BILL NUMBER: SB 1603 AMENDED
AMENDED IN SENATE APRIL 7, 2008
INTRODUCED BY Senator Calderon
FEBRUARY 22, 2008
An act to add Chapter 7 (commencing with Section 1700) to
Division 2 of the Health and Safety Code, relating to health
LEGISLATIVE COUNSEL'S DIGEST
SB 1603, as amended, Calderon. Discount health care programs.
Existing law provides for the licensing and regulation of health
care service plans by the Department of Managed Health Care. Existing
law provides for the
licensing and regulation of
health insurers by the Department of Insurance.
This bill would make legislative findings and
declarations regarding discount health care programs, and state that
it is the intent of the Legislature to provide for the
licensing and regulation of discount health care programs
program operators by the Department of Managed
Health Care . The bill would define those operators
as persons who, in exchange for prepaid or periodic charges, provide
access to health care services and products at discounted rates. The
bill would impose upon those operators, among other things, certain
disclosure and contract requirements and specified advertising,
solicitation, and marketing requirements. The bill would authorize
the department to suspend or revoke an operator's license or to
assess a civil penalty for a violation of those requirements. The
bill would also make certain of those provisions applicable to
solicitors, as defined, of discount health care programs .
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
(a) It is the intent of the Legislature that residents of this
state should have access to affordable health care services and
(b) Discount health care programs, which are noninsurance programs
that allow consumers to directly purchase health care services and
products at discounted rates, are becoming increasingly popular in
this state. In fact, millions of Californians already enjoy the
discounts offered by these programs.
(c) The Knox-Keene Health Care Service Plan Act of 1975 (Chapter
2.2 (commencing with Section 1340) of Division 2 of the Health and
Safety Code) provides for the licensure and regulation of health care
service plans by the Department of Managed Health Care.
(d) Over the past few years, there has been substantial confusion
over whether discount health care programs qualify as "health care
service plans" under the Knox-Keene Health Care Service Plan Act of
(e) Unlike managed care plans or health insurance, discount health
care programs do not arrange for the provision of health care
services, pay providers for health care services, or otherwise assume
any financial risk. Rather, in exchange for a periodic fee, discount
health care programs simply provide members with access to
discounted rates on health care services. The member is solely
responsible for determining the type and amount of health care
services to be utilized and for paying for all services that he or
(f) To clear up confusion and to ensure that there are appropriate
protections for consumers who want to purchase discount health care
programs, the Legislature finds that it is appropriate to subject
those programs to reasonable requirements .
(g) It is thus the
intent of the Legislature to provide for the licensing and regulation
of discount health care programs by the Department of Managed Health
Care. , as set forth in this act.
(g) This act provides for the licensing and regulation of discount
health care programs, as defined, by the Department of Managed
SEC. 2. Chapter 7 (commencing with Section 1700)
is added to Division 2 of the Health and Safety Code
, to read:
CHAPTER 7. DISCOUNT HEALTH CARE PROGRAMS
1700. The following definitions apply for purposes of this
(a) "Department" means the Department of Managed Health Care.
(b) "Director" means the Director of the Department of Managed
(c) "Discount health care program" or "program" means a business
arrangement or contract in which a person, in exchange for a prepaid
or periodic charge, offers access to health care services and
products at rates that are discounted from the usual prices charged
by health care providers.
(d) "Discount health care program operator" or "operator" means a
person who, in exchange for a prepaid or periodic charge, provides
access to health care services and products at rates that are
discounted from the usual prices charged by health care providers. A
"discount health care program operator" or "operator" is the person
who contracts with providers, provider networks, or other discount
health care programs to offer access to health care services and
products at a discount and determines the charge to members.
(e) "Member" means any individual who pays fees, dues, charges, or
other consideration for the right to receive the benefits of a
discount health care program.
(f) "Solicitor" means any person who solicits or advertises a
discount health care program for the purpose of inducing persons to
enroll in the program. The term includes any person that attaches its
own private label name on any material distributed to members in
connection with the discount health care program, including, but not
limited to, the discount identification card or member contracts.
1701. (a) No person shall engage in business as a discount health
care program operator in this state, unless the person holds a valid
license issued by the director pursuant to this chapter.
(b) Each application for a license as a discount health care
program operator shall be in a form prescribed by the director and
shall set forth or be accompanied by the following, if applicable:
(1) A fee not to exceed ____ dollars ($____) for deposit into the
Managed Care Fund.
(2) A copy of the organizational documents of the applicant, such
as the articles of incorporation, including all amendments.
