BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2
Assemblymember De La Torre
As Amended June 2, 2009
Hearing Date: July 14, 2009
Health and Safety Code; Insurance Code
KB:jd
SUBJECT
Individual Health Care Coverage
DESCRIPTION
This bill would impose specific requirements and standards on
health care service plans licensed by the Department of Managed
Health Care (DMHC) and health insurers subject to regulation by
the California Department of Insurance (CDI), (collectively
carriers) related to the application forms, medical
underwriting, and notice and disclosure of rights and
responsibilities for individual, non-group health plan
contracts, and health insurance policies, including the
establishment of an independent external review process related
to a carrier's decision to cancel or rescind an individual's
health care coverage.
BACKGROUND
The individual health insurance market, which covers about nine
percent of insured Californians or seven percent of non-elderly
Californians, is made up of individuals and families who pay for
their own coverage, generally because group coverage is not
available or they are ineligible for publicly subsidized health
coverage. Persons often seek this type of coverage because they
are self-employed, early retirees, part-time employees, or have
"aged off" a parent's policy.
In California, health plans and insurers conduct medical
underwriting, the process of reviewing an applicant or
applicants' medical history to ascertain the financial risk
posed by the applicant or applicants. Each health plan has its
(more)
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own underwriting guidelines in the individual market, which must
be filed with the California Department of Managed Health Care
(DMHC), but are not publicly disclosed. Health plans and health
insurers in the individual market may deny an applicant health
insurance, limit a benefit package, or charge a higher premium,
based on the assessed level of risk. The plan or insurer may
also use a pre-existing condition provision or a waivered
condition provision to exclude coverage for up to 12 months,
subject to specified rules.
Rescission involves a determination by the health plan or health
insurer that the contract between the plan or insurer and
enrollee, subscriber, or policyholder never existed because of a
misrepresentation by the enrollee, subscriber, or policyholder
at the time of application, and that, therefore, any health care
services the enrollee, subscriber, or policyholder received
during the entire time of the contract are the responsibility of
the enrollee, subscriber, or policyholder. As a remedy,
rescission essentially places the parties back to their original
status prior to the execution of the contract, with premiums
refunded to the enrollee, and any health services paid for by
the plan owed by the enrollee.
Currently, different statutory provisions apply to health plans
under DMHC and health insurers under CDI, related to rescission.
Both statutory provisions prohibit post-claims underwriting,
defined as rescinding, canceling, or limiting a plan contract
due to a plan or insurer's failure to complete medical
underwriting and resolve all reasonable questions arising from
written information submitted on or with an application before
issuing the plan contract or policy. For health plans regulated
by DMHC, existing law provides that the prohibition against
post-claims underwriting does not limit a plan's remedies upon a
showing of willful misrepresentation. The Insurance Code does
not have a parallel provision regarding willful
misrepresentation. A recent Court of Appeal opinion (see Hailey
below), issued in December 2007, interprets the post-claims
underwriting statute and a plan's right to rescission.
In 2007, DMHC initiated a non-routine investigation of the five
largest Knox-Keene plans related to rescissions of health
coverage. The DMHC investigation found the following:
-------------------------
| Number of Coverage |
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| Rescissions |
| Five Largest Knox-Keene |
| Plans |
-------------------------
|-----------+-------------|
|2002 |882 |
|-----------+-------------|
|2003 |743 |
|-----------+-------------|
|2004 |1,436 |
|-----------+-------------|
|2005 |1,536 |
|-----------+-------------|
|2006 |302 |
-------------------------
-------------------------
|Source: |
|DMHC |
-------------------------
DMHC has taken an aggressive enforcement stance with respect to
rescissions, and in 2008, DMHC reached agreements with Anthem
Blue Cross, Blue Shield, Health Net, Kaiser, and PacifiCare
requiring them to pay fines ranging from $50,000 to $10 million,
with additional fines to be levied if corrective action plans
for rescission policies and practices going forward are not
submitted by the health plans, approved by DMHC and properly
implemented. The settlements require the plans to offer health
care coverage to former members whose policies they rescinded or
canceled over the past four years, regardless of the former
member's health condition, and to reimburse the affected
consumers for out-of-pocket costs incurred after the policies
were rescinded. DMHC ordered the plans to use a fair outside
arbiter selected by the DMHC to review every rescission
uncovered in the investigations and determine remedies, such as
payment of medical care and premiums. Reimbursement for health
care services will be limited to those who are found by the
arbiter to have been wrongly rescinded. According to DMHC, by
the end of February 2009, of the 3,300 enrollees who were
identified as having coverage rescinded and required to be
reinstated under the settlements, all had been offered coverage.
Of those offered reinstatement, 170 had re-started coverage (5
percent) and 293 (8 percent) have requested reimbursement under
the terms of the settlement. DMHC is reportedly in the process
of reviewing and finalizing the health plan corrective action
plans related to rescission policies and practices going
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forward.
