BILL NUMBER: SB 92	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MARCH 11, 2009
	AMENDED IN SENATE  FEBRUARY 25, 2009

INTRODUCED BY   Senator Aanestad

                        JANUARY 21, 2009

   An act to amend Section 2069 of  , and to add Section 734 to,
 the Business and Professions Code, to add Section 1815.5 to the
Financial Code, to add Sections 22830.5, 22830.6, 22869.5, and 22917
to the Government Code, to amend Sections 1345, 1357, 1357.03,
1357.06, 1357.14, 1367.01,  1367.63, 1367.635,  1374.32,
1374.33,  and 1374.58   1374.58, and 1395 
of, to add Sections 1346.2, 1349.3, and 1367.38 to, and to add
Article 12 (commencing with Section 1399.830) to Chapter 2.2 of
Division 2 of, the Health and Safety Code, to amend Sections 10121.7,
10123.135, 10169.2, 10169.3, 10700, 10705, 10706, and 10708 of, to
add Sections 699.6, 10123.56,  10123.86, 10123.88, 
10123.136, and 12938.1  to, to add Chapter 9.7 (commencing
with Section 10920) to Part 2 of Division 2 of, and  
to,  to add Article 7 (commencing with Section 11885) to Chapter
4 of Part 3 of Division 2 of,  and to add Chapter 9.7
(commencing with Section 10920) to Part 2 of Division 2 of,  the
Insurance Code, to amend Sections 511 and 515 of, and to add Section
96.8 to, the Labor Code, to amend Sections 17072, 17215, and 19184
of, to add Sections 17053.91, 17053.102, 17053.103, 17138.5, 17138.6,
and 17216 to, and to add and repeal Sections 17053.58, 17053.77,
17204, 23658, and 23677 of, the Revenue and Taxation Code, and to
amend Sections 14043.26 and 14133 of, to add Sections 14026.7,
14029.7, 14079.7, 14132.104, 14132.105, and 14164.5 to, to add
Article 2.94 (commencing with Section 14091.50) to Chapter 7 of Part
3 of Division 9 of, and to add Division 23 (commencing with Section
23000) to, the Welfare and Institutions Code, relating to health
care, and making an appropriation therefor.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 92, as amended, Aanestad. Health care reform.
   (1) Existing law, the Knox-Keene Health Care Service Plan Act of
1975 (the Knox-Keene Act), provides for the licensure and regulation
of health care service plans by the Department of Managed Health Care
and makes a willful violation of the Knox-Keene Act a crime.
Existing law also provides for the regulation of health insurers by
the Department of Insurance.
   The Knox-Keene Act requires, subject to specified exceptions, that
a health care service plan be licensed by the department and provide
basic health care services, as defined, among other benefits, unless
exempted from that requirement by the director of the department.
Existing law also requires, subject to specified exceptions, that an
insurer obtain a certificate of authority from the Insurance
Commissioner in order to transact business in this state and that the
insurer operate in accordance with specified requirements.
   This bill would allow a carrier domiciled in another state to
offer, sell, or renew a health care service plan contract or a health
insurance policy in this state without holding a license issued by
the department or a certificate of authority issued by the
commissioner. The bill would exempt the carrier's plan contract or
policy from requirements otherwise applicable to plans and insurers
providing health care coverage in this state if the plan contract or
policy complies with the domiciliary state's requirements, and the
carrier is lawfully authorized to issue the plan contract or policy
in that state and to transact business there.
   The bill would also authorize health care service plans and health
insurers to offer, market, and sell individual health care service
plan contracts and individual health insurance policies that do not
include all of the benefits mandated under state law to individuals
with income below 350% of the federal poverty level if the individual
waives those benefits, as specified, and the plan contract or
insurance policy is approved by the Director of the Department of
Managed Health Care or the Insurance Commissioner.
   (2) Under existing law, health care service plans and health
insurers are required to include certain benefits in their contracts
and policies. Existing federal law authorizes an individual who has a
high deductible health plan to make tax deductible contributions to
a Health Savings Account that may be used to pay medical expenses.
   This bill would require the Director of the Department of Managed
Health Care and the Insurance Commissioner to encourage the design of
health care service plan contracts and health insurance policies
that conform to current federal requirements for high deductible
health plans used in conjunction with Health Savings Accounts and to
standardize the process used to review and approve new health care
service plan contracts and health insurance policies. The bill would
require the director and the commissioner to report specified
information to the Legislature regarding those requirements.
   The bill would also authorize group health care service plan
contracts and group health insurance policies to offer to include a
Healthy Action Incentives and Rewards Program, as specified.
   (3) Existing law imposes certain requirements on health care
service plans and health insurers to enable small employers to access
health care coverage. Existing law requires health care service
plans and health insurers to sell to any small employer any of the
benefit plan designs it offers to small employers and prohibits plans
and insurers, among others, from encouraging or directing small
employers to refrain from filing an application for coverage with the
plan or insurer, and from encouraging or directing small employers
to seek coverage from another carrier, because of the health status,
claims experience, industry, occupation, or geographic location
within the carrier's approved service area of the small employer or
the small employer's employees.
   This bill would also prohibit a plan or insurer from taking either
of those actions because of the employer's implementation of, or
intent to implement, any form of claim support for covered employees,
as specified.
   Existing law defines "small employer" for these purposes to
include a guaranteed association that purchases health care coverage
for its members. Existing law defines "guaranteed association" to