(3) A copy of the applicant's bylaws or other enabling documents
that establish organizational structures.
(4) The applicant's federal tax identification number, business
address, and mailing address.
(5) A list of the names, addresses, official positions, and
biographical information of the individuals responsible for
conducting the applicant's affairs, including all members of the
board of directors, board of trustees, executive committee or other
governing board or committee, the officers, contracted management
company personnel, and any person or entity owning or having the
right to acquire 10 percent or more of the voting securities of the
(6) A complete biographical statement, on forms prescribed by the
director, with respect to each individual identified under paragraph
(7) A statement generally describing the applicant and the health
services and products for which a discount will be made available
under the discount health care program.
(8) A copy of the form of all contracts made or to be made between
the applicant and any providers or provider networks regarding the
provision of health care services to members.
(9) A copy of the form of any contract made or to be made between
the applicant and any person, corporation, partnership, or other
entity for the performance on the applicant's behalf of any function,
including solicitation, administration, enrollment, or
subcontracting for the provision of health care services to members.
(10) A copy of the applicant's most recent financial statements
audited by an independent certified public accountant, except an
applicant that is a subsidiary of a parent entity that is publicly
traded and that prepares audited financial statements reflecting the
consolidated operations of the parent entity may instead submit the
audited financial statement of the parent entity and a written
guaranty that the requirements of Section 1707 will be met by the
(11) A description of the proposed methods of marketing,
including, but not limited to, describing the use of solicitors, use
of the Internet, sales by telephone, and use of salespersons to
market the discount health care program.
(12) A description of the member complaint procedures to be
established and maintained by the applicant.
(13) The name and address of the applicant's statutory agent for
service of process, notice or demand, or, if not domiciled in
California, a power of attorney, duly executed by the applicant,
appointing the director and duly authorized deputies as the true and
lawful attorney of the applicant in, and for, this state upon whom
all law process in any legal action or proceeding against the
applicant on a cause of action arising in this state may be served.
(14) A list of solicitor firms that are authorized to solicit and
advertise the applicant's discount health care program under the
solicitor firm's own private label name.
(c) After the receipt of an application filed pursuant to
subdivision (b), the director shall review the application and notify
the applicant of any deficiencies in the application.
(d) Within 90 days after the date of receipt of a completed
application, the director shall do either of the following:
(1) Issue a license, if the director is satisfied that the
applicant has met the requirements of subdivision (b).
(2) Disapprove the application and state the grounds for
(e) (1) A license is effective for one year, unless prior to its
expiration the license is renewed in accordance with this subdivision
or suspended or revoked by the director in accordance with
subdivision (b) of Section 1712.
(2) At least 90 days before a license expires, the discount health
care program operator shall submit to the director both of the
(A) A renewal application form.
(B) A renewal fee not to exceed ____ dollars ($____).
(3) The director shall renew the license of a discount health care
program operator that meets the requirements of this chapter and
pays the renewal fee.
1702. (a) A discount health care program operator shall review
and approve and, upon request, file with the department, all
advertising, marketing, and solicitation materials and brochures
regarding a discount health care program. All advertising, marketing,
and solicitation materials and brochures shall clearly and
conspicuously disclose all of the following:
(1) The discount health care program is not insurance.
(2) The name of the discount health care program operator.
Material referencing any solicitor shall include disclosures clearly
distinguishing the discount health care program operator from the
solicitor and specifying that the program is administered by the
discount health care program operator.
(3) Whether the member must pay for all services and products at
the time of service in order to receive the discount.
(4) Discounts are only available from providers participating in
the discount health care program.
(5) A toll-free telephone number and Internet Web site address at
which a prospective member can obtain additional information about
the program and can access an up-to-date directory of the program's
(b) If the initial contact with a prospective member is by
telephone, the disclosures required by subdivision (a) shall be made
orally and shall be included in the disclosure form required by
(c) A discount health care program operator shall maintain a
public Internet Web site that includes a complete and accurate
directory of all participating providers, which shall be updated not
less than monthly, and make that online directory available for free
to all prospective and existing members. The Internet Web site shall
allow user interaction to locate providers by service and geographic
(d) A discount health care program operator shall have written
contracts with each solicitor firm that prohibits that solicitor firm
and its employees from using any advertisements or marketing
materials unless they are approved in writing by the discount health
care program operator. A solicitor shall not use any advertisements
or marketing materials unless they are approved in writing by the
discount health care program operator. A discount health care program
operator shall be responsible for the acts of a solicitor that are
within the scope of its agency relationship.