In late 2008 and early 2009, CDI reached agreements with Anthem
Blue Cross, Blue Shield, and Health Net related to the insurers'
rescission of health insurance products subject to CDI's
jurisdiction. As part of the CDI settlements, insurers agreed
to offer coverage to consumers whose individual, family, or
short-term health policies were previously terminated without
subjecting them to medical underwriting or exclusions for
pre-existing conditions, and to pay any medical expenses that
would have been covered under the rescinded policies if those
costs had not already been covered by another source. The CDI
agreements do not allow the insurers to use the validity of the
rescission as a defense to any claim for reimbursement of
medical expenses. In the CDI settlements, insurers agreed to an
expedited independent arbitration process to resolve any
disputes regarding the reimbursements for medical expenses, such
as coverage issues or medical necessity determinations. As part
of the settlements with CDI, insurers also agreed to make
changes to the application forms, underwriting process, agent
and broker training, and notification to consumers and providers
of an investigation regarding information in the application and
oversight of its claims handling. Insurers also agreed to
establish an independent third-party review process for
rescissions going forward.
Under the agreements with both DMHC and CDI, rescinded patients
can accept new coverage without forfeiting any legal rights, but
they must execute a release of any and all rescission-related
claims against plans or insurers in order to receive
reimbursement for out-of-pocket medical expenses.
In addition to the settlements with regulators, the Los Angeles
City Attorney has separately sued several insurers within the
city's boundaries. There have also been multiple individual and
class action lawsuits brought against insurers by individuals
and families who argue that their policies were improperly
rescinded or canceled.
This bill was approved by the Senate Committee on Health on July
8, 2009.
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CHANGES TO EXISTING LAW
Existing law provides for regulation of health plans by DMHC
under the Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene) and for regulation of health insurers by the CDI
under the Insurance Code.
Existing law prohibits health plans and health insurers from
engaging in "post-claims underwriting," defined to mean the
rescinding, canceling, or limiting of a plan contract or
insurance policy due to the plan's or insurer's failure to
complete medical underwriting and resolve all reasonable
questions relative to an application for coverage before issuing
the health plan contract or policy. (Health & Saf. Code Sec.
1389.3.) For health plans regulated by DMHC, existing law
provides that the prohibition against post-claims underwriting
does not limit a health plan's remedies upon a showing of
willful misrepresentation. (Health & Saf. Code Sec. 1389.3.)
Existing law prohibits health plans and health insurers from
rescinding or modifying an authorization for services after the
service is rendered, for any reason, including but not limited
to, the plan's subsequent rescission, cancellation, or
modification of the enrollee or insured's contract, or the plan
or insurer's subsequent determination that the health plan or
health insurer did not make an accurate determination of the
enrollee or insured's eligibility. (Health & Saf. Code Sec.
1371.8.)
Existing law , establishes a two-year contestability period for
disability insurance, long-term care insurance, and Medicare
supplement policies, during which an insurer may rescind an
insurance policy if specified conditions are met. (Health &
Saf. Code Sec. 1358.8; Ins. Code Sec. 10350.2.)
Existing law requires applications for health plan contracts and
health insurance policies to conform to certain standards for
underwriting, including the use of clear and
unambiguous questions, when health-related questions are used to
ascertain an applicant's health, and requires questions relating
to the health condition or health history of the applicant to be
based on medical information that is reasonable and necessary
for medical underwriting purposes. (Health & Saf. Code Sec.
1389.1.)
Existing law establishes an independent medical review (IMR)
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system, as specified, and requires health plan contracts and
health insurance policies to provide an enrollee or insured with
the opportunity to seek an IMR whenever health care services
have been denied, modified, or delayed by the plan, or by one of
its contracting providers, based in whole or in part on a
finding that the proposed health care services are not medically
necessary. (Health & Saf. Code Sec. 1374.30.)
Existing law requires DMHC and CDI to contract with one or more
IMR organizations, and establishes specific conflict of interest
rules and disclosure requirements applicable to the external
review organizations. (Health & Saf. Code Sec. 1374.32.)
This bill would require DMHC and CDI to jointly establish, by
regulation, standard information and health history questions
that carriers must use in individual health care coverage
application forms, as specified, including a pool of approved
questions for use in applications, and prohibits applications
from containing any other questions except for the approved
questions.
This bill would require the standard information and health
history questions developed for applications to contain clear
and unambiguous information and questions designed to ascertain
the health history of applicants, to be based on medical
information reasonable and necessary for medical underwriting
purposes, and to include a limitation on how far back in time
from the application date the applicant was diagnosed and
treated for the health condition.
This bill would require carriers to use only the standard pool
of approved questions within six months after adoption, and on
and after January 1, 2011, would require all individual coverage
applications to be approved by DMHC or CDI.
This bill would require carriers to complete medical
underwriting prior to issuing a health plan contract or health
insurance policy, defined as a reasonable investigation of the
applicant's health history information, which includes but is
not limited to, ensuring that information submitted on the
application form and the material submitted with the application
form is complete and accurate, and, resolving all reasonable
questions arising from the application form, materials submitted
with the application, or any information obtained by a carrier
as part of the verification of the accuracy and completeness of
the application.
