BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 108|
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THIRD READING
Bill No: AB 108
Author: Hayashi (D)
Amended: 7/23/09 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 7-3, 6/17/09
AYES: Alquist, Cedillo, DeSaulnier, Leno, Maldonado,
Pavley, Wolk
NOES: Strickland, Aanestad, Cox
NO VOTE RECORDED: Negrete McLeod
SENATE JUDICIARY COMMITTEE : 3-2, 7/14/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters
SENATE APPROPRIATIONS COMMITTEE : 8-5, 8/27/09
AYES: Kehoe, Corbett, Hancock, Leno, Oropeza, Price, Wolk,
Yee
NOES: Cox, Denham, Runner, Walters, Wyland
ASSEMBLY FLOOR : 48-29, 5/11/09 - See last page for vote
SUBJECT : Individual health care coverage
SOURCE : Author
DIGEST : This bill prohibits health care service plans
and health insurers from rescinding plan contracts or
insurance policies for any reason after 24 months following
CONTINUED
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their issuance.
ANALYSIS : Existing law provides for the regulation of
health care service plans and health insurers by the
Department of Managed Health Care (DMHC) and the Department
of Insurance (DOI), respectively.
After 24 months from the issuance of an individual health
care service plan contract or an individual health
insurance policy, this bill prohibits health plans and
insurers from rescinding a plan contract or insurance
policy for any reason. Additionally, this bill prohibits
the canceling, limiting, or raising premiums of plan
contract or insurance policy due to any omissions,
misrepresentations, or inaccuracies on the application
form, whether willful or not.
Background
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, in the individual
market. Insurance carriers 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.
According to DMHC, which regulates health care service
plans, but not health insurers, a plan may deny an
individual application based on health problems for which
the individual has not seen a doctor; health problems that
a doctor cannot explain; health problems for which an
individual has not completed treatment, as well as a number
of health conditions, such as AIDS, cancer under treatment,
cirrhosis, current infertility treatment, diabetes with
complications, heart disease, hemochromatosis, hepatitis,
history of transplant, lymphedema, multiple sclerosis,
muscular dystrophy, pregnancy, planned surrogacy or
adoption in process; renal failure or kidney dialysis,
severe mental disorders, sleep apnea, or systemic Lupus
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erythematous.
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 is
meant to put the parties back to their original status,
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 DOI, 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
DMHC enforcement $600 $1,100$1,000Special*
Increased MRMIP unknown,
potential cost pressures Special**
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eligibility in the hundreds of thousands to
millions of dollars
*Managed Care Fund
**Major Risk Medical Insurance Fund, which consists of
Proposition 99 funds, Managed Care Administrative Fines and
Penalties Fund monies
SUPPORT : (Verified 8/31/09)
AIDS Healthcare Foundation
Alliance of California Autism Organizations
American Federation of State, County and Municipal
Employees
Area Agency on Aging of Lake and Mendocino Counties
Blue Shield (if amended)
California Academy of Family Physicians
California Alliance for Retired Americans
California Association of Marriage and Family Therapists
California Chiropractic Association
California Communities United Institute
California Medical Association
California Senior Legislature
Congress of California Seniors
Consumer Attorney's of California
Disability Rights Legal Center
Health Access (if amended)
Osteopathic Physicians and Surgeons of California
OPPOSITION : (Verified 8/31/09)
Association of California Life and Health Insurance
Companies
California Association of Health Plans
California Association of Health Underwriters
ARGUMENTS IN SUPPORT : The California Association of
Marriage and Family Therapists (CAMFT) and other supporters
write that, over the last few years, insurance and health
care plans have routinely canceled consumer's health care
policies retroactively when patients are in the greatest
need: when the patient is attempting to get coverage for
medical care. CAMFT states that, when insurers and plans
retroactively cancel plans, patients are left with
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exorbitant medical costs at no fault of their own. The
California Medical Association writes in support that this
bill is an important consumer protection and provides more
stability for patients by making it harder for health
insurers to rescind coverage in order to avoid paying for
health care services. Consumer Attorneys of California
states that the bill is a step in the right direction, and
will protect consumers from unscrupulous insurers and
health plans that go through a patient's medical records to
find an excuse to rescind their health care policy.
ARGUMENTS IN OPPOSITION : The California Association of
Health Plans (CAHP) writes that this bill would bar
rescission after 18 months regardless of whether the
enrollee misrepresented, omitted, or lied about an existing
health condition. CAHP states that rescission is an
important tool based on basic contract law that ensures
that if applicants misrepresent their health status at the
signing of that contract, then the health plan has the
right to later rescind coverage due to a "lack of meeting
of the minds," which CAHP states is a requirement for a
contract. CAHP argues that this bill will lead to fraud
and abuse because potential enrollees will understand that
they can falsify applications for coverage and, if they can
avoid detection for 18 months, will secure coverage for a
major medical condition. The Association of California
Life and Health Insurance Companies and CAHP argue that
while only one tenth of one percent of individual policies
are rescinded, because only five percent of beneficiaries
account for more than half of health care expenditures, it
takes only a few people misrepresenting themselves to
increase the premiums for everyone.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Block, Brownley, Buchanan,
Caballero, Charles Calderon, Carter, Chesbro, Coto,
Davis, De La Torre, De Leon, Eng, Evans, Feuer, Fong,
Furutani, Galgiani, Hall, Hayashi, Hernandez, Hill,
Huber, Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal,
Ma, Mendoza, Monning, Nava, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torrico, Yamada,
Bass
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
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Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson,
Fletcher, Fuller, Gaines, Garrick, Gilmore, Hagman,
Harkey, Jeffries, Knight, Logue, Miller, Nestande,
Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran,
Villines
NO VOTE RECORDED: Blumenfield, Fuentes, Torres
CTW:DLW:do 8/31/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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