BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 108| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 AB 108 Page 2 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 AB 108 Page 3 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** AB 108 Page 4 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 AB 108 Page 5 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, AB 108 Page 6 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 **** END ****