Health care coverage: rate review.

The definition of 'unreasonable rate increase' now explicitly incorporates the federal PPACA definition (Section 2794 of the Public Health Service Act and 45 C.F.R. Section 154.102 as in effect on January 1, 2026) for the 'otherwise unreasonable' prong, aligning state law more closely with federal standards.

For insurers (as opposed to health care service plans), the financial capacity measure 'risk-based capital' is removed from the list of measures the commissioner must consider, leaving only working capital, payouts to shareholders and investors, reserves and investments, and other measures determined by the department. The language also shifts from 'financial capacity' to 'surplus condition.'

A new provision states that failure by a health care service plan or health insurer to sufficiently provide all information required by the section shall constitute an unreasonable rate. This creates a direct penalty for non-compliance with information submission requirements.

Departments are now authorized to implement, interpret, or make specific the new provisions through plan letters, guidance, methodologies, rules, definitions, policies, forms, templates, and data requests without taking formal regulatory action, notwithstanding the Administrative Procedure Act requirements in Government Code Section 11340.

Plans and insurers must now provide information on premiums, deductibles, cost sharing, and any other factors specified by the department as necessary to complete the aggregate affordability reports, as part of the existing rate submission process.

The requirement for plans and insurers to demonstrate the impact of cost targets is simplified. The old version required demonstrating impact on 'rate development, including medical trends, medical inflation, and medical administrative costs' and explaining reconciliation with OHA analysis when asserting specific cost drivers. The new version requires only demonstrating 'the impact of cost targets established under the authority granted by Chapter 2.6.'

The affordability evaluation now covers an individual, a couple, AND a family of four (previously only an individual and a family of four). The department must also report on whether rates meet the affordability standard by plan/policy and in aggregate in its regular rate reports.

The term 'enhanced rate review' is replaced with 'evaluate as part of the rate review process,' removing the characterization of a separate or elevated review process. The relationship with the Office of Health Care Affordability is changed from 'in collaboration with' to 'in consultation with,' and a new permissive consultation provision is added to the intent section.

Removed the formal enrolled bill header including Senate passage date (August 25, 2026), Assembly passage date (August 24, 2026), Secretary of the Senate line, Chief Clerk of the Assembly line, and Private Secretary of the Governor receipt line.

Added website navigation and UI elements including skip-to-content links, FAQ, feedback, sitemap, login, quick search fields, bill version history list, share buttons, and a date published timestamp (08/27/2026 9:00 PM).

New Section 1385.035(d) requires the DMHC director to consider whether a health care service plan has sufficient or excessive tangible net equity when determining if a rate increase is unreasonable, with a savings clause that implementation must not conflict with financial solvency provisions in the chapter.

New Section 10181.35(d) requires the Insurance Commissioner to consider whether a health insurer has sufficient or excessive risk-based capital when determining if a rate increase is unreasonable, with a similar savings clause protecting financial solvency provisions.

The enhanced rate review for affordability (in both Section 1385.035 and Section 10181.35) is now explicitly described as being conducted 'as part of the existing rate review process' rather than as a standalone new review, and the language shifts from 'determine if health care premiums are affordable' to 'consider if health care premium rates are affordable.'

The cost target demonstration requirement in both Section 1385.035(b) and Section 10181.35(b) is simplified from 'demonstrate the impact of any changes in the rate of growth in health care costs resulting from the health care cost targets' to 'demonstrate the impact of cost targets...on rate development,' removing redundant phrasing.

The state-mandated local program designation is confirmed as 'yes' (the prior version showed a markup transition from 'no' to 'yes'), meaning local agencies will incur costs from implementing this bill and the reimbursement analysis applies.

Plans and insurers whose rate growth is expected to exceed the cost target for a rating period must now include in their rate filing: (1) a detailed list of proactive steps being taken or planned to meet cost targets, (2) a delineation of factors driving increases above targets including medical trends, inflation, pharmaceutical prices, administrative costs, and nonmedical drivers like consumer aging or supply constraints, and (3) reconciliation with Office of Health Care Affordability analysis if the plan used a cost driver OHC has published on.