mean a nonprofit organization of individuals or employers that meets
certain requirements, including having been in active existence and
having included health coverage as a membership benefit for at least
5 years prior to January 1, 1992, and covering at least 1,000 persons
in that regard.
   This bill would delete the requirements for a guaranteed
association to have been in active existence and to have included
health care coverage as a membership benefit for at least 5 years
prior to January 1, 1992. The bill would reduce the required number
of persons covered by health coverage provided through the guaranteed
association from 1,000 to 100. The bill would also define "small
employer" to include an eligible association that purchases health
care coverage for its members and would define an eligible
association as a community or civic group or a charitable or
religious organization.
   Because a willful violation of these requirements with respect to
health care service plans would be a crime, the bill would impose a
state-mandated local program.
   (4) Existing law requires health care service plans and specified
disability insurers to have written policies and procedures
establishing the process by which the plans or insurers
prospectively, retrospectively, or concurrently review and approve,
modify, delay, or deny, based in whole or in part on medical
necessity, requests by providers of health care services for
enrollees or insureds. Existing law imposes specified requirements on
that process and specifies that only a licensed physician or
licensed health care professional with specified competency may deny
or modify requests for authorization of health care services.
   This bill would  authorize a   specify that
only a California  licensed health care professional  ,
other than a person licensed to practice medicine, to  
may,  deny  , delay,  or modify requests  only
with respect to   for authorization of health care
services. The bill would limit that licensee's review to 
services that fall within his or her scope of practice and  would
make that review  subject to standardized protocol limitations
or supervision requirements applicable under his or her license. 
The bill would also require the licensee to have at least the same
scope of practice as the provider submitting the request for
authorization.  The bill would also  prohibit a
 physician or other health care professional  
licensee  from denying  , delaying,  or modifying a
request without first conducting a good faith examination of the
enrollee  or insured  , except as specified  , and would
make a violation of that requirement unprofessional conduct and
grounds for disciplinary action. The bill would specify that the
primary obligation of that licensee is to the enrollee or insured
 . The bill would  also  provide that a service is
medically necessary or a medical necessity when it is reasonable and
necessary to protect life, to prevent significant illness or
significant disability, or to alleviate severe pain.
   Existing law establishes an independent medical review system in
which an independent medical review organization reviews grievances
involving a disputed health care service under a health care service
plan contract or disability insurance policy. Existing law requires
 that   the  medical professionals selected
by that organization to conduct reviews  to  be either
physicians holding a specified certification or other appropriate
providers holding a nonrestricted license in any state.
   This bill would require those physicians and other providers to be
licensed in California and would limit the reviews conducted by
those  other providers   persons  , as
specified.
   Existing law requires the medical reviewers selected to conduct a
review to review specified information, including, but not limited
to, provider reports and all pertinent medical records of the
enrollee or insured.
   This bill would also require that at least one of those medical
professional reviewers conduct a good faith examination of the
enrollee, except as specified  , and would make a failure to
conduct that examination unprofessional conduct and grounds for
disciplinary action. The bill would specify that the primary
obligation of these reviewers is to the enrollee or insured  .
   Because a willful violation of these requirements with respect to
health care service plans would be a crime, the bill would impose a
state-mandated local program.
   (5) Existing law provides for insurers to be admitted to transact
business in specified types of insurance, including workers'
compensation insurance.
   This bill would allow any insurer admitted to transact health
insurance or workers' compensation insurance, or a health care
service plan licensed pursuant to the Knox-Keene Act, to make written
application to the commissioner for a license to offer a single
policy that provides health care coverage and workers' compensation
benefits.
   (6) Existing law provides for the Medi-Cal program, which is
administered by the State Department of Health Care Services and
under which qualified low-income persons receive various health care
services and benefits. Existing law prescribes various requirements
governing reimbursement rates for these services.
   This bill would require, on January 1, 2010, the reimbursement
levels for fee-for-service physician services under Medi-Cal to be
increased to 80% of the amount that the federal Medicare Program
reimburses for these same services in Area 9 (Santa Clara County),
and would thereafter require the rates to be increased annually in
accordance with the California Consumer Price Index.
   The bill would require the department, before making any
adjustment to Medi-Cal reimbursement rates, to consider the ability
of Medi-Cal beneficiaries to access physician services by geography
and specialty and to request data from the Office of Statewide Health
Planning and Development to allow the department to determine the
extent of Medi-Cal physician shortages, if any, by geography and
specialty.
   The bill would require the department to ensure the existence and
operation of a single searchable Internet Web site, accessible by the
public at no cost, that specifies Medi-Cal expenditures, including a
line item breakdown of administrative overