SB 1037 amends California law to require health care service plans and health insurers to show, in their rate filings, how changes in the rate of growth in health care costs reflect the health care cost targets established by the Office of Health Care Affordability (OHCA). The bill also directs the Director of the Department of Managed Health Care (DMHC) and the Insurance Commissioner to consider those impacts when determining whether a rate is unreasonable.
Crucially, SB 1037 mandates that both the DMHC and the Department of Insurance (DOI), working with OHCA, conduct an "enhanced rate review" specifically to determine whether premiums are affordable for individual and group purchasers. That creates new analytical and data obligations for carriers and new cross‑agency processes for regulators — while leaving important definitional and procedural details to be filled in at implementation.
At a Glance
What It Does
The bill requires plans and insurers to demonstrate in rate filings the impact of changes in health care cost growth tied to OHCA targets and directs regulators to consider those impacts when assessing rate reasonableness. It also mandates DMHC and DOI, in collaboration with OHCA, to perform an enhanced rate review that assesses premium affordability for individual and group purchasers.
Who It Affects
Applies to DMHC‑regulated health care service plans and DOI‑regulated health insurers, and therefore to actuaries, compliance teams, and third‑party consultants who prepare rate filings. It also directly targets oversight for individual consumers and employer/group purchasers by creating an affordability review obligation for regulators.
Why It Matters
This bill formally integrates OHCA's cost‑growth targets into statutory rate review authority, elevating affordability as an explicit criterion for evaluating rates. That increases regulatory scrutiny on filing content and modeling, introduces new coordination needs between state agencies, and creates compliance and data requirements carriers must meet.
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What This Bill Actually Does
SB 1037 inserts the Office of Health Care Affordability's cost‑growth targets into the statutory framework that governs rate review for both health plans and insurers. When plans and insurers submit rates for review, the bill requires them to demonstrate how changes in the rate of growth in health care costs reflect those targets.
Regulators — the DMHC director for plans and the Insurance Commissioner for insurers — must consider those demonstrated impacts when deciding whether a proposed rate is unreasonable or unjustified.
Beyond changing what belongs in a rate filing, the bill imposes a new procedural obligation: the DMHC and the Department of Insurance must each conduct an "enhanced rate review" in collaboration with OHCA. The purpose of that review is explicit — to determine whether premiums are affordable for individual and group purchasers.
The text does not prescribe a particular metric for affordability, nor does it lay out specific timelines, appeal processes, or enforcement penalties tied to the enhanced review outcome.For compliance teams and actuaries, SB 1037 means rate submissions will need new analyses that link actuarial assumptions and pricing to OHCA's targets. Expect requests for scenario runs, sensitivity analyses, and a clearer mapping from cost‑growth targets to premium impacts.
For regulators, the mandate creates an expectation of close coordination with OHCA (data exchange and methodological alignment), plus additional staff and analytic capacity to perform deeper affordability assessments. The bill mirrors these changes in both the Health and Safety Code and the Insurance Code, making the requirement uniform across the two regulatory regimes.Because the statute ties rate review to an external target-setting body (OHCA), the effectiveness of the new obligations will depend heavily on OHCA's methodology and on how DMHC and DOI operationalize "enhanced rate review." Absent statutory definitions or procedural detail, much of the work — what data is required, how affordability is measured, confidentiality protections, and how a finding of "not affordable" affects a filing — will be decided through rulemaking, interagency protocols, or administrative practice.
The Five Things You Need to Know
The bill requires health care service plans and health insurers to demonstrate in their rate filings the impact of changes in the rate of growth in health care costs resulting from OHCA's health care cost targets (Chapter 2.6, Part 2, Division 107).
The DMHC director and the Insurance Commissioner must consider the impact of OHCA targets when determining whether a proposed rate is unreasonable or not justified.
Both the DMHC and the Department of Insurance are directed, in collaboration with the Office of Health Care Affordability, to conduct an "enhanced rate review" to determine if premiums are affordable for individual and group purchasers.
SB 1037 amends a Health and Safety Code section (listed in the text as Section 1385.035) and makes parallel changes to Insurance Code Section 10181.35, creating symmetrical obligations across the two regulatory frameworks.
The statute does not define key terms (notably "affordable"), set review timelines, specify remedies or penalties for unaffordable findings, or detail data‑sharing/confidentiality protocols — leaving major implementation choices to regulators.
Section-by-Section Breakdown
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Plans must disclose OHCA‑target impacts; director must consider them
Subsections (a)–(c) adjust the statutory standard for DMHC‑governed plans: when submitting rates, plans must show how rate‑of‑growth changes reflect OHCA targets, and the DMHC director must weigh those effects when judging whether a rate is unreasonable. Practically, this pulls OHCA's cost‑growth metrics into the actuarial record for rate review and elevates them to a factor in the director's reasonableness analysis.
DMHC required to perform an enhanced affordability review with OHCA
Subsection (d) requires the Department of Managed Health Care, working with OHCA, to conduct an "enhanced rate review" focused on whether premiums are affordable for individual and group purchasers. The provision creates a formal interagency obligation: DMHC must use OHCA's targets as part of a deeper, affordability‑centered review rather than limiting analysis to traditional actuarial soundness.
Mirror obligations for insurers and the Insurance Commissioner
This section echoes the Health and Safety Code amendments for DOI‑regulated health insurers: insurers must demonstrate the impact of OHCA targets in rate filings, and the Insurance Commissioner must consider those impacts when assessing rate reasonableness. It also instructs the Department of Insurance, in collaboration with OHCA, to run an enhanced review to evaluate affordability for individual and group purchasers, creating parity between plan and insurer oversight.
What the statute leaves to implementation
The bill specifies the obligation to conduct enhanced reviews and to use OHCA targets, but it does not define "affordable," set timelines for enhanced reviews, prescribe data formats, or specify consequences if a filing fails the affordability assessment. Those procedural and substantive details will determine how the new requirements affect filings in practice and will likely be resolved through interagency protocols, guidance, or rulemaking.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Individual purchasers: The law explicitly directs regulators to assess whether individual market premiums are affordable, potentially yielding closer scrutiny of proposed premium increases and stronger consumer protections if affordability metrics are applied robustly.
- Employer and other group purchasers: The enhanced review requirement covers group purchasers, which could increase transparency around how cost‑growth targets affect employer premium obligations and strengthen bargaining leverage for large purchasers.
- Office of Health Care Affordability (OHCA): The bill increases OHCA's influence by embedding its cost‑growth targets into statutory rate review processes, making OHCA's methodology central to state oversight.
- Consumer and ratepayer advocates: Advocacy organizations gain a clearer statutory hook to demand evidence tying premium changes to state cost‑growth goals and to challenge filings that ignore those targets.
- State regulators (DMHC, DOI): Regulators gain an explicit mandate to pursue affordability analysis, which can expand their analytical authority and public accountability when reviewing rates.
Who Bears the Cost
- Health plans and insurers: Carriers must produce additional modeling, documentation, and potentially more sophisticated affordability analyses in filings, increasing actuarial and compliance costs.
- Actuarial and consulting firms: Expect higher demand for scenario modeling, sensitivity tests, and affordability impact analyses — a new compliance market and associated fees.
- State agencies (DMHC, DOI, OHCA): Performing enhanced reviews requires staff, data systems, and interagency coordination; the bill creates implicit resource needs that may not be funded in the text.
- Employers and benefits managers: Groups may face administrative burdens to support affordability analyses (providing enrollment and claims data) and could see downstream impacts if regulators change approved rates based on affordability findings.
- Confidentiality and data stewards (providers, clearinghouses): The enhanced review may require sharing more granular cost and utilization data, creating compliance and security costs for entities that hold those records.
Key Issues
The Core Tension
The central tension is between enforcing consumer affordability (using OHCA targets to drive lower premium growth) and preserving actuarial soundness and solvency for carriers; pushing for affordability without agreed measurement, transitional safeguards, and resource support risks undercutting rate adequacy, while prioritizing actuarial conservatism can leave affordability goals unmet.
The statute raises several implementation and policy tensions. First, it elevates affordability as an explicit statutory consideration without defining the term or specifying a measurement approach.
Affordability can be measured many ways — percent of income, actuarial value, premium-to-wage ratios — and the chosen metric will materially influence whether filings pass or fail review. That choice is left to regulators, which creates uncertainty for filers and a potential battleground in administrative rulemaking or litigation.
Second, linking OHCA cost‑growth targets to rate reasonableness puts two legitimate priorities in potential conflict: the goal of slowing systemwide cost growth and the actuarial requirement that rates be adequate and solvent. If OHCA targets presume savings that are slower to materialize than assumed in filings, carriers could be penalized for not immediately reflecting target‑based savings, or conversely, regulators could be accused of forcing rates below actuarial soundness.
The bill does not provide guardrails for reconciling short‑term actuarial realities with longer‑term cost‑growth objectives.
Finally, the requirement that both DMHC and DOI conduct enhanced reviews in collaboration with OHCA creates coordination challenges. The statute does not address data sharing, confidentiality protections for proprietary filings, the allocation of responsibility when the agencies disagree, or funding for the additional analytic work.
There is also a drafting inconsistency in the bill header (it references Section 1367.035) versus the body (which amends Section 1385.035), an issue that should be corrected to avoid ambiguity about which statutory provisions are affected.
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