SB 40 expands mandated coverage in California for people with diabetes by requiring health care service plans to cover insulin, diabetes supplies and devices, and outpatient diabetes self‑management education when medically necessary. The bill also creates limits on patient cost sharing for insulin and restricts step therapy as a condition of coverage.
The law shifts specific compliance tasks to plans and pharmacy benefit managers: it prescribes what devices and prescription products must be covered, sets cost-sharing limits (with phased-in dates and tier rules), and requires plans to document these benefits in evidence of coverage. For compliance officers and benefits managers, the text creates immediate formulary, billing, and member‑communication priorities and several implementation questions about interplay with high deductible plans, formulary tiering, and state-produced insulin.
At a Glance
What It Does
SB 40 mandates coverage of diabetes equipment, supplies, and prescription medications (including insulin) and requires outpatient diabetes self‑management training. It imposes a maximum patient cost-sharing amount for insulin prescriptions and restricts use of step therapy for insulin drugs, while carving out certain Medi‑Cal managed care contracts.
Who It Affects
Commercial health care service plans (excluding specialized plans) across large‑group, small‑group, and individual markets, pharmacy benefit managers that administer formularies, employers sponsoring group plans, clinicians prescribing insulin, and patients who use insulin or diabetes supplies. Medi‑Cal managed care plans are excluded where services are contractually excluded.
Why It Matters
The bill changes how plans place insulin on formularies and how they design cost sharing; it effectively guarantees at least one insulin per drug type without step therapy and limits out‑of‑pocket exposure for enrollees, shifting financial exposure to payers and potentially changing premium and formulary strategies.
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What This Bill Actually Does
The statute lists a broad set of diabetes equipment and supplies — from blood glucose monitors and strips to insulin pumps, pen delivery systems, lancets, and visual aids for the visually impaired — and requires a health care service plan to cover them as medically necessary. For prescription benefits, the bill requires coverage for insulin, other prescriptive diabetes medications, and glucagon where medically necessary.
The plan must ensure diabetes outpatient self‑management training, education, and medical nutrition therapy are available and provided by appropriately licensed or registered professionals.
On cost sharing, the bill establishes a dollar cap for insulin prescriptions and phases in enforcement by market: the large‑group market is subject to the cap first, followed by individual and small group plans with special rules tied to formulary tiers. Where plans use tiered formularies, the law ties the cap to lower tiers and requires at least one clinically appropriate insulin per drug type be placed on those tiers; if none are clinically appropriate, the plan must limit cost sharing for the higher tier insulin for that enrollee.
The statute also addresses high deductible health plans by preserving the cap unless it conflicts with federal HDHP rules.SB 40 prohibits step therapy protocols for insulin drugs beginning on a specified date, but it recognizes the FDA’s multiple insulin types and limits the prohibition by requiring only that at least one insulin in each drug type be covered without step therapy. The law delegates enforcement authority to the regulating department, requires disclosure in evidences of coverage, and contains an explicit non‑reduction clause preventing plans from cutting existing diabetes benefits because of the new requirements.
The text separately excludes Medi‑Cal managed care plans from some requirements to the extent services are excluded under existing Medi‑Cal contracts.Several provisions address formulary design and operational detail: the statute defines “drug type” broadly (including rapid‑acting, long‑acting, premixed, etc.), requires at least one insulin per drug type be on formularies or specified tiers, and contemplates application of the caps to state‑labeled or state‑produced insulin. Taken together, the bill imposes concrete coverage and operational duties on plans, while leaving certain operational choices (formulary placement, clinical exceptions processes, and PBM contracting) to plans subject to minimum constraints and disclosure requirements.
The Five Things You Need to Know
The law lists nine categories of supplies and devices that plans must cover as medically necessary, including insulin pumps, pen delivery systems, blood glucose monitors and strips, lancets, ketone strips, podiatric devices, and visual dosing aids.
For large‑group plans issued or renewed on or after January 1, 2026, the statute caps patient cost sharing for an insulin prescription at no more than $35 for a 30‑day supply.
For individual and small‑group plans issued or renewed on or after January 1, 2027, the $35 per 30‑day cost‑sharing cap applies but is tied to formulary tiers: it automatically applies to insulins in Tier 1 or Tier 2 and can be applied to higher tiers for a specific enrollee when no clinically appropriate Tier 1/2 insulin exists.
The bill bans step therapy for insulin beginning January 1, 2026, but preserves plan flexibility by requiring only that at least one insulin in each FDA‑recognized drug type be covered without step therapy.
Medi‑Cal managed care plans are carved out to the extent the contract with the State Department of Health Care Services excludes the services; plans must also advertise coverage in evidences of coverage and cannot reduce existing benefits because of this law.
Section-by-Section Breakdown
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Mandatory coverage for equipment and non‑prescription supplies
This section enumerates devices and supplies that health care service plans must cover when medically necessary, explicitly including items available without a prescription. For compliance teams, the practical task is ensuring procurement and billing systems recognize these non‑prescription items as covered benefits and that prior authorization or medical necessity rules are aligned to avoid denials for covered devices.
Prescriptive medication coverage: insulin, diabetes drugs, and glucagon
This clause requires coverage of prescription insulin and other prescriptive diabetes medications if medically necessary. Formularies and PBM contracts must be reviewed to confirm these categories are included and that utilization management rules do not render coverage illusory (for example, by placing appropriate insulins behind onerous prior authorization requirements).
