actual rates that would be
charged to that employer for a given contract.
   (B) Notify the small employer that the solicitor or solicitor firm
will procure rate and benefit information for the small employer on
any plan contract offered by a plan whose contract the solicitor
sells.
   (C) Notify the small employer that upon request the solicitor or
solicitor firm will provide the small employer with the summary
brochure required under paragraph (1) of subdivision (h) for any plan
contract offered by a plan with whom the solicitor or solicitor firm
has contracted with to solicit enrollments or subscriptions.
   (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 (h) 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 contract:
   (A) For each of the plan contracts offered by the plan whose
contract the solicitor or solicitor firm is offering, provide the
small employer with the benefit summary required in paragraph (1) of
subdivision (h) and the sum of the standard employee risk rates for
that particular employer.
   (B) Notify the small employer that, upon request, the solicitor or
solicitor firm will provide the small employer with an evidence of
coverage brochure for each contract the plan 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 plan
assesses the risk of the small employer's group.
   (D) Notify the small employer that, upon request, the solicitor or
solicitor firm will submit information to the plan to ascertain the
small employer's sum of the risk adjusted employee risk rate for any
contract the plan offers.
   (E) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this section.



1357.15.  (a) At least 20 business days prior to renewing or
amending a plan contract subject to this article which will be in
force on the operative date of this article, a plan shall file a
notice of material modification with the director in accordance with
the provisions of Section 1352. The notice of material modification
shall include a statement certifying that the plan is in compliance
with subdivision (j) of Section 1357 and Section 1357.12. The
certified statement shall set forth the standard employee risk rate
for each risk category and the highest and lowest risk adjustment
factors that will be used in setting the rates at which the contract
will be renewed or amended. Any action by the director, as permitted
under Section 1352, to disapprove, suspend or postpone the plan's use
of a plan contract shall be in writing, specifying the reasons that
the plan contract does not comply with the requirements of this
chapter.
   (b) At least 20 business days prior to offering a plan contract
subject to this article, all plans shall file a notice of material
modification with the director in accordance with the provisions of
Section 1352. The notice of material modification shall include a
statement certifying that the plan is in compliance with subdivision
(j) of Section 1357 and Section 1357.12. The certified statement
shall set forth the standard employee risk rate for each risk
category and the highest and lowest risk adjustment factors that will
be used in setting the rates at which the contract will be offered.
Plans that will be offering to a small employer plan contracts
approved by the director prior to the effective date of this article
shall file a notice of material modification in accordance with this
subdivision. Any action by the director, as permitted under Section
1352, to disapprove, suspend or postpone the plan's use of a plan
contract shall be in writing, specifying the reasons that the plan
contract does not comply with the requirements of this chapter.
   (c) Prior to making any changes in the risk categories, risk
adjustment factors or standard employee risk rates filed with the
director pursuant to subdivision (a) or (b), the plan shall file as
an amendment a statement setting forth the changes and certifying
that the plan is in compliance with subdivision (j) of Section 1357
and Section 1357.12. A plan may commence offering plan contracts
utilizing the changed risk categories set forth in the certified
statement on the 31st day from the date of the filing, or at an
earlier time determined by the director, unless the director
disapproves the amendment by written notice, stating the reasons
therefor. If only the standard employee risk rate is being changed,
and not the risk categories or risk adjustment factors, a plan may
commence offering plan contracts utilizing the changed standard
employee risk rate upon filing the certified statement unless the
director disapproves the amendment by written notice.
   (d) Periodic changes to the standard employee risk rate that a
plan proposes to implement over the course of up to 12 consecutive
months may be filed in conjunction with the certified statement filed
under subdivision (a), (b), or (c).
   (e) Each plan shall maintain at its principal place of business
all of the information required to be filed with the director
pursuant to this section.
   (f) Each plan shall make available to the director, on request,
the risk adjustment factor used in determining the rate for any
particular small employer.
   (g) Nothing in this section shall be construed to limit the
director's authority to enforce the rating practices set forth in
this article.


1357.16.  (a) Health care service plans 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. Health
care service plans 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 health care service plan shall permit all
qualified associations to assume one or more of these functions when
the health care service plan determines the qualified association
demonstrates 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 health care
service plan or through a third-party administrator on a commission
basis or an agent or solicitor workforce on a commission basis.
   Each health care service plan 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 health care service plan has permitted the qualified association
or its third-party administrator to assume. The health care service
plan shall apply these uniform discounts to the health care service
plan's risk adjusted employee risk rates after the health plan has
determined the qualified association's risk adjusted employee risk
rates pursuant to Section 1357.12. The health care service plan shall
report to the Department of Managed Health Care its schedule of
discount for each administrative service.
   In no instance may a health care service plan 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 director to enforce this chapter, the director may declare a
contract between a health care service plan and a qualified
association for administrative services pursuant to this section null
and void if the director 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 only to association members any plan
contract.
   (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 Section 1357.52.
   (d) The department shall monitor compliance with this section and
report the impact of any noncompliance to the Assembly Insurance
Committee and the Senate Insurance Committee on January 1, 2002.



1357.17.  The director may issue regulations that are necessary to
carry out the purposes of this article. Prior to the public comment
period required on the regulations under the Administrative Procedure
Act, the director shall provide the Insurance Commissioner with a
copy of the proposed regulations. The Insurance Commissioner shall
have 30 days to notify the director in writing of any comments on the
regulations. The Insurance Commissioner's comments shall be included
in the public notice issued on the regulations. Any rules and
regulations adopted pursuant to this article 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 and safety or general welfare.