BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Sheila J. Kuehl, Chair
BILL NO: SB 1603
S
AUTHOR: Calderon
B
AMENDED: April 7, 2008
HEARING DATE: April 16, 2008
1
REFERRAL: Health and Judiciary Committees
6
FISCAL: Appropriations
0
CONSULTANT:
3
Rogers/cjt
SUBJECT
Discount health care programs
SUMMARY
Provides for the licensure and regulation of discount
health care programs, as defined, under the Department of
Managed Health Care (DMHC). Establishes numerous
conditions for licensure, including disclosure and contract
requirements and specified advertising, solicitation, and
marketing requirements, among other things. Authorizes the
department to suspend or revoke an operator's license or to
assess a $2,500 civil penalty for each violation of those
requirements if the operator has not corrected the
violation after 30 days. Would also make some of these
provisions applicable to solicitors, as defined, of
discount health care programs.
CHANGES TO EXISTING LAW
Existing law:
Existing law, the Knox-Keene Health Care Service Plan Act,
provides for the licensure and regulation of health care
service plans by the DMHC, and makes it unlawful for any
Continued---
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health care service plan to engage in business in the State
of California without having first obtained a license from
the director of the DMHC. Existing law defines a health
care service plan as any person who undertakes to arrange
for the provision of health care services to subscribers or
enrollees, or to pay for, or to reimburse any part of the
cost for those services, in return for a prepaid or
periodic charge paid by, or on behalf of, the subscribers
or enrollees. Existing law also provides for the
licensure and regulation of health insurers by the
California Department of Insurance.
Existing law prohibits licensed health care providers from
offering discounts, or other consideration, as specified,
whether in the form of money or otherwise, as compensation
or inducement for referring patients, clients, or customers
to any person.
This bill:
This bill would define a discount health care program as 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.
This bill would require operators of discount health care
programs to obtain a license from the director of the
Department of Managed Health Care. This bill would require
an application for licensure to include an unspecified fee
to be deposited in the Managed Care Fund, along with
certain documentation and financial disclosures regarding
the organization and individuals responsible for conducting
the applicant's affairs, as well as soliciting,
advertising, and subcontracting agents.
This bill would further require an application to include a
general statement regarding the services and products to be
offered; a copy of the form for all contracts to be made
with participating providers and soliciting, advertising,
or subcontracting agents; and a description of proposed
marketing methods and member complaint procedures.
This bill would require the director to review an
STAFF ANALYSIS OF SENATE BILL SB 1603 (Calderon) Page
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application upon receipt, to notify the applicant of any
deficiencies in the application, and to make a
determination regarding licensure within 90 days. This
bill would provide that a license shall be effective for
one year and requires the department to renew the license
of a discount health care program that meets the specified
requirements.
This bill would require a discount health care program
operator to review and approve its advertising, marketing
and solicitation materials, and states that marketing
materials shall be filed with the department upon request.
This bill would require all advertising and marketing
materials to clearly and conspicuously disclose that the
discount health program is not insurance, whether the
member must pay for all services at the time of service in
order to receive the discount, and that discount services
to members are limited to the providers who participate in
the program. This bill would prohibit the use of
terminology that could reasonably mislead an individual
into believing that the program is insurance.
This bill would require a discount health care program to
maintain a toll-free telephone number and Internet web
address for members to access an up-to-date directory of
participating providers by service and geographic region,
and specifies that it shall be updated at least once a
month and be available to prospective and existing members.
This bill would require the program to maintain a
toll-free customer assistance call center to assist members
in accessing providers, address complaints and grievances,
and confirm the discounted rates.
This bill would provide that a discount health care program
operator shall be responsible for the acts of a solicitor
that are within the scope of its agency relationship.
This bill would provide that price advertising shall not be
fraudulent, deceitful or misleading, and shall be clearly
identifiable and include charges for any related
professional services unless the advertisement specifically
states otherwise.
This bill would set forth the conditions under which a
member's enrollment may be cancelled or not renewed by the
program operator, including notice and refund requirements;
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and the protocol for cancellation by the member.
This bill would provide that a discount health care program
must provide interpreter services to persons with limited
English proficiency when the program has directed its
marketing activities toward that community, as defined.
This bill would require an operator to maintain a net worth
of one hundred fifty thousand dollars ($150,000), or to
file a surety bond with the department in the amount of
fifty thousand dollars ($50,000).
This bill would require that members receive written
disclosures in readily understood language regarding the
provisions of the program, including principal benefits,
exclusions and limitations, additional fees, as well as
potential changes in the terms of the program.
This bill would require that discount health care program
operators maintain written contracts with each
participating provider, or indirectly through one or more
provider networks, or through another entity that maintains
written contracts with those networks.
This bill would provide that provider contracts shall
include a list of health care services and products
provided; as well as the amount or amounts of the discounts
or, alternatively, a discount fee schedule from the
provider.
This bill would exempt discount health care program
operators from specified provisions in the Business and
Professions Code that have been interpreted by regulatory
entities as barring providers from participating in
discount health care programs.