Parity requirement for copayments and deductibles
The statute requires that copayments and deductibles for the diabetes supplies and medications be no higher than those established for similar benefits within the plan. That creates an internal parity obligation: plans must map diabetes supplies to comparable benefits to determine applicable cost sharing, which affects benefit design documents, member communications, and claims adjudication logic.
Staged $35 cost‑sharing cap, formulary tier rules, and HDHP exception
Subdivision (d) is the operational core for payers. It sets a $35 maximum patient payment for a 30‑day insulin supply for large groups (phase‑in date) and for individual/small group plans with tiered formulary caveats (later phase‑in). Plans that use tiers must place at least one insulin per drug type in Tier 1 or Tier 2; absent a clinically appropriate lower‑tier option for a specific enrollee, the plan must limit that enrollee’s cost sharing on a higher tier to $35 for 30 days. High deductible health plans are also covered by the $35 limit unless federal HDHP rules create an inconsistency, so plans sponsoring HSAs will need legal review and possibly benefit design adjustments.
Step therapy prohibition with a defined exception
This provision prohibits step therapy protocols for insulin drugs starting on a set date but calibrates the ban by leveraging FDA distinctions among insulin types: plans need not make every insulin available without step therapy so long as at least one insulin in each drug type is covered without step therapy. Administrators must therefore audit formularies to verify at least one product per drug type is exempt from step therapy and document clinical exception pathways for prescribers.
Education coverage, provider qualifications, disclosure, and exclusions
The bill requires plans to cover diabetes outpatient self‑management training, education, and medical nutrition therapy, and to ensure those services are delivered by appropriately licensed staff if delegated to contracting providers. Copayments for these services are capped at the plan’s physician office visit level. Plans must disclose these benefits in evidences of coverage and cannot reduce existing coverage because of this statute. The text also preserves departmental enforcement authority and explicitly excludes certain Medi‑Cal managed care contractual arrangements from the statute where services are contractually excluded.
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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
- People with diabetes who rely on insulin — they face lower and more predictable out‑of‑pocket costs for insulin and guaranteed coverage of essential supplies, reducing the risk of rationing.
- Enrollees in high deductible plans who use insulin — the cap can reduce immediate out‑of‑pocket burdens (subject to federal HDHP limits), improving access even before deductibles are met.
- Patients needing diabetes self‑management education — the bill requires coverage of training and nutrition therapy delivered by licensed staff, increasing access to structured education that supports adherence.
- Clinicians prescribing insulin — clearer formulary placement and step‑therapy limits simplify prior authorization workflows for many patients, reducing administrative friction for appropriate insulin choices.
- Advocacy groups and public health programs focused on diabetes outcomes — broader access to insulin and supplies aims to lower acute complications and hospitalizations, which benefits population health metrics.
Who Bears the Cost
- Commercial health plans and their sponsors (employers) — capping patient cost sharing tends to shift costs to payers, which may increase premiums or alter benefit designs elsewhere.
- Pharmacy benefit managers and formulary managers — they must redesign formularies, tier placements, and utilization management to comply with the tier and no‑step‑therapy rules.
- Small employers and small‑group plan sponsors — the later phase‑in to small groups still creates a near‑term compliance and premium impact that may affect benefit strategy.
- State agencies if pursuing state‑labeled or state‑produced insulin — the statute contemplates state production or labeling, which could require procurement, manufacturing, and regulatory investments.
- Plan administrative functions and provider networks — the mandate to cover non‑prescription supplies and education requires billing, provider credentialing, and EOC updates that increase operational workloads.
Key Issues
The Core Tension
The central dilemma is balancing guaranteed, affordable access to insulin and diabetes supplies for patients against plan and market mechanisms that control costs — mandated low patient cost sharing and limits on step therapy improve access but force payers and PBMs to absorb or redistribute costs, which can affect premiums, formulary design, and other covered benefits.
SB 40 packs real operational detail into a short statutory text, and that detail creates a number of implementation puzzles. First, the tiering rule in the individual/small group market requires plans to guarantee at least one insulin per drug type on Tier 1 or 2, but it also permits a clinical determination that no lower‑tier product is appropriate for a particular enrollee — a mechanism that invites individualized clinical exceptions and administrative review.
Plans will need to document their clinical exception criteria carefully to avoid inconsistent application and potential regulatory scrutiny.
Second, the interaction with federal HDHP rules is ambiguous in practice: the law preserves the $35 cap for HDHPs unless it conflicts with federal law, but the statute leaves the operationalization to plans. That raises enforcement questions and potential coverage gaps for enrollees relying on HSAs if federal rules are interpreted to prevent applying the cap as intended.
Third, the state’s option to label or produce insulin and then apply the cap to state‑produced products raises procurement, IP, and supply‑chain questions; introducing a state‑sourced product into private formularies will require clear processes for interchangeability, contracting, and clinical substitution.
Finally, the exclusion of Medi‑Cal managed care plans to the extent services are contractually excluded creates a two‑tiered landscape: commercially insured enrollees get the benefits and caps, while some Medi‑Cal enrollees may remain under prior contractual limits. Enforcement will depend on the regulating department’s oversight capacity, and plans may respond to mandated caps by shifting costs to other benefit categories, narrowing networks, or changing premium contributions.
Regulators, plans, and PBMs will need to resolve these practical tensions during rulemaking, guidance, and contract revisions.
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