(e) A discount health care program operator and its solicitors
shall not use in any advertisements, marketing, or solicitation
materials the terms "HMO," "coverage," "copay," "copayments,"
"deductible," "preexisting conditions," "guaranteed issue," "premium,"
"PPO,"or "preferred provider organization," or other terms, in a
manner that could reasonably mislead an individual into believing
that the discount health care program is insurance.
(f) Except as otherwise provided in this chapter, as a disclaimer
of any relationship between the discount health care program and
insurance, or as a description of an insurance product connected with
a discount health care program, a discount health care program
operator and its solicitors shall not use in its advertisements,
marketing, or solicitation materials the term "insurance."
(g) Price advertising shall not be fraudulent, deceitful, or
misleading. In connection with price advertising, the price for the
discount health care program shall be clearly identifiable. The price
advertised for products shall include charges for any related
professional services, including dispensing and fitting services,
unless the advertisement specifically and clearly indicates
(h) It is unlawful for any person, including a discount health
care program operator, subject to this chapter to represent or imply
in any manner that the person or operator has been sponsored,
recommended, or approved, or that the person's or operator's
abilities or qualifications have in any respect been passed upon, by
the director. Nothing in this subdivision prohibits a statement that
a person or operator holds a license under this chapter, if that
statement is true and if the effect of having that license is not
1703. A discount health care program operator shall maintain a
toll-free customer assistance call center during normal business
hours to assist members to access services through providers
participating in the program and to address complaints and
grievances. Customer assistance shall also be provided to assist
members to confirm the discounted rates for specific services from
individual providers. The operator's toll-free customer assistance
call center shall be sufficiently staffed to ensure that all calls
are answered in less than five minutes by a live person, sufficiently
trained and knowledgeable regarding the discount health care program'
s services, discounts, terms, conditions, and processes to ensure
effective assistance for callers and to ensure feedback of identified
problems to quality assurance staff, including information
reflecting provider noncompliance with contractual obligations.
1704. A discount health care program operator shall have
sufficient administrative capacity and processes to promptly review
and resolve member complaints and grievances regarding the
availability of contracted discounts or services or other matters
relating to the contractual obligations of the discount health care
program operator to its members. For a complaint about the quality of
health care services or products, the operator shall provide the
member, upon his or her request, the name, telephone number, and
address of the agency to which the member may direct the complaint.
1705. (a) An enrollment in a discount health care program may not
be canceled or renewed by the operator except for the following:
(1) Nonpayment of the membership fee.
(2) Fraud or deception in the use of the program or knowingly
permitting that fraud or deception by another.
(3) Any other good cause as is agreed upon in the contract between
the operator and the member. For purposes of this paragraph, "good
cause" means a cause for cancellation or failure to renew that the
director has not found to be objectionable by regulation.
(b) A notice of cancellation or nonrenewal by the operator shall
be in writing and dated, and shall state all of the following:
(1) The cause for cancellation, with specific reference to the
clause of the member contract giving rise to the right of
(2) The date upon which cancellation is effective.
(c) The terms "cancellation" and "nonrenewal," for purposes of
this section, do not include voluntary termination by a member or the
termination of a member contract that does not contain a renewal
(d) This section shall not abrogate any preexisting contracts
entered into prior to the effective date of this chapter between a
member and a discount health care program operator, including, but
not limited to, the financial liability of that operator, except that
each operator shall, if directed to do so by the director, exercise
its authority, if any, under those preexisting contracts to conform
those contracts to the provisions of subdivision (a).
(e) (1) A discount health care program operator shall provide a
period of not less than 30 days following enrollment in which a
member may cancel the member contract and obtain full reimbursement
of the prepaid or periodic charges paid to the operator, and any
amount of a one-time processing fee that exceeds thirty dollars
($30). If enrollment is conducted by telephone, the 30-day period
commences when the member receives the written enrollment materials
and discount identification card.
(2) Cancellation by the member occurs when notice of cancellation
is provided to the discount health care program operator. Notice of
cancellation is deemed provided when delivered by hand or deposited
in a mailbox, properly addressed and postage prepaid to the mailing
address of the operator, or when the member informs the operator
through the toll-free customer assistance call center.
(3) A discount health care program operator shall return any
periodic charge charged or collected after the member has given the
operator notice of cancellation.
(f) If the discount health care program operator cancels a
membership for any reason other than those set forth in subdivision
(a), the operator shall make a pro rata reimbursement of all periodic
charges to the member.
