BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session AB 2470 (De La Torre) As Amended June 16, 2010 Hearing Date: June 29, 2010 Fiscal: Yes Urgency: Yes KB:jd SUBJECT Individual Health Care Coverage DESCRIPTION This bill, sponsored by the California Medical Association, 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 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 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 (more) AB 2470 (De La Torre) Page 2 of ? 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 | | Rescissions | | Five Largest Knox-Keene | | Plans | ------------------------- AB 2470 (De La Torre) Page 3 of ? |-----------+-------------| |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 forward. In late 2008 and early 2009, CDI reached agreements with Anthem Blue Cross, Blue Shield, and Health Net related to the insurers' AB 2470 (De La Torre) Page 4 of ? 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. The recently enacted federal Patient Protection and Affordable Care Act (Public Law 111-148) (PPACA) established a national standard on rescission. As part of the federal PPACA, health plans or insurers are prohibited from rescinding a plan or coverage once the enrollee is covered, except that federal law allows rescission when an individual has performed an act or practice that constitutes fraud, or makes an intentional misrepresentation of material fact that is prohibited by the terms of the plan or coverage. This bill seeks to, among other things, codify a standard for AB 2470 (De La Torre) Page 5 of ? rescinding health plans or insurance policies that is consistent with the PPACA, and provide for an independent review of any decisions by insurers to cancel coverage for individuals. This bill was approved by the Senate Health Committee on a 5-0 vote. CHANGES TO EXISTING LAW Existing federal law , the Patient Protection and Affordable Care Act (Public Law 111-148) (PPACA), requires each health insurance issuer that offers health insurance coverage in the individual or group market to accept every employer and individual that applies for such coverage, beginning January 1, 2014. Existing federal law prohibits health plans and health insurers offering group or individual coverage from rescinding a plan or coverage once the enrollee is covered under a plan or coverage, except when an individual has performed an act or practice that constitutes fraud, or makes an intentional misrepresentation of material fact, as prohibited by the terms of the plan or coverage. Existing federal law also prohibits coverage from being cancelled, except with prior notice to the enrollee, and only as permitted under specified provisions of federal law. These provisions take effect six months following the date of enactment of PPACA (six months after March 23, 2010). (Public Law 111-148) 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 a health plan and health insurer from AB 2470 (De La Torre) Page 6 of ? rescinding a contract or policy for any reason after 24 months following the issuance of an individual contract or policy. Existing law further provides that, after 24 months, health plans and insurers are prohibited from canceling a contract or policy, limiting any of the provisions of a contract/policy, or raising premiums on a contract/policy specifically due to any omissions, misrepresentations, or inaccuracies in the application form, whether willful or not. (Health & Saf. Code Sec. 1389.21.) 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 an independent medical review (IMR) 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 prohibit a carrier from rescinding or canceling a health plan contract or health insurance policy because of misrepresentation once a plan or insurer has issued an individual contract or 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 to the health plan or insurer prior to the issuance of the contract or policy that would have otherwise prevented the contract or policy from being entered into; (2) the carrier demonstrates that the applicant intentionally misrepresented or intentionally omitted material information on the application prior to the issuance of the contract or policy AB 2470 (De La Torre) Page 7 of ? with the purpose of misrepresenting his or her health history in order to obtain health care coverage; and (3) the health plan or insurer sent a copy of the completed written application to the applicant with a copy of the contract or policy issued, along with a specified written notice. This bill would require health plans and insurers to send a copy of the completed written application to the applicant with a copy of the plan contract or policy, along with a notice that states all of the following: (1) the applicant should review the completed application carefully and notify the health plan/insurer within 14 days of any inaccuracy in the application; (2) any intentional material misrepresentation or intentional material omission in the information submitted in the application may result in the cancellation or rescission of the plan contract; and (3) the applicant should retain a copy of the completed written application for the applicant's records. 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 investigation," if the carrier obtains information indicating 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 30 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: AB 2470 (De La Torre) Page 8 of ? 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 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 March 31, 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 30 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, 2012, as specified. This bill would require submission of specified materials by the carrier to the independent review organization (IRO) designated AB 2470 (De La Torre) Page 9 of ? 