BILL ANALYSIS
AB 2
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2 (De La Torre)
As Amended August 17, 2009
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |45-26|(June 3, 2009) |SENATE: |24-13|(September 8, |
| | | | | |2009) |
-----------------------------------------------------------------
Original Committee Reference: HEALTH
SUMMARY : Imposes 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 system related
to carrier decisions to cancel or rescind an individual's health
care coverage. Specifically, this bill :
1)Requires 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.
2)Requires carriers to complete medical underwriting prior to
issuing a health plan contract or health insurance policy, and
establishes the elements of a reasonable investigation of the
applicant's health history information, as specified.
3)Requires 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.
4)Requires carriers to send a copy of a written application to
an individual within ten days after coverage is issued and to
AB 2
Page 2
include a specified notice.
5)Prohibits, after an individual contract or policy is issued,
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 as specified
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 as required under 6) above.
6)Specifies that, notwithstanding the prohibition against
rescission in this bill, coverage may be canceled or not
renewed for failure to pay the premium as provided in existing
law.
7)Authorizes carriers to conduct a "postcontract 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. Establishes specific timelines
and notice requirements related to the investigation.
8)Requires carriers to continue to authorize and provide all
medically necessary services until the effective date of a
cancellation or rescission, and establishes the effective date
of cancellation or any rescission as no earlier than the date
of certified notice to the covered person that the independent
AB 2
Page 3
review organization established in this bill has made a
determination upholding the decision to cancel or rescind.
9)Establishes, commencing January 1, 2011, 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.
10)Establishes the rules for operation of the IRP, requires DMHC
and CDI to contract or otherwise arrange for one or more
independent not-for-profit organizations to conduct IRPs, and
sets the standards for selection of the review organizations,
including conflict of interest standards.
11)Requires DMHC and CDI to immediately adopt the IRP
determination and promptly issue a written decision to the
parties that is binding on the carrier and after removing the
names of the parties, as specified, make available to the
public IRP decisions adopted by DMHC and CDI, at cost, and
after considering applicable laws governing disclosure of
public records, confidentiality, and persons privacy.
12)Prohibits carriers from engaging in conduct to 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.
13)Imposes 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.
14)Requires, on and after January 1, 2010, 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,
as specified.
The Senate amendments :
1)Require that revenues from administrative penalties imposed on
carriers for prolonging an independent review of a rescission,
AB 2
Page 4
or for failure to timely implement an independent review
decision, be deposited into the Major Risk Medical Insurance
Fund, to be used, upon appropriation to the Legislature, for
the Major Risk Medical Insurance Program (MRMIP).
2)Exempt specialized dental health plans from the provisions of
this bill.
EXISTING LAW :
1)Prohibits carriers from engaging in "post-claims
underwriting," defined as rescinding, canceling, or limiting
of a plan contract due to a carrier'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, provides that the prohibition
against post-claims underwriting does not limit a plan's
remedies upon a showing of willful misrepresentation.
2)Prohibits a carrier from rescinding or modifying an
authorization for services after the service is rendered, for
any reason, including but not limited to, the carrier's
subsequent rescission, cancellation, or modification of the
enrollee or insured's contract or policy, or the carrier's
subsequent eligibility determination.
3)Requires applications for health plan contracts and 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 requires questions relating to the health
condition or health history of the applicant to be based on
medical information reasonable and necessary for medical
underwriting purposes.
4)Prohibits health insurers but not health plans from voiding
(rescinding) a policy or denying a claim based on
misstatements in the application after two years, except for
fraudulent misrepresentations, sometimes referred to as an
incontestability clause.
5)Establishes the MRMIP, administered by MRMIB, to provide
health coverage for individuals unable to purchase coverage,
because they have been denied health coverage by at least one
AB 2
Page 5
private health plan or are offered only limited coverage or
coverage significantly above standard average individual
rates, as determined by MRMIB.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version passed by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, special fund costs for CDI and DMHC to promulgate
regulations jointly, develop and contract for independent review
services, develop standardized application questions, receive
and review applications, and to otherwise implement and enforce
this bill would be approximately $100,000 annually for CDI and
$1 million to $3.4 million in start-up costs and $135,000
ongoing for DMHC.
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097
FN: 0002732