BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2470 (De La Torre)
          
          Hearing Date:  8/12/2010        Amended: 6/16/2010
          Consultant: Katie Johnson       Policy Vote: Health 5-0 Judic.  
          3-1
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          BILL SUMMARY:  AB 2470, an urgency measure, would prohibit a  
          health care service plan or a health insurer from rescinding or  
          canceling a contract or a policy unless there was a material  
          misrepresentation by the enrollee or policyholder. The bill  
          would also establish an independent review process (IRP) for the  
          review of decisions to cancel or rescind individual contracts or  
          policies for misrepresentation within the Department of Managed  
          Health Care (DMHC) and the California Department of Insurance  
          (CDI).
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                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
                                                                  
          CDI regulations, annual  $300       $600     $600      Special*
          review of hearing requests

          DMHC regulations,        $250       $500     $500  Special**
          review of hearing requests 

          *Insurance Fund
          **Managed Care Fund
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          STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.

          DMHC and CDI would need significant resources to comply with  
          these provisions. Costs to promulgate regulations, develop and  
          contract for independent review services, receive and review  
          underwriting policies and procedures, and to otherwise implement  
          and enforce these provisions would be approximately $600,000 in  
          FY 2010-2011 for CDI and $1.1 million annually thereafter, and  
          approximately $500,000 - $1,700,000 million in FY 2010-2011 and  
          $1,000,000 - $3,400,000 annually thereafter for DMHC.  










          Departmental impacts would depend on the number of cancellations  
          and rescissions health plans and insurers would pursue annually,  
          but since this bill would require that each cancellation or  
          rescission be subject to IRP, costs could be significant. In  
          recent years, both DMHC and CDI have taken significant  
          regulatory action to levy penalties on plans and insurers who  
          engaged in unlawful post-claims underwriting. 

          Existing federal law prohibits, under the recently enacted  
          Patient Protection Affordable Care Act (ACA), 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 that constitutes fraud, or makes an intentional  
          misrepresentation of material fact. It 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 September 23, 2010.
          Page 2
          AB 2470 (De La Torre)

          While this bill would align some of its provisions with the ACA,  
          other provisions, such as the IRP requirements, would exceed  
          federal law. Costs attributed to this bill would increase if  
          federal law were to be amended or repealed at some later date,  
          by enacting these related provisions, there would be cost  
          pressure on the Managed Care Fund and the Insurance Fund for  
          DMHC and CDI to continue to enforce and to pay for them.

          This bill would prohibit a plan or insurer from rescinding or  
          canceling a contract or a policy unless there was a material  
          misrepresentation by the enrollee or policyholder, as specified.  
          Commencing March 31, 2011, this bill would establish an IRP  
          within DMHC and CDI, for which they would contract with one or  
          more independent review organizations (IROs) in the state. The  
          IRP would review all decisions made by a plan or insurer to  
          cancel or rescind individual health plan contracts and health  
          insurance policies because of misrepresentation unless an  
          enrollee or subscriber opts out of the process. IRO decisions  
          would be final and binding. This bill would establish a $5,000  
          per day penalty in the event plans and insurers act to prolong  
          the IRP unnecessarily. This bill would require a health plan or  
          insurer guilty of rescission to pay the costs of IRO reviews  
          through an assessment. This bill would require plans and  
          insurers to file their underwriting policies and procedures with  










          DMHC and CDI on or before March 31, 2011, and annually  
          thereafter.

          This bill would exempt health care service plan contracts for  
          coverage issued under Medi-Cal, the Healthy Families Program,  
          the Access for Infants and Mothers program, the federal Medicare  
          program, and dental plans. There would be no effect on plans  
          that contract with the California Public Employees Retirement  
          System (CalPERS) because this bill only applies to insurance  
          products sold in the individual market.

          This bill is similar in content to AB 1925 (De La Torre, 2008)  
          and AB 2 (De La Torre, 2009), which were both vetoed by the  
          Governor. In his AB 2 veto message, he said, "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?I would  
          request that the Legislature send me a bill that codifies the  
          Hailey decision, as I have asked for since 2008."  This bill  
          does not codify the Hailey decision.

          The author's proposed amendments would 1) delete all and recast  
          the provisions of the bill, 2) require DMHC and CDI to review an  
          enrollee or policyholder's complaint that a contract or policy  
          has been or will be improperly canceled, rescinded, or not  
          renewed, within 7 days when a review has been requested and  
          would provide for a hearing by the insurer or health plan, 3)  
          require a plan or insurer planning to rescind a contract or  
          policy to send a notice to the affected enrollee or policyholder  
          at least 30 days prior to the effective date of the rescission.  
          Since these amendments would no longer require DMHC and CDI to  
          contract with independent medical review organizations, the  
          costs would be substantially less-approximately $500,000 -  
          $600,000 annually for each department to the extent that health  
          plans and insurers would actually rescind. 
          Page 3 
          AB 2470 (De La Torre)

          Additionally, the federal Patient Protection and Affordable Care  
          Act (ACA) prohibits rescission commencing September 23, 2010.  
          Thus, to the extent that this bill conforms to federal law,  










          costs related to it would be due to federal law and no to this  
          bill unless federal law were to change in the future.