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 30 days. This bill would require DMHC and CDI to, by March 31, 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 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 AB 2470 (De La Torre) Page 10 of ? 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 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, 2011, 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. This bill would declare that it is to take effect immediately as an urgency statute in order to protect consumers from rescission and cancellations that would violate this bill at the earliest AB 2470 (De La Torre) Page 11 of ? possible time. COMMENT 1. Stated need for the bill According to the author, this bill protects consumers from having their health insurance coverage canceled or rescinded when they need care by maintaining their current coverage while allowing regulators to independently analyze and adjudicate on any rescission or cancellation of a policy due to misrepresentation. The author argues the time has come to provide individuals with an unbiased analysis on whether their policy should be rescinded or cancelled, and to provide the utmost protection to patients whenever their health plans and insurers want to rescind their health coverage. The sponsor of this measure, CMA, further writes that this bill will provide an independent review of any decisions by health insurers to cancel or rescind coverage for sick patients, which it states is a vital safeguard to ensure the federal ban on the unscrupulous practice of rescission is followed. CMA asserts that it is important for California to implement a robust enforcement mechanism, to police health insurers and ensure strong and independent implementation. CMA further states that this bill will ensure that health plans and insurers do not act as "judge and jury," whenever they want to rescind or cancel a policy for misrepresentation, thereby protecting innocent patients from having their coverage illegally rescinded. 2. Bill would codify the federal standard for rescission In Hailey v. California Physicians' Service (2007) 158 Cal.App.4th 452, the Court of Appeals held that Health and Safety Code Section 1389.3, the post-claims underwriting statute, precludes a health care 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 AB 2470 (De La Torre) Page 12 of ? 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 allowed a health plan to rescind on a standard less than willful misrepresentation, and created ambiguity as to what constitutes a legal rescission under Section 1389.3. Health plans and insurers could argue (and reportedly did) that they were 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 raised serious concerns for patients. After the Hailey decision, there were a number of legislative efforts to codify the higher standard of "willful misrepresentation" for rescissions of individual health care coverage, but these measures were repeatedly vetoed by the Governor. In his veto message to the most recent of these measures, AB 2 (De La Torre, 2009), the Governor stated: I have repeatedly indicated I would support a bill that provides strong statutory protections for consumers against inappropriate rescissions by health plans. However, this bill continues to have a provision that benefits trial lawyers rather than consumers. I remain comfortable sending this bill back for a second time without my signature because of the strong consumer protections the Department of Managed Health Care and Department of Insurance have successfully implemented over the past two years. The number of rescissions industry-wide has decreased significantly since 2005. Millions of dollars have been assessed against health plans and insurers; corrective action plans have been received and approved; revised consumer disclosures have been reviewed for literacy, consistency and compliance with the settlement agreements; and lastly, the two departments are working together to ensure that all health plans meet the same standards of fairness and full disclosure. The market has AB 2470 (De La Torre) Page 13 of ? changed and it is because of my Administration's strong action in this area. The precedent-setting 4th District Court of Appeals decision in Hailey v. Blue Shield relied heavily on the Department of Managed Health Care's amicus brief. The court's reliance on this brief speaks to the strong work of the Department and the balance required when enacting consumer protections and ensuring access to the individual health plan market. I have no interest in overturning that appellate decision and the definitive interpretation of the postclaims underwriting statute. In addition, I have signed targeted measures that prohibit plans from financially incentivizing their employees to rescind or cancel policies; require plans to offer coverage to families when the individual on the contract has been rescinded or cancelled; and most recently, I have signed Assembly Bill 108 that will prohibit a health plan from rescinding or canceling a contract after 24 months. I would request that the Legislature send me a bill that codifies the Hailey decision, as I have asked for since 2008. When that occurs, I will be happy to sign that bill. The recently enacted federal health care reform bill (PPACA) established a national standard on rescission, which prohibits carriers from rescinding a plan or coverage once the enrollee is covered, except in instances where the individual has performed an act or practice that constitutes fraud, or makes an intentional misrepresentation of material fact that is prohibited by the terms of the plan or coverage. The PPACA does not permit, as the Hailey ruling did, carriers to rescind a policy if it had made reasonable efforts to ensure the subscriber's application was accurate and complete as part of the pre-contract underwriting process. This bill would codify a standard for rescission and cancellation that generally mirrors the standard for rescission in the PPACA. 