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)

                                   **************