(g) If a solicitor or discount health care program operator sells
a discount health care program in conjunction with any other product,
the solicitor or operator shall do one of the following:
(1) Provide the charges for each discount health care program in
writing to the member.
(2) Reimburse the member for all periodic charges for the discount
health care program and all periodic charges for any other product
if the member cancels his or her membership in accordance with
1706. A discount health care program operator shall provide
interpreter services through its toll-free customer assistance call
center to all persons within a community with limited English
proficiency if the operator, or any of its solicitors, directs its
marketing activities towards that community. For purposes of this
section, marketing activities shall be deemed to be directed towards
a non-English community when the operator, or its solicitor, solicits
enrollment in person or by telephone, facsimile, or an online
Internet Web site, in a non-English language that is the primary
language spoken in that community. The operator shall also ensure
adequate training for employees to enable those employees to identify
when a person has limited English proficiency and how to
appropriately engage the operator's language assistance services, if
1707. A discount health care program operator shall maintain a
net worth of one hundred fifty thousand dollars ($150,000), or shall
file a surety bond with the department in the amount of fifty
thousand dollars ($50,000).
1708. (a) A discount health care program operator shall provide
to each prospective new member a written disclosure form that
provides a full and fair disclosure of the provisions of the program
in readily understood language and in a clearly organized manner. The
disclosure form shall do all of the following:
(1) Describe the principal benefits of the program.
(2) List the exceptions, reductions, and limitations that apply to
(3) Describe any prepaid, periodic, or other fees associated with
(4) Describe the terms under which the program may be renewed by
the member, including any reservation by the operator of any right to
change the fees associated with the program.
(5) If the disclosure form and member contract are not combined in
a single document, include a statement that the disclosure form is a
summary only, and that the member contract itself should be
consulted to determine governing contractual provisions. The first
content page of the disclosure form shall contain a notice that
conforms with all of the following conditions:
(A) Includes a statement that the disclosure form should be read
completely and carefully and that individuals with special health
care needs should read carefully those sections that apply to those
(B) Includes the operator's telephone number or numbers that may
be used by an applicant to receive additional information about the
benefits of the program or a statement where the telephone number or
numbers are located in the disclosure form.
(C) Is printed in type no smaller than that used for the remainder
of the disclosure form and is displayed prominently on the page.
(6) Include a statement as to when benefits shall cease in the
event of nonpayment of the prepaid or periodic charge and the effect
of nonpayment upon a member who is hospitalized or undergoing
treatment for an ongoing condition.
(7) If the operator utilizes arbitration to settle disputes, a
statement of that fact.
(8) If applicable, describe any limitations on the member's choice
(9) Describe the conditions and procedures for canceling a
(10) If an operator collects any confidential medical information,
include a statement, in at least 12-point type, as to how the
operator protects the confidentiality of medical information obtained
by, and in the possession of, the operator, and that informs members
that any disclosure beyond the provisions of the law is prohibited.
This statement shall also include the following:
(A) The types of medical information that may be collected and the
type of sources that may be used to collect the information, and the
purposes for which the operator will obtain medical information from
(B) The circumstances under which medical information may be
disclosed without prior authorization, pursuant to Section 56.10 of
the Civil Code.
(C) A description of how a member may obtain access to medical
information created by, and in the possession of, the operator,
including copies of the medical information.
(D) The following notice: "A STATEMENT DESCRIBING (NAME OF
OPERATOR OR 'OUR') POLICIES AND PROCEDURES FOR PRESERVING THE
CONFIDENTIALITY OF MEDICAL RECORDS IS AVAILABLE AND WILL BE FURNISHED
TO YOU UPON REQUEST."
(b) The following additional disclosures shall be prominently
located on the first content page of the disclosure form:
(1) The discount health care program is not insurance.
(2) The member must pay the provider directly for all health care
services and products, and will receive a discount only from
providers that are participating in the discount health care program.
(c) In addition to the disclosures required by subdivisions (a)
and (b), a disclosure form reflecting a solicitor's private label
name shall include prominent statements on the first content page
that distinguish the private labeler as a solicitor for the discount
health care program operator and clearly disclose that the program is
administered by the discount health care program operator.
(d) Discount cards intended for presentation to health care
providers as evidence of a member's entitlement to discounts shall
contain the following:
(1) The disclosure required by paragraph (1) of subdivision (b).
(2) The telephone number for the operator's toll-free customer
assistance call center.
(3) The Internet Web site address where a member can access a list
of participating providers.