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This bill would require carriers to adopt and implement written
medical underwriting policies and procedures, and to file the
policies and procedures with the respective regulator on or
before January 1, 2011, to ensure that the carrier meets
specified requirements relating to application review, including
among other things, identifying and making inquiries, including
contacting the applicant about any questions raised by
omissions, ambiguities, or inconsistencies in the application.
This bill would require the carrier to document all information
collected during the underwriting and review process.
This bill would require carriers to send a copy of a written
application to an individual within ten days after coverage is
issued, with a notice that states all of the following: (a) the
applicant should review the application carefully and notify the
carrier within 30 days of any inaccuracy and if the applicant
provides the carrier with new information within the 30-day
period, medical underwriting will apply to the new information;
(b) any intentional material misrepresentation or intentional
material omission in the application information may result in
cancellation or rescission of the contract; and, (c) the
applicant should retain a copy of the completed written
application for the applicant's records.
This bill would, after an individual contract or policy is
issued, prohibit the cancellation or rescission of the contract
or policy unless all of the following apply: (a) there was a
material misrepresentation or material omission in the
application prior to the issuance of the contract or policy that
would have prevented the contract from being entered into; (b)
the carrier completed medical underwriting prior to issuing the
coverage; (c) the carrier demonstrates that the applicant
intentionally misrepresented or intentionally omitted
information on the application prior to the issuance of
coverage, with the purpose of misrepresenting his or her health
history; in order to obtain health care coverage; (d) the
application form was approved by DMHC or CDI; and, (e) the
carrier complied with the requirement to send the complete
application to the applicant along with the written notice.
This bill would specify that, notwithstanding the prohibition
above, coverage may be canceled or not renewed for failure to
pay the premium as provided in existing law.
This bill would authorize carriers to conduct a "postcontract
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investigation," if the carrier obtains information that a
covered person may have intentionally misrepresented or
intentionally omitted information on the application, and
requires carriers to send a specified notice within five days to
the covered person that the investigation may lead to rescission
or cancellation of the covered person's coverage.
This bill would establish specific timelines and notice
requirements related to the postcontract investigation, and any
subsequent cancellation or rescission that results, including
specific and detailed information that must be included in
notices provided to covered persons under the contracts or
policies that are the subject of a "postissuance investigation,"
including:
a) An opportunity for the covered person to provide any
evidence or information within 45 business days to negate
the carrier's reasons for initiating the investigation;
b) A requirement that the carrier complete the
investigation within 90 days of the notice;
c) A written notice via regular and certified mail to the
covered person, once the investigation is complete, with
one of the following determinations:
i) The carrier has determined that the covered person
did not intentionally misrepresent or intentionally omit
material information during the application process and
that the covered person's health care coverage will not
be canceled or rescinded; or,
ii) The carrier intends to seek approval from the
director of DMHC or the CDI commissioner to cancel or
rescind the covered person's coverage for intentional
misrepresentation or intentional omission of material
information during the application for coverage process.
This bill would require the written notice described above to
include specified information including notice that any decision
to cancel or rescind the covered person's coverage will not
become effective until the independent review organization
established by this bill upholds the decision, unless the
covered person opts out of the independent review.
This bill would require carriers to continue to authorize and
provide all medically necessary services until the effective
date of a cancellation or rescission, and would provide that the
effective date of a cancellation or rescission is no earlier
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than the date of certified notice to the covered person that the
independent review organization has made a determination
upholding the decision to cancel or rescind.
This bill would, commencing January 1, 2011, establish within
DMHC and CDI an independent review process (IRP) for decisions
to cancel or rescind individual health plan contracts or
individual health insurance policies and requires that all
carrier decisions to cancel or rescind be reviewed in the IRP,
unless the covered person opts-out of the process.
This bill would authorize a covered person to designate an agent
to act on his or her behalf and to submit relevant information
45 days from the date of the independent review organization's
(IRO) receipt of request for an independent review.
This bill would require carriers to include a disclosure of the
right to an automatic IRP in member handbooks, evidence of
coverage, and other related materials on or before January 1,
2011, as specified.
This bill would require submission of specified materials by the
carrier to the independent review organization (IRO) designated
by the regulator, according to specified timelines, including a
copy of all information submitted to the covered person and any
information the covered person submitted to the carrier,
relating to the carrier's decision to rescind or cancel
coverage, while maintaining the confidentiality of the covered
person's medical information. This bill would require the
carrier to provide a copy of all documents submitted to the IRO
to the covered person, as well as other materials.
This bill would require DMHC and CDI to expeditiously review IRP
requests and notify covered persons related to their rights and
responsibilities in the IRP process, related to any proposed
cancellation or rescission, including the right of the covered
person to submit relevant information within 45 days.
