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 _________________________________________________________________ ____ 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). _________________________________________________________________ ____ 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 _________________________________________________________________ ____ 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.