This bill would provide that the department may suspend or
revoke the license of the operator, or may assess a civil
penalty, not to exceed $2,500 for each violation, if an
operator or solicitor fails to comply with the requirements
of this chapter and does not correct that failure within 30
days following notification. This bill would provide that
civil penalties will be paid into the Managed Care Fund.
FISCAL IMPACT
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Unknown.
BACKGROUND AND DISCUSSION
The author states that 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.
The author states that there has been substantial confusion
over how existing law applies to these plans, and that this
bill is necessary in order to clear up the confusion and
ensure appropriate protections for consumers who want to
purchase discount health care programs.
A discount health care program (also known as a discount
health plan) is a commercial entity that charges membership
fees in exchange for access to health care service
discounts which are provided by network providers such as
doctors, hospitals and pharmacies.
Discount health plans differ from health insurance and
health care plans in that they are not financially liable
for the health care services provided to subscribers.
Patients receive and pay all provider claims while the
program establishes contracts with a network of providers
who have agreed to provide members a discount on health
care services.
Discount health plans typically provide a list of
participating providers to subscribers and are not involved
in the subscriber's decision regarding which health care
provider to utilize or the provider's decision regarding
what services should be provided.
Some discount health plans specialize in a single health
care service such as dental, vision or prescription drugs.
These specialized programs are argued to be more easily
regulated than discount programs that offer a combination
of health care services, which may include physician and
hospital services whose prices vary and are potentially
inflated and difficult to assess.
Regulatory History
On July 9, 1983, the Commissioner of the Department of
Corporations, Tom Franklin issued a finding that discount
health plans are subject to Section 1349 of the Knox-Keene
Act requiring health care service plans to be licensed.
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Under a clear regulatory structure, the discount health
care industry expanded in California.
In January 2001, the Department of Managed Health Care,
under Director Daniel Zingale, rescinded the earlier
finding from Commissioner Franklin, determining that
discount health plans are not subject to DMHC jurisdiction
because they are not engaged in arranging for the provision
of health care services when, and to the extent, they
contract to obtain a fee discount on services their members
choose to receive from participating programs. Director
Zingale stated numerous consumer protection concerns,
"first and foremost the legitimacy of the promised
discount," but nonetheless determined that the framework of
the Knox-Keen Act "is ill-adapted to address them because
its provisions are largely devoted to regulation of
activities with which the discount programs are not
involved."
In September 2003, DMHC, under Director Cindy Ehnes, filed
cease and desist orders against two discount health plans
and began investigations into the business practices of 13
others, after receiving a large number of complaints by
consumers through the HMO Help Center. The investigation
grew to include more than 100 companies over the following
three years and led to crack-downs on six firms.
In December 2005, the DMHC rescinded the "Zingale Opinion"
and reinstated the opinion issued by Commissioner Franklin
in 1983.
In January 2005, the department issued a new order
requiring plans to be licensed by the department and to
cease marketing their products as insurance. In October
2006, the department issued the first license to a discount
health plan offering discounts for dental care. At that
time, the department reported that it was still unable to
verify rates for non-dental medical plans, which
constituted the majority of the discount health industry.
In February 2008, the department issued a preliminary draft
of proposed regulations regarding discount health plans,
which provided for their licensure. The draft regulations
imposed requirements for disclosure, marketing, and
consumer grievance procedures, and provided that plans must
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demonstrate the provision of a bona-fide discount, among
other things.
On March 27, 2008 the Senate Health Committee held an
informational hearing in which discount health care
programs were discussed in the context of consumer
protection under the Department of Managed Health Care.
Actions taken by the Attorney General of California
In January 1999, then-Attorney General (AG), Bill Lockyer
issued a decision declaring it illegal for a licensed
health care service plan to offer a "supplemental personal
purchasing program" that arranged discounted fees with a
network of providers for a specialty not covered by the
plan (specifically cosmetic medical services). The AG
further concluded that Section 650 of the Business and
Professions code expressly prohibited the offering of any
discount by a physician as inducement for the referral of
patients.
In July 2001, the AG made another determination that "a
corporation may not charge an annual subscription fee,
including a reasonable profit, for furnishing a list of
physicians willing to provide medical services at
discounted rates to uninsured or indigent persons."
Related legislation
SB 1579 (Calderon) would create an exception to the
existing prohibition against providing consideration (i.e.
anything of value) for a referral. Specifically, this
bill would provide that it is not unlawful for a physician
and surgeon to provide consideration for a referral in
certain instances. This bill is currently in Senate
Business and Professions Committee.
Prior legislation
AB 562 (Levine) of 2005 would have authorized the
department to issue regulations regarding discount health
plans. Failed passage in the Assembly Appropriations
Committee.
AB 1091 (Parra) of 2005 would have required discount health
plans to register with the DMHC. Failed passage in the
Assembly Appropriations Committee.
AB 2354 (Levine) of 2004 initially would have prohibited
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the provision of a list of providers for profit and was
amended to expand the existing prohibitions on referral for
profit. Died on the inactive file in the Assembly.
SB 1461 (Speier) of 2002 would have established a
regulatory structure for (non health plan) businesses
marketing discounts on health care products or services and
would have required these businesses to register with the
AG's office. Referred but never heard in the Assembly
Health Committee.