This bill would require DMHC and CDI to, by January 1, 2011,
contract or otherwise arrange for one or more independent
not-for-profit organizations to conduct IRPs. The review
organizations must be independent of carriers doing business in
California and meet the specific conflict of interest standards
established by the director of DMHC and the commissioner of CDI
through regulations. This bill would require that these
conflict of interest standards be consistent with existing
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conflict of interest provisions for the Independent Medical
Reviews conducted under existing law by DMHC and CDI, to the
extent applicable.
This bill would require contract provisions between DMHC or CDI
and the IRO to include specific quality assurance mechanisms,
conflict of interest provisions, and protections to ensure the
selection of independent, qualified arbitrators.
This bill would require the IRO to, among other things,
demonstrate that it has a quality insurance mechanism, as
specified, and ensure that arbitrators selected by the IRO meet
minimum requirements, as specified, including that the
arbitrator must hold an unrestricted license to practice law in
California.
This bill would require the arbitrator to follow specified
processes and timelines, and would allow the arbitrator to
request opinion of an expert consultant, as defined; but would
prohibit the expert consultant requested by an arbitrator from
rendering an opinion as to whether the covered person
intentionally misrepresented or intentionally omitted
information during the application process. This bill would
require that the IRO complete its review and make a
determination in writing within 60 days of the receipt of the
application for review and supporting documentation.
This bill would require that DMHC and CDI immediately adopt the
IRP determination and promptly issue a written decision to the
parties that shall be binding on the carrier.
This bill would require the regulator to provide, upon request
of any interested person, a copy of all nonproprietary
information filed with the regulator by an IRO, at a nominal fee
for photocopying; and make available to the public, upon request
and at the department's cost, the determination of the IRO that
the regulator has adopted, redacting necessary information to
comply with privacy and confidentiality laws and those governing
disclosure of public records. This bill would require the
regulator to perform an annual audit of independent review
cases.
This bill would provide that the IRP is in addition to any other
procedures or remedies that may be available.
This bill would prohibit carriers from engaging in conduct to
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prolong the IRP, subject to a specific administrative penalty of
$5,000 for each day the IRP is prolonged or an IRP decision is
not implemented, as specified.
This bill would impose a per case assessment on carriers to
support the costs of the IRP, but exempts carriers that do not
cancel or rescind contracts from the fees and assessments
established.
This bill would, on and after January 1, 2010, require carriers
to report the number of individual contracts and policies issued
and the number where the carrier initiated a cancellation or
rescission, and requires DMHC and CDI to annually post the
information on the respective department Internet Web sites.
This bill would exempt from the provisions of this bill plan
contracts or health insurance policies for coverage issued under
Medi-Cal, Access for Infants and Mothers Program, the Healthy
Families Program, and the federal Medicare Program.
COMMENT
1. Stated need for the bill
According to the author, news reports and lawsuits have
identified families saddled with thousands in medical debt for
treatment they believed was covered. In many cases, individual
health coverage was rescinded by plans on grounds that the
consumers submitted false information on their original
applications several years prior. The author points out that
further investigation of these cases often revealed that
insurers and health plans only scoured the applications
searching for any omission or possible inaccuracy after the
patient submitted claims for expensive, medically necessary
treatment. The author argues that this bill protects consumers
from open-ended and unlimited exposure to losing health coverage
going back to issues arising from the application, while giving
insurers a reasonable amount of time to review and investigate
individual applications.
2. Bill would establish the standard for rescission
In 2000, Cindy Hailey applied to Blue Shield for herself, her
husband, Steve, and their son, even though her new employer
offered coverage, because the employer's plan did not include
the family's doctor. Cindy completed an individual application
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and Blue Shield issued a policy at its preferred rate in
December 2000. In February 2001, Steve Hailey was hospitalized,
prompting Blue Shield to investigate the application. In June
2001, Blue Shield rescinded their coverage based on the Haileys'
failure to disclose medical information, and later alleged that
the Haileys had willfully misrepresented information about her
husband's medical history, which Blue Shield uncovered in an
investigation it initiated when Steve Hailey incurred
significant medical bills following a serious automobile
accident. Cindy Hailey asserted that she did not realize the
application called for information about her dependents and
thought she was only being asked to provide information on her
own medical issues. Without health coverage, Steve Hailey
experienced significant health consequences and permanent
disability. The trial court granted summary judgment in favor
of Blue Shield and ordered the Haileys to pay back more than
$100,000 in medical costs to Blue Shield.
In Hailey v. California Physicians' Service (2007) 158
Cal.App.4th 452, the Court of Appeals reversed the trial court
holding that Health and Safety Code Section 1389.3, the
post-claims underwriting statute, precludes a health services
plan from rescinding a contract for material misrepresentation
or omission unless the plan can demonstrate the
misrepresentation or omission was willful, or it had made
reasonable efforts to ensure the subscriber's application was
accurate and complete as part of the pre-contract underwriting
process. However, the Hailey decision failed to articulate what
constitutes "reasonable efforts" to ensure that an application
is accurate and complete as part of the pre-contract
underwriting process or what constitutes resolution of all
reasonable questions arising from written information, as the
statutory prohibition on post-claims underwriting requires.
