SB1037 - Health care coverage: rate review.

Enrolled August 27, 2026 Passed IN Senate August 25, 2026 Passed IN Assembly August 24, 2026 Amended IN Assembly August 18, 2026 Amended IN Assembly July 02, 2026 Amended IN Assembly June 22, 2026 Amended IN Senate May 14, 2026 Amended IN Senate April 07, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Senate Bill No. 1037 Introduced by Senator Weber Pierson February 11, 2026 An act to amend Sections 1385.01 and 1385.035 of the Health and Safety Code, and to amend Sections 10181 and 10181.35 of the Insurance Code, relating to health care coverage. LEGISLATIVE COUNSEL'S DIGEST SB 1037, Weber Pierson. Health care coverage: rate review. Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a violation of the act by a health care service plan a misdemeanor. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law defines “unreasonable rate increase,” for these purposes, to have the same meaning as in the federal Patient Protection and Affordable Care Act, which is that an unreasonable rate increase exists when the federal Centers for Medicare and Medicaid Services makes a determination that a rate increase is excessive, unjustified, or unfairly discriminatory, among other things. This bill would instead define “unreasonable rate increase,” for the above-described purposes, to mean a rate increase that the Director of the Department of Managed Health Care or the Insurance Commissioner, as applicable, determines is excessive, unjustified, unfairly discriminatory, or otherwise unreasonable. Existing law requires a health care service plan or health insurer to submit rates to their regulating entity for review and to demonstrate the impact of any changes in the rate of growth of health care costs resulting from health care cost targets. This bill would instead require a health care service plan or health insurer to demonstrate the impact of health care cost targets and to demonstrate whether a health care service plan’s or health insurer’s annual rate growth exceeds or will exceed the cost target for the rating period. The bill would require, if a health care service plan’s or health insurer’s rate growth is expected to exceed the cost target for a rating period, the health care service plan or health insurer to include specified information in its rate filing, including, among other things, a detailed list of any proactive steps it is taking, or plans to take, for annual rate growth to meet the cost targets. Because a willful violation of these provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program. Existing law requires the director or the commissioner, as applicable, in determining if a rate is unreasonable or not justified for purposes of the above-described review, to consider the impact on changes in health care costs as a result of the health care cost targets described above. This bill would delete those provisions and instead require the Department of Managed Health Care and the Department of Insurance to report on if rates, by plan or policy and in aggregate, meet the affordability standard, as defined, for an individual, a couple, and a family of four. The bill would require the report to include the annual change in premiums and cost sharing for the prior 5 years. The bill would, as part of the existing rate submission process, require a health care service plan or health insurer to provide information on premiums, deductibles, cost sharing, and any other factors specified by the department as necessary to complete the reports. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES Bill Text The people of the State of California do enact as follows: SECTION 1. Section 1385.01 of the Health and Safety Code is amended to read: 1385.01. For purposes of this article, the following definitions shall apply: (a) (1) “Blended” means a rating method that combines community rating and experience rating methods. (2) “Community rated” means a rating method in the large group market that bases rates on the expected costs to a health care service plan of providing covered benefits to all enrollees, including both low-risk and high-risk enrollees. Premiums may vary according to the factors in this article. (3) “Experience rated” means a rating method in the large group market under which a health care service plan calculates the premiums for a large group in whole or blended based on the group’s prior experience. (b) (1) For individual and small group market products, “geographic region” has the same meaning as in Sections 1357.512 and 1399.855. (2) For large group market products, “geographic region” means one of the following areas composed of the regions defined in Sections 1357.512 and 1399.855: (A) An area composed of regions 2, 4, 5, 6, 7, and 8, which consist of the Counties of Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano, and Sonoma and the City and County of San Francisco. (B) An area composed of regions 1 and 3, which consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Placer, Plumas, Sacramento, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yolo, and Yuba. (C) An area composed of regions 9 and 12, which consist of the Counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura. (D) An area composed of regions 10, 11, and 14, which consist of the Counties of Fresno, Kern, Kings, Madera, Mariposa, Merced, San Joaquin, Stanislaus, and Tulare. (E) An area composed of regions 13 and 17, which consist of the Counties of Imperial, Inyo, Mono, Riverside, and San Bernardino. (F) An area composed of regions 15 and 16, which consist of the County of Los Angeles. (G) An area composed of regions 18 and 19, which consist of the Counties of Orange and San Diego. (c) “Large group health care service plan contract” means a group health care service plan contract other than a contract issued to a small employer, as defined in Section 1357, 1357.500, or 1357.600. (d) “Small group health care service plan contract” means a group health care service plan contract issued to a small employer, as defined in Section 1357, 1357.500, or 1357.600. (e) “PPACA” means Section 2794 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal Patient Protection and Affordable Care Act (Public Law (111-148)), and any subsequent rules, regulations, or guidance issued under that section. (f) “Unreasonable rate increase” means a rate increase that the director determines is any of the following: (1) Excessive. (2) Unjustified. (3) Unfairly discriminatory. (4) Otherwise unreasonable. SEC. 2. Section 1385.035 of the Health and Safety Code is amended to read: 1385.035. (a) It is the intent of the Legislature in enacting this section to ensure that enrollees and subscribers benefit from reductions in the rate of growth in health care costs as a result of the establishment of the Office of Health Care Affordability. The department, as part of the existing rate review process, may consult with the Office of Health Care Affordability to consider information submitted