3. 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 indicates the person may have intentionally omitted or intentionally AB 2470 (De La Torre) Page 14 of ? 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 30 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 and 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 30 days. 4. Independent review process This bill would, commencing March 31, 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 not-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 AB 2470 (De La Torre) Page 15 of ? 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. 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. The independent review process established by AB 2470 is 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. They are also consistent with the independent review process contained in AB 2 (De La Torre, 2009), which was previously approved by this committee. 5. Penalties for prolonging review process The bill would impose administrative penalties on health plans or insurers for engaging in conduct that prolongs the AB 2470 (De La Torre) Page 16 of ? 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. These penalties would be deposited in the Managed Care Administrative Fines and Penalties Fund. This bill would specify that penalties deposited in the fund shall not be used to lower health care service plans' assessments used to fund the department. 6. Opposition Health plans and insurers write in opposition that this bill would require them to change their underwriting processes in 2012 and again in 2014 in response to federal health care reform. The California Association of Health Plans (CAHP) writes that the independent third party process for review of rescissions could be shortened, and CAHP seeks to have the provisions of this bill dealing with cancellations deleted from the bill. The Civil Justice Association of California writes in opposition that having the independent review organization determine whether a health plan enrollee "intentionally misrepresented" material information makes the review process impotent and moot, because an administrative body that reviews only documents and does not take testimony and ask questions is incapable of determining the state of mind of the person whose application it is reviewing and will result in rescission approval decisions ending up in court. Support : Alzheimer's Association; American Federation of State, County and Municipal Employees, AFL-CIO; Association of Northern California Oncologists; California Academy of Physician Assistants; California Communities United Institute; California Psychiatric Association; California Psychological Association; California Society for Anesthesiologists; City Attorney, City of Los Angeles; Consumer Attorneys of California; Latino Coalition for a Healthy California; Osteopathic Physicians & Surgeons of California Opposition : Anthem Blue Cross; Association of California Life & Health Insurance Companies; California Association of Health Plans; Civil Justice Association of California HISTORY AB 2470 (De La Torre) Page 17 of ? Source : California Medical Association Related Pending Legislation : AB 2540 (De La Torre) would add postclaims underwriting, the practice of health insurers waiting for health claims to be submitted and then canceling insurance coverage retroactively, to the definition of unfair methods of competition in the business of health insurance. This bill is currently in the Senate Appropriations Committee. Prior Legislation : AB 1945 (De La Torre, 2008) and AB 2 (De La Torre, 2009) contained similar provisions to this bill with respect to the standard for rescission and an independent review process. Both of these bills were vetoed. AB 108 (Hayashi, Chapter 406, Statutes of 2009) prohibits 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 for any reason, and prohibits canceling, limiting, or raising premiums in a contract or policy due to any omissions, misrepresentations, or inaccuracies in the application form, whether willful or not. 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 2549 (Hayashi, 2008) would have prohibited health plans and health insurers from rescinding a health plan contract or health insurance policy after six months from the time the contract is effective for any reason. AB 2549 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 2470 (De La Torre) Page 18 of ? ABX1 1 (Nunez, 2007) would have enacted comprehensive health care system reforms, including coverage expansions, an employer spending requirement and individual health insurance mandate, affordability protections, insurance market reforms, cost containment elements and provisions to support health care safety net providers. Among other market reform elements, ABX1 1 prohibited carriers from setting performance goals or quotas or providing additional compensation based on the number of people whose coverage was rescinded, or the financial savings of the plan associated with the rescission of coverage. ABX1 1 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 (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 postclaims underwriting. Prior Vote : Assembly Health Committee (Ayes 13, Noes 5) Assembly Appropriations Committee (Ayes 12, Noes 5) Assembly Floor (Ayes 46, Noes 27) Senate Health Committee (Ayes 5, Noes 0) **************