Blue Shield appealed the decision to the California Supreme
Court, which refused to hear the case, effectively making the
interpretation of the post-claims underwriting statute in the
Hailey decision the applicable law relating to rescission under
Knox-Keene. Thereafter the case returned to Orange County
Superior where, on May 28, 2009, a judge ruled that Blue Shield
had acted properly, after the Haileys stipulated that they had
lied about Steve Hailey's preexisting condition to obtain
coverage.
The Hailey decision seemingly allows a health plan to rescind on
a standard less than willful misrepresentation, and has created
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ambiguity as to what constitutes a legal rescission under
Section 1389.3. Health plans and insurers could argue (and
reportedly have been) that they are allowed to rescind so long
as they conducted "reasonable efforts" to ensure that the
application was accurate and complete. This standard is much
lower than the "willful representation" and raises serious
concerns for patients.
The DMHC appears to have followed the "willful
misrepresentation" standard prior to the Hailey decision. As
reported by the LA Times on January 29, 2007, Director of DMHC,
Cindy Ehnes stated that the DMHC's position was that the law
banned retroactive rescission unless a health plan could show
that a policyholder intentionally lied about his health history
on his application for coverage. (See Lisa Girion, "Heath plan
review may be intensified; the state's top HMO regulator calls
for outside oversight of insurers' attempts to drop
policyholders," Los Angeles Times, January 30, 2007.)
Further, the DMHC submitted an amicus curiae brief to the Court
of Appeals for the Hailey decision, which stated that:
Because of the catastrophic consequences of losing health care
coverage, and in furtherance of the consumer protection
purpose of the Knox-Keene Act, the Legislature enacted
[Section] 1389.3 ? [which] expressly prohibits post-claims
underwriting and allows a health plan to rescind coverage only
in cases where it has met its burden of demonstrating that the
consumer willfully misrepresented his or her health history.
This bill would provide that carriers may not rescind or cancel
a plan contract or insurance policy unless all of the following
apply: (1) there was a material misrepresentation or material
omission in the information submitted by the applicant in the
written application prior to the issuance of the plan or policy
that would have prevented the contract from being entered into;
(2) the carrier completed medical underwriting before issuing
the plan or policy; (3) the carrier demonstrates that the
applicant intentionally misrepresented or omitted the material
information on the application with the purpose of
misrepresenting his or her health history in order to obtain
coverage; (4) the application form was approved by the DMHC or
CDI; and (5) the carrier sent a copy of the completed written
application form to the applicant with a copy of the plan
contract or policy, and the written notice described in Comment
4.
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However, policies and enrollments could still be canceled for an
applicant's failure to pay for the coverage.
This bill would thus establish a more stringent standard for
rescission than that articulated by the Hailey court. This
standard is consistent with the standard approved by this
committee last year in AB 1945 (De La Torre, 2008).
3.Bill would require standard information and health history
questions for application forms
Under existing law, applications for health plan contracts and
insurance policies must contain clear and unambiguous questions
designed to ascertain the health condition or history of the
applicant. (Health & Saf. Code Sec. 1389.1; Ins. Code Sec.
10270.95.) This bill would require DMHC and CDI to jointly
establish, by regulation, standard information and health
history questions that carriers must use in individual health
care coverage application forms, including a pool of approved
questions for use in applications. Carriers would be prohibited
from using applications which contain any other questions except
for the approved questions.
This bill would further require the applications to contain
clear and ambiguous information and questions designed to
ascertain the health history of applicants that are based on
medical information reasonable and necessary for medical
underwriting purposes. This bill would require that the health
history questions developed by the DMHC and CDI for the
applications include a limitation on how far back in time from
the date of the application the applicant was diagnosed and
treated for the health condition specified in the questions.
4. Bill would define and require medical underwriting
This bill would require carriers to complete medical
underwriting, which would be defined as a reasonable
investigation of the applicant's health history. As part of the
medical underwriting process, carriers would have to ensure that
the information submitted on the application form and the
material submitted with the application is complete and
accurate. Carriers would also have to resolve all reasonable
questions arising from the application or accompanying
materials. This bill would also require carriers to adopt and
implement specific medical underwriting policies and procedures,
and file their policies and procedures with the DMHC or CDI by
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January 1, 2011.
5. Applicant review of application
This bill would require carriers, within 10 business days of
issuing a plan contract or a policy, to send a copy of the
completed written application, and the plan contract or policy,
to the applicant. Carriers would also be required to include a
notice that states that (1) the applicant should review the
completed application and notify the carrier within 30 days of
any inaccuracy in the application, and (2) that any intentional
material misrepresentation or omission in the information
submitted in the application may result in the cancellation or
rescission of the plan contract. The notice would also advise
applicants to retain a copy of the completed written application
for their records. If the applicant provides new information
within the 30 day period, carriers would have to conduct medical
underwriting with respect to the new information.