SB 2010 (Alpert and Polanco) of 2002 would have created an
exemption for health care discount programs from the
provisions of existing law that this bill proposes to amend
regarding physician referrals. The bill was amended in the
Assembly to require the Legislature to request the Senate
Office of Research to conduct a survey of discount health
programs and make recommendations about a regulatory
structure for the industry. SB 2010 was later amended to
address an unrelated issue.
SB 1181 (Polanco) of 2000 would have authorized health
plans to offer health care service discount programs. Bill
was held in the Assembly Appropriations Committee.
SB 173 (Alpert) of 2000 would have provided for the
regulation of consumer discount programs operated by
entities other than health plans. Bill was held in the
Assembly Appropriations Committee.
Arguments in support
The Consumer Health Alliance (CHA), a national trade
association representing discount healthcare programs and
the sponsor of the bill, states that this bill would enact
a regulatory and enforcement structure, which would be the
most rigorous in the nation. CHA states that more than six
million Californians are members of CHA, and discount
health care programs make health care services and products
more affordable to members by enabling consumers to
directly purchase such services and products at discounted
prices. The sponsor points out that many respected
organizations and businesses offer, or sponsor, discount
healthcare programs and that more than 27 states have
enacted laws to regulate the industry.
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The sponsor states that this bill would provide a
comprehensive and detailed approach to regulating the
discount health care industry as a program would be
required to have a valid license; to review and approve
and, upon request, file with the department all advertising
and marketing materials; to have contracts with providers
or provider networks that set forth the services and
products to be provided and the amounts of discounts; to
clearly state that programs are not insurance; to maintain
a toll-free customer assistance call center during normal
business hours; to allow members a 30 day window to cancel
their membership; and to maintain a net worth of $150,000
or to file a surety bond with the department of $50,000.
Arguments in opposition
Opponents argue that discount health plans are frequently
marketed as insurance to consumers and that the promised
discount that individuals pay a fee to access is illusory
and subject to abuse. Specifically, critics of discount
health plans argue that the bill calls for no regulatory
oversight regarding whether the discount is real and
verifiable. Additionally, opponents argue that, even with
regulatory authority, it would be difficult to determine a
baseline price from which to calculate a discount. Critics
of the discount health plan model argue that the discounts
promised are inherently illusory since it is impossible for
consumers to verify the actual discounted price because
neither they nor the regulatory agency will know the
original price. Opponents argue that providers are often
unaware that they are included in the network since program
operators often sign agreements with existing provider
networks and not with individual physicians.
The Western Center on Law and Poverty writes that many of
their low-income clients have purchased discount health
cards and have encountered all of the problems mentioned.
Additionally WCLP states that many discount plans market to
limited-English proficient (LEP) communities and should be
required to provide interpretation and other language
assistance services to their LEP members regardless of
whether an operator has expressly market to LEP
communities.
The California Medical Association (CMA) writes that
discount health plans offer no real benefit to patients and
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serve to discourage individuals from obtaining health care
coverage that adequately covers them. CMA writes that
these plans undermine the viability and affordability of
Knox-Keene plans, since they take healthy patients away
from the insurance risk pools. Furthermore, the CMA writes
that discount cards are designed to look like insurance
cards and use phrases typically associated with insurance
coverage so that a consumer could be misled into believing
that they are buying health insurance.
COMMENTS AND QUESTIONS
1. Bill omits some Knox-Keene standards. The bill lacks
many consumer protection safeguards which apply to health
care service plans. For example, the bill does not require
discount plan marketing and advertising materials to be
filed with the DMHC. The bill's provisions for
cancellations of policies are less restrictive than those
that apply to health plans. The bill also omits language
access protections which apply to health plans. The bill
limits the department's enforcement powers and processes,
including its power to levy civil, criminal and
administrative fines and penalties, and allows a discount
plan a 30-day window before penalties are applied, which
does not apply to health plans.
2. Other consumer protections. The bill also lacks other
consumer protections that are specific to the nature of
discount health care programs, which the DMHC has included
in the consent decree and preliminary draft regulations.
For example, the bill lacks a requirement that all
discounts shall be amenable to verification that they are
bona-fide discounts and not illusory. This bill limits the
scope of regulatory oversight over provider networks and
contracts, which the department included in preliminary
draft regulations, and omits a prohibition against market
group subscriber contracts. The bill does not require
solicitors and agents to undergo training or to be licensed
insurance agents or brokers.
3. Real and verifiable discounts. SB 1603 appears to
provide no authority to DMHC to ensure that a discount
health care plan is offering a real and verifiable discount
based on a determinable price. Even if such regulatory
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authority is provided to the department, there is a
question as to whether a discount is amenable to being
verified at all.
4. Eligibility for other discounts. The bill does not
contain a disclosure or other requirements to ensure that
discount plan enrollees, who may be eligible for other,
possibly better, discounts, including charity care
arrangements that do not require a subscriber fee, do not
purchase discount plans that they don't need.
POSITIONS
Support: Consumer Health Alliance
Oppose: Health Access
California Medical Association
California Society of Plastic Surgeons
Western Center on Law and Poverty
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