(4) The name or logo of each provider network to ensure the
provider will recognize his or her obligation to provide services at
the advertised discounts.
1709. (a) A discount health care program operator shall provide
to each new member a written contract printed legibly in not less
than 8-point type and that includes, at a minimum, the
(1) The information required to be included on disclosure forms by
(2) Definitions of all terms contained in the contract that
require definition in order to be understood by a reasonable person
not possessing special knowledge of law, medicine, or discount health
(3) Appropriate captions, in boldface type, for any limitations or
exceptions that apply to the program.
(4) In the same area describing any particular benefit or
benefits, any provisions described in paragraph (3) that are
applicable only to that particular benefit or benefits.
(5) Provisions relating to cancellation under an appropriate
caption, in boldface type, which provisions shall include:
(A) A statement of the bases for cancellation, which shall conform
to Section 1705.
(B) A statement that, in the event of cancellation by the member
within 30 days following enrollment, the operator shall, within 30
days, return to the member the full amount of any prepaid or periodic
charges and any amount of a one-time processing fee that exceeds
thirty dollars ($30).
(C) A statement of the date upon which a notice of cancellation
(b) Member contracts shall not do either of the following:
(1) Impose any waiting period, except for hospital discounts, or
impose any preexisting condition or exclusion upon the provision of
advertised discounted health care services.
(2) Discriminate against any member in the issuance of any member
contract for any reason.
(c) The member contract required by this section and the
disclosure form required by subdivision (b) of Section 1708 may be
combined and presented in a single document if the purposes of both
provisions are fulfilled.
1710. (a) A discount health care program operator shall maintain
a written contract with each provider offering health care services
or products to the discount health care program's members.
(b) The provider contract may be entered into directly with
individual providers or indirectly through either one or more
provider networks that maintain written contracts with individual
providers, or through another entity that maintains written contracts
with those networks.
(c) Provider contracts shall contain all of the following:
(1) A list of the health care services and products to be provided
at a discount.
(2) The amount or amounts of the discounts or, alternatively, a
fee schedule that reflects the provider's discounted rates.
(3) A provision that the provider will not charge members more
than the discounted rates.
(d) A provider agreement between a discount health care program
operator and a provider network shall do the following:
(1) Require that the provider network have written agreements with
its providers that do the following:
(A) Conform to the requirements of subdivision (c).
(B) Authorize the provider network to contract with the discount
health care program operator on behalf of the provider.
(2) Require the provider network to maintain an up-to-date list of
its contracted providers and to provide the list on a monthly basis
to the discount health care program operator.
(e) A provider agreement between a discount health care program
operator and another entity that contracts with a provider network
shall require that the entity, in its contract with the provider
network, have provisions that comply with subdivision (d).
(f) The discount health care program operator shall maintain an
executed copy of each of its active provider contracts and shall make
the contracts available for the department's inspection upon
1711. (a) Notwithstanding any other provision of law, discount
health care program operators and solicitors may lawfully operate
discount health care programs in this state so long as those programs
and marketing activities comply with the requirements of this
chapter and any regulations adopted pursuant to this chapter. Article
6 (commencing with Section 650) of Chapter 1 of Division 2 of the
Business and Professions Code, Title 2.6 (commencing with Section
1812.100) of Part 4 of Division 3 of the Civil Code, Part 1.9
(commencing with Section 445) of Division 1 of this code, and Chapter
2.2 (commencing with Section 1340) of this code, shall not apply to
discount health care program operations and marketing activities of
operators or solicitors.
(b) Nothing in this chapter shall be construed to make unlawful
the operation of a discount health care program prior January 1,
1712. (a) The department may adopt regulations to implement this
chapter and to conduct a review to determine compliance by operators
and solicitors with this chapter and those regulations.
(b) If an operator or solicitor fails to comply with the
requirements of this chapter or the regulations adopted pursuant to
this chapter, and does not correct that failure within 30 days
following notification of that failure by the department, the
department may suspend or revoke the license of the operator, or may
assess a civil penalty against the operator or solicitor.
(c) The amount of any civil penalty assessed pursuant to
subdivision (b) shall not exceed two thousand five hundred dollars
($2,500) for each violation, which shall be assessed and recovered in
a civil action brought in the name of the people of the State of
California by the department. All civil penalties collected under
this section shall be deposited into the Managed Care Fund.
(d) If the license of a discount health care program operator is
currently under suspension pursuant to subdivision (b), or has been
revoked pursuant to subdivision (b) within the prior 12 months, the
operator may not apply to the department for a license renewal.