6. Postcontract issuance investigation
This bill would authorize a carrier to initiate a "postcontract
issuance investigation" in order to determine whether a person's
plan contract or insurance policy should be rescinded or
canceled if the carrier obtains information that the person may
have intentionally omitted or intentionally misrepresented
information during the application process. Carriers would have
to provide written notice to the enrollee or insured within five
days of initiating the investigation. The written notice must
include disclosure of the alleged omission or misrepresentation,
and a concise explanation of why the information has resulted in
an investigation to determine whether the contract or insurance
policy should be rescinded or cancelled. An individual would
have 45 business days to provide any evidence or information
negating the carrier's reasons for initiating the investigation.
A carrier would be required to complete investigations in 90
days, at which point the carrier would have to notify the
enrollee or insured whether it intends to seek approval from
DMHC or CDI to cancel or rescind the contract or policy. The
notice would have to include the reasons for the carrier's
determinations, a statement that the decision is not final until
it is reviewed and approved by the independent review process
described below. The notice must also provide the enrollee or
insured with information regarding the independent review
process, and the right to opt out of the process within 45 days.
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7. Independent review process
This bill would, commencing January 1, 2011, establish an
independent review process for the review of carriers' decisions
to cancel or rescind health care plans or insurance policies.
All carrier decisions to rescind or cancel would have to be
reviewed, unless an individual chooses to opt out of the
process. Carriers would be required to submit all relevant
documents and information to the independent review
organization.
This bill would require the DMHC and CDI to contract with one or
more independent organizations in the state to conduct the
reviews. The organization must be non-for-profit and
independent of any health care service plan or insurer doing
business in the state. The organization must also meet the
conflict-of-interest requirements established by the DMHC and
CDI, which must be consistent with existing standards governing
independent medical review organizations. The independent
review organization would have to demonstrate that it has a
quality assurance mechanism ensuring that all reviews are
timely, clear, and credible, and that arbitrators are fair and
impartial, as well as licensed as attorneys and in good standing
with the State Bar. All medical records and review materials
must be kept confidential in accordance with state law.
An arbitrator selected to conduct a review by the independent
review organization would promptly review all pertinent records
submitted to the organization. If an arbitrator requests
information from one party, the response shall be provided to
all parties. The arbitrator may request an opinion of an expert
consultant with respect to specific questions raised during the
review, but the expert consultant may not render an opinion as
to whether the enrollee or insured intentionally misrepresented
or intentionally omitted information during the application
process. The review must be completed within 60 days of the
organization's receipt of the request. The arbitrator's
analysis and determination must state the reasons for the
determination, the relevant documents in the record, and the
relevant findings supporting the determination. The DMHC and
CDI would be required to immediately adopt the determination of
the independent review organization and issue a written decision
to the parties that shall be binding on the plan or insurer.
The independent review would not limit the enrollee or insured's
rights to pursue any other remedies under the law.
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This bill would require the DMHC and CDI to establish a
reasonable, per-case reimbursement schedule to support the costs
of the independent review process, and would require the costs
to be borne by "affected" carriers through an assessment.
However, this bill would exempt carriers that do not cancel or
rescind contracts from the fees and assessments established.
Last year, AB 1945 (De La Torre, 2008) would have required the
DMHC and CDI to contract with third parties to conduct the
independent review of rescissions submitted for approval. This
committee expressed concerns that the required contracting would
create the potential for undue influence in the independent
review process because the bill lacked clear standards to avoid
conflicts of interests in the review process, was unclear as to
whether a patient will be able to participate and provide input
to the reviewing organizations, and did not contain a standard
for review that all reviewing organizations would be required to
utilize when determining whether or not to approve rescission.
However, the independent review process established by AB 2 is
more comprehensive and provides for the establishment of
conflict of interest standards, allows for patients to
participate or opt out of the independent review process, and
establishes a clear standard for rescission that all review
organizations would be required to utilize. These provisions
appear to reduce the probability of undue influence in the
independent review process and ensure that the patient is not
shut out of the process.
8. Penalties for prolonging review process
The bill would impose administrative penalties on health plans
or insurers for engaging in conduct that prolongs the
independent review process or for failing to promptly implement
an independent review process decision. The penalties would be
no less than $5,000 for each day the process is prolonged or the
decision is not implemented. The penalties would be in addition
to any other fines, penalties, or remedies available to the DMHC
or CDI.
9.Amendments agreed to in the Senate Committee on Health
The current version of this bill would require that the
penalties collected by the DMHC and CDI be deposited into the
Managed Health Care Fund and the General Fund, respectively.
However, the author agreed to amendments in the Senate Committee
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on Health to provide that penalties collected be deposited in
the Managed Care Administrative Fines and Penalties Fund under
DMHC and the Managed Risk Medical Insurance Fund, for use by the
Major Risk Medical Program, which serves individuals who cannot
obtain health insurance coverage in the private market. Due to
procedural and timing issues, the author committed to accepting
the amendments in this committee.