For insurers, 'risk-based capital' is removed from the list of specific financial capacity measures. The analysis now focuses on 'surplus condition' using working capital, payouts to shareholders and investors, reserves and investments, and other measures determined by the department.

The enhanced rate review language is refined to specify that it will evaluate whether rates meet the affordability standard for an individual and a family of four at 200, 400, and 800 percent of the federal poverty level, making the income benchmarks more explicit in the operative text.

A new exemption is added: the rate review provisions in both Section 1385.035 (health care service plans) and Section 10181.35 (insurers) do not apply to specialized health care service plans or specialized health insurance policies, respectively.

The definition of 'unreasonable rate increase' for both plans and insurers now incorporates the federal standard by adding 'as defined by PPACA and Section 154.102 of Title 45 of the Code of Federal Regulations as in effect on January 1, 2026,' aligning state law with a specific snapshot of federal regulations.

The term 'collaboration' with the Office of Health Care Affordability is changed to 'consultation' in both the plan and insurer sections, suggesting a less formal interagency relationship. The term 'affordable' is replaced with 'the affordability standard' throughout.

Financial capacity review expanded from a single measure (tangible net equity for plans, risk-based capital for insurers) to a multi-measure analysis over the past three years, now including working capital, payouts to shareholders and investors (if for-profit), reserves and investments, and other measures determined by the department.

New provision requiring that if a plan's or insurer's financial capacity is found to be excessive, the department must consider whether the entity could charge enrollees or insureds a lower rate than proposed when determining if the rate increase is unreasonable.

The affordability review must now specifically examine rates and cost sharing for an individual and a family of four at 200 percent, 400 percent, and 800 percent of the federal poverty level.

Removed the requirement in subsection (c) that the director or commissioner consider 'any excessive tangible net equity' of the plan or insurer when determining whether a rate is unreasonable or not justified; this consideration was folded into the expanded financial capacity analysis in subsection (d).

Added a statutory definition of 'affordable' for the enhanced rate review: a plan or policy requires no greater individual contribution to premium, share of premium, and deductible than the amount described in Section 61020 of the Revenue and Taxation Code.

Affordability determinations must be reported as part of the existing reporting requirements under Section 1385.045 (for plans) and Section 10181.45 (for insurers).

Entirely new sections (HSC 1385.01 and IC 10181) added, defining terms including 'blended,' 'community rated,' 'experience rated,' 'geographic region' (with specific county groupings for large group market), 'large group' and 'small group' contracts/policies, 'PPACA,' and 'unreasonable rate increase.'

The definition of 'unreasonable rate increase' was changed from referencing the federal PPACA/CMS determination to a state-based standard: a rate increase that the DMHC Director or Insurance Commissioner determines is excessive, unjustified, unfairly discriminatory, or otherwise unreasonable. This shifts regulatory authority from federal to state.

Plans and insurers must now demonstrate the impact of cost targets on 'rate development, including medical trends, medical inflation, and medical administrative costs' rather than just the impact on changes in the rate of growth. Additionally, if a plan or insurer claims aging, high-cost drugs, or other cost drivers explain a rate increase, it must explain how it reconciles this with analysis published by the Office of Health Care Affordability.

The DMHC Director and Insurance Commissioner must now consider 'any excessive tangible net equity' of the plan or insurer when determining whether a rate is unreasonable or not justified. This was not present in the introduced version.

The enhanced rate review must now include the annual change in premiums and cost sharing for the prior five years, specifically including deductibles, copayments, coinsurance, and any other cost sharing that impacts actuarial value. The original only required determining if premiums are affordable.

A willful violation of the new provisions by a health care service plan is now a misdemeanor crime, which changes the state-mandated local program designation from 'no' to 'yes' and adds a reimbursement provision (Section 5).

The bill's scope expanded from amending two code sections (HSC 1367.035 and IC 10181.35) to amending four code sections (HSC 1385.01, HSC 1385.035, IC 10181, and IC 10181.35), adding parallel definitional provisions for both the managed care and insurance regulatory frameworks.