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,  
          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  


                                                                AB 108

          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.

          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


          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  

           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

          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  
          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  
          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

          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,  
          NOES:  Adams, Anderson, Bill Berryhill, Tom Berryhill,  


                                                                AB 108

            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,  
          NO VOTE RECORDED:  Blumenfield, Fuentes, Torres

          CTW:DLW:do  8/31/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****