Knox Keen Health Care Service Plan Act of 1975

The Knox-Keene Health Care Service Plan Act of 1975 is found in the California Health & Safety Code section 1340 et seq. It governs the licensing and activities of health care service plans in California. The Department of Managed Health Care (DMHC) of the California Health and Human Services Agency oversees the implementation of the Knox-Keene Act Title 28 of the California Code of Regulations.

The DMHC was founded in 1999 and oversees all California HMOs, some PPOs, and specialized plans such as dental and vision. The DMHC regulates more than 95 percent of the commercial and public insurance enrollment in California.

Before the Affordable Care Act, states set most of the regulations for health insurance. The Affordable Care Act created national regulations that confounded state regulations in many jurisdictions.

In California, the legislature found that it needed to change the Knox-Keene Act to comply with the Affordable Care Act. These included the provisions for prescription drugs.  

According to the California Legislature:

“§ 1342.7. Authority of department to ensure providers of prescription drug coverage comply with Knox-Keene Health Care Service Plan Act of 1975 

(a) The Legislature finds that in enacting Sections 1367.215, 1367.25, 1367.45, 1367.51, and 1374.72,  it did not intend to limit the department’s authority to regulate the provision of medically necessary prescription drug benefits by a health care service plan to the extent that the plan provides coverage for those benefits. 

(b)(1) Nothing in this chapter shall preclude a plan from filing relevant information with the department pursuant to Section 1352 to seek the approval of a copayment, deductible, limitation, or exclusion to a plan’s prescription drug benefits. If the department approves an exclusion to a plan’s prescription drug benefits, the exclusion shall not be subject to review 

through the independent medical review process pursuant to Section 1374.30 on the grounds of medical necessity. The department shall retain its role in assessing whether issues are related to coverage or medical necessity pursuant to paragraph (2) of subdivision (d) of Section 1374.30. 

(2) A plan seeking approval of a copayment or deductible may file an amendment pursuant to Section 1352.1. A plan seeking approval of a limitation or exclusion shall file a material modification pursuant to subdivision (b) of Section 1352. 

(c) Nothing in this chapter shall prohibit a plan from charging a subscriber 

or enrollee a copayment or deductible for a prescription drug benefit or from setting forth by contract, a limitation or an exclusion from, coverage of prescription drug benefits, if the copayment, deductible, limitation, or exclusion is reported to, and found unobjectionable by, the director and disclosed to the subscriber or enrollee pursuant to the provisions of Section 1363.”

Changes in Knox-Keen to comply with the Patient Protection and Affordable Care Act

As a result, the California Legislature also stated:

§ 1342.71. Outpatient prescription drug coverage 

(a) The Legislature hereby finds and declares all of the following: 

(1) The federal Patient Protection and Affordable Care Act, its implementing regulations and guidance, and related state law prohibit discrimination based on a person’s expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions, 

including benefit designs that have the effect of discouraging the enrollment of individuals with significant health needs

(2) The Legislature intends to build on the existing state and federal law to ensure that health coverage benefit designs do not have an unreasonable discriminatory impact on chronically ill individuals, and to ensure afford-ability of outpatient prescription drugs. 

(3) Assignment of all or most prescription medications that treat a specific medical condition to the highest cost tiers of a formulary may effectively  discourage enrollment by chronically ill individuals, and may result in lower adherence to a prescription drug treatment regimen. 

(b) A nongrandfathered health care service plan contract that is offered,  amended, or renewed on or after January 1, 2017, shall comply with this section. The cost-sharing limits established by this section apply only to outpatient prescription drugs covered by the contract that constitute essential health benefits [comment: this is a key Standard of the Affordable Care Act, also known or abbreviated as EHB], as defined in Section 1367.005. 

(c) A health care service plan contract that provides coverage for outpatient prescription drugs shall cover medically necessary prescription drugs, including nonformulary drugs determined to be medically necessary consistent with 

this chapter.

Related Topics

Afforable Care Act