pursuant to this article. (b) (1) In submitting rates for review consistent with this article, a health care service plan shall demonstrate the impact of cost targets established under the authority granted by Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107. A health care service plan shall demonstrate whether its annual rate growth exceeds or will exceed the cost target for the rating period. If a health care service plan’s rate growth is expected to exceed the cost target for the rating period, the health care service plan shall include the following in its rate filing: (A) A detailed list of any proactive steps it is taking, or plans to take, for annual rate growth to meet the cost targets. (B) A delineation of factors driving rate increases to exceed the cost targets described in this subdivision. (2) The health care service plan shall respond to any requests for additional information deemed necessary by the department. (c) Failure by a health care service plan to sufficiently provide all information required by this section shall constitute an unreasonable rate. (d) (1) In the aggregate rate reports required pursuant to Sections 1385.043 and 1385.045, the department shall report on if rates, by plan and in aggregate, meet the affordability standard under paragraph (3) for an individual, a couple, and a family of four. The report shall include the annual change in premiums and cost sharing for the prior five years. (2) As part of the existing rate submission process, a health care service plan shall provide, in a manner and format specified by the department, information on premiums, deductibles, cost sharing, and any other factors specified by the department as necessary to complete the reports required pursuant to Sections 1385.043 and 1385.045. (3) For the purposes of this subdivision, “the affordability standard” means that the average gross premium and average deductible totals less than the percent of income described in subdivision (a) of Section 61020 of the Revenue and Taxation Code for an individual, a couple, and a family of four with household incomes at 200 percent of the federal poverty level, 400 percent of the federal poverty level, and 800 percent of the federal poverty level. (e) This section does not apply to a specialized health care service plan. (f) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement, interpret, or make specific this section by means of all plan letters, guidance, methodologies, rules, definitions, policies, forms, templates, information or data requests, or similar instructions, without taking regulatory action. SEC. 3. Section 10181 of the Insurance Code is amended to read: 10181. For purposes of this article, the following definitions shall apply: (a) (1) “Blended” means a rating method that combines community rating and experience rating methods. (2) “Community rated” means a rating method in the large group market that bases rates on the expected costs to a health insurer of providing covered benefits to all insureds, including both low-risk and high-risk insureds. Premiums may vary according to the factors in this article. (3) “Experience rated” means a rating method in the large group market under which a health insurer calculates the premiums for a large group in whole or blended based on the group’s prior experience. (b) (1) For individual and small group market products, “geographic region” has the same meaning as in Sections 10753.14 and 10965.9. (2) For large group market products, “geographic region” means one of the following areas, composed of the regions defined in Sections 10753.14 and 10965.9: (A) An area composed of regions 2, 4, 5, 6, 7, and 8, which consist of the Counties of Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano, and Sonoma and the City and County of San Francisco. (B) An area composed of regions 1 and 3, which consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Placer, Plumas, Sacramento, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yolo, and Yuba. (C) An area composed of regions 9 and 12, which consist of the Counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura. (D) An area composed of regions 10, 11, and 14, which consist of the Counties of Fresno, Kern, Kings, Madera, Mariposa, Merced, San Joaquin, Stanislaus, and Tulare. (E) An area composed of regions 13 and 17, which consist of the Counties of Imperial, Inyo, Mono, Riverside, and San Bernardino. (F) An area composed of regions 15 and 16, which consist of the County of Los Angeles. (G) An area composed of regions 18 and 19, which consist of the Counties of Orange and San Diego. (c) “Large group health insurance policy” means a group health insurance policy other than a policy issued to a small employer, as defined in Section 10700, 10753, or 10755. (d) “Small group health insurance policy” means a group health insurance policy issued to a small employer, as defined in Section 10700, 10753, or 10755. (e) “PPACA” means Section 2794 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal Patient Protection and Affordable Care Act (Public Law 111-148), and any subsequent rules, regulations, or guidance issued pursuant to that law. (f) “Unreasonable rate increase” means a rate increase that the commissioner determines is any of the following: (1) Excessive. (2) Unjustified. (3) Unfairly discriminatory. (4) Otherwise unreasonable. SEC. 4. Section 10181.35 of the Insurance Code is amended to read: 10181.35. (a) It is the intent of the Legislature in enacting this section to ensure that insureds benefit from reductions in the rate of growth in health care costs as a result of the establishment of the Office of Health Care Affordability. The department, as part of the existing rate review process, may consult with the Office of Health Care Affordability to consider information submitted pursuant to this article. (b) (1) In submitting rates for review consistent with this article, a health insurer shall demonstrate the impact of the health care cost targets established under the authority granted by Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107. An insurer shall demonstrate whether its annual rate growth exceeds or will exceed the cost target for the rating period. If a health insurer’s rate growth is expected to exceed the cost target for the rating period, the insurer shall include the following in its rate filing: (A) A detailed list of any proactive steps it is taking, or plans to take, for annual rate growth to meet the cost targets. (B) A delineation of factors driving rate increases to exceed the cost targets described in this subdivision. (2) The health insurer shall respond to any requests for additional information deemed necessary by the department. (c) Failure by a health insurer to sufficiently provide all information required by this section shall constitute an unreasonable rate. (d) (1) In the aggregate rate reports required pursuant to Sections 10181 [Text truncated for display. Full text available on Congress.gov.]