The amendments are as follows:
On page 14, line 11 strike: "Managed Care Fund" and insert:
"Managed Care Administrative Fines and Penalties Fund"
On page 32, line 37 strike: "General Fund" and insert: "the
Major Risk Medical Insurance Fund created pursuant to Section
12739 of the Insurance Code, to be used, upon appropriation by
the Legislature, for the Major Risk Medical Insurance Program
for the purposes specified in Section 12739.1 of the Insurance
Code"
10. Arguments in Support
The California Medical Association (CMA), the sponsor of this
bill, states that the time has come for an external review
process to stop insurance plans from acting as "judge and jury"
when they rescind coverage. CMA states that this bill provides
protection for patients by allowing regulators to independently
review potential rescissions and improves the process at the
front end by requiring carriers to develop applications using
only a pool of approved questions.
Consumer Watchdog (CW) writes that rescission of a health
coverage policy following an illness has a particularly harsh
impact on the patient. CW states that a rescinded policy is
cancelled as of the day it was sold, leaving patients in deep
medical debt, uninsured and virtually uninsurable, while facing
ongoing health care costs. CW believes that patients left
without health coverage suffer great personal hardship or
bankruptcy and must often rely on overstretched public health
programs for ongoing medical treatment. CW states that the bill
merely reiterates what consumer advocates and regulators have
long said is the legal standard for health plan rescission:
patients cannot be retroactively cancelled unless they lied
about a health condition by intentionally omitting or
intentionally misrepresenting health information when applying
for coverage. CW believes that this bill would end "gotcha"
AB 2 (De La Torre)
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cancellations against innocent patients who never knew of, or
failed to understand the significance of, a past medical
problem.
Health Access writes that, while a small number of consumers are
affected by the problem of post-claims underwriting, it is a
real one. Health Access California supports this bill, in part,
because it includes a standardized questionnaire that all health
insurers and health plans must use for underwriting of
individual insurance. Health Access states that current law
allows each health insurer or health plan to decide what to ask
about and how to ask it, and that the resulting forms are
confusing, sometimes misleading, and are often not in plain
language, and are often not translated in the language spoken by
limited English speakers. Health Access also believes that the
standard for rescission under the bill provides consumers
greater protection from rescission than the standard in existing
law.
The California Nurses Association writes that it requests the
Legislature to send this measure back to the Governor in hopes
that he will keep a promise to protect Californians from
unlawful rescissions. Consumer Attorneys of California also
write in support that this is a historic bill that will help
stop carriers from rescinding contracts based on the innocent
mistakes consumers make.
11. Arguments in Opposition
Health plans, business groups, and health underwriters oppose
this bill and assert that it creates a near impossible
burden-of-proof to demonstrate and may force insurers to decline
more applicants. The California Association of Health Plans
(CAHP) states that rescission is an important tool based on
contract law that ensures that, if applicants misrepresent their
health status at the signing of the contract for coverage, the
health plan has recourse to rescind their coverage due to a
"lack of the meeting of the minds," which is a requirement for a
contract. CAHP believes that, by creating an intentional
standard for every rescission case, this bill will overturn the
Hailey decision, and result in increased litigation. CAHP also
believes that, by requiring an intentional standard, the bill
will create a disincentive for plans and insurers to enroll
customers, since the legal standard for rescinding coverage has
been raised, and will have devastating effects on the individual
market. CAHP and other groups point out that only one tenth of
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one percent of individual policies are rescinded, yet it only
takes a few people misrepresenting their health status to
increase costs for everyone, as just 5 percent of beneficiaries
account for more than half of health care costs.
In addition to the objections stated above, Health Net expresses
concern that the willful standard in this bill will take effect
prior to the process for having new applications approved by the
regulators. Anthem Blue Cross states that the bill creates a
standard for underwriting that has no clear endpoint.
California Association of Health Underwriters (CAHU) argues that
the bill will lead to age discrimination, because individuals
over 50 years of age have higher medical costs, and carriers
will not be willing to issue coverage to them if they cannot
understand the risk they are assuming. CAHU continues that this
bill rewards those who lie or withhold information on the
application by enabling individuals to have up to five months
before coverage can be rescinded, making it worthwhile to wait
until you are sick, and get coverage for your recently diagnosed
illness.
The Civil Justice Association of California writes in opposition
to this bill that the requirement of ascertaining intent renders
the IRP both impotent and moot. California Chamber of Commerce
objects to the requirement in this bill that all rescissions be
approved by DMHC and CDI because it will significantly increase
costs for individuals and result in an increase in the number of
uninsured.
The California Association of Dental Plans (CADP) writes that
dental plans do not rescind dental coverage nor underwrite
medical risk, and their inclusion in the bill will force them to
participate in a new regulatory process, which will increase
dental insurance premiums without providing an additional
benefit to the dental plan enrollee. The author's office has
indicated that they are working with the dental plans to resolve
these concerns and are close to an agreement.
Support : American Cancer Society; American Federation of State,
County and Municipal Employees; California Alliance for Retired
Americans; California Chiropractic Association; California
Academy of Family Physicians; California Academy of Physician
Assistants; California Alliance for Retired Americans;
California Communities United Institute; California Nurses
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Association/National Nurses Organizing Committee; California
School Employees Association; California Society of
Anesthesiologists; California Teachers Association; Congress of
California Seniors; Consumer Attorneys of California; Consumer
Watchdog; Health Access California; Latino Coalition for a
Healthy California; Office of the Los Angeles City Attorney;
Osteopathic Physicians and Surgeons of California
Opposition : Association of California Life and Health Insurance
Companies;
Anthem Blue Cross (unless amended); Blue Shield; California
Association of Dental Plans (unless amended); California
Association of Health Plans; California Association of Health
Underwriters; California Chamber of Commerce; Civil Justice
Association of California; Health Net
HISTORY
Source : California Medical Association
Related Pending Legislation :
AB 108 (Hayashi) would prohibit health plans and health
insurers, after 24 months from the issuance of an individual
health plan contract or health insurance policy, from rescinding
the individual coverage, and from canceling, limiting, or
raising premiums in a contract or policy, due to any omissions,
misrepresentations, or inaccuracies in the application form.
This bill would also provide that nothing in this bill would
limit a plan's remedies upon a showing of willful
misrepresentation. This bill is scheduled for hearing in the
Senate Committee on Judiciary on July 14, 2009.
AB 730 (De La Torre) would increase the maximum civil penalty
for health insurance post-claims underwriting from $118 per
violation to $5,000 per violation for insurers under the
jurisdiction of the Commissioner of the California Department of
Insurance (CDI) and requires the penalties and civil penalties
established to be determined at a hearing conducted in
accordance with the Administrative Procedures Act (APA).
This bill is scheduled for hearing in the Senate Committee on
Judiciary on July 14, 2009.
Prior Legislation :
AB 2 (De La Torre)
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AB 1150 (Lieu, Chapter 188, Statutes of 2008) prohibits a health
plan or insurer from compensating any person retained, employed,
or contracted with, to review medical underwriting decisions
based on, or related to, the number of contracts, policies, or
certificates, or on the cost of services for a contract, policy,
or certificate, that the person has caused or recommended to be
rescinded, canceled, or limited, or the resulting cost savings
to the plan or insurer. AB 1150 also prohibits a plan or
insurer from setting performance goals or quotas based on the
number of persons whose health coverage is rescinded or any
financial savings to the plan or insurer associated with
rescission of coverage.
AB 1945 (De La Torre, 2008) would have imposed specific
requirements and standards on health plans and health insurers
related to the application forms, medical underwriting and
notice and disclosure of rights and responsibilities for
individual coverage, including the establishment of an
independent external review process related to decisions to
cancel or rescind an individual's health care coverage. This
bill would have also required a health plan or insurer to
demonstrate intentional misrepresentation or intentional
material omission on the application in order to rescind the
plan contract or health policy. This bill was vetoed by
Governor.
AB 2549 (Hayashi, 2008) would have prohibited health plans and
health insurers from rescinding a health plan contract or health
insurance policy after 18 months from the time the contract is
effective for any reason. This bill was held in the Senate
Appropriations Committee.
AB 2569 (De Leon, Chapter 604, Statutes of 2008), requires
health plans and health insurers to offer new coverage, or
continue existing coverage, for any individual whose coverage
was rescinded, other than the individual whose information led
to the rescission, within 60 days, without medical underwriting,
as defined. AB 2569 also establishes a duty for agents and
brokers selling individual health coverage products to assist
applicants in providing answers to health questions accurately
and completely, as specified.
ABX1 1 (Nunez, 2007) among its comprehensive health reform
provisions, would have prohibited health plans and insurers from
rescinding any individual plan contract or policy after it is
issued and would have prohibited plans and insurers from
compensating individuals employed by, or contracted with, the
AB 2 (De La Torre)
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plan or insurer, or from setting any performance goals or
quotas, based on the number of persons for whom coverage is
rescinded or the financial savings to the plan or insurer
associated with the rescission of coverage. This bill failed
passage in the Senate Health Committee.
AB 1324 (De La Torre, Chapter 602, Statutes of 2007) clarifies
and makes specific provisions of law that currently prohibit
health plans and health insurers, where the plan or insurer
authorizes a specific type of treatment by a health care
provider, from rescinding or modifying the authorization after
the provider renders the health care service in good faith and
pursuant to the authorization.
AB 1100 (Willie Brown, Chapter 1210, Statutes of 1993) enacted
the Health Insurance Access and Equity Act which requires
applications for health plan contracts or health insurance
policies to conform to certain standards for underwriting,
including clear and unambiguous questions when health-related
questions are used to ascertain an applicant's health, and
prohibits post-claims underwriting.
Prior Vote :
Assembly Health Committee (Ayes 13, Noes 6)
Assembly Appropriations Committee (Ayes 12, Noes 5)
Assembly Floor (Ayes 45, Noes 26)
Senate Health Committee (Ayes 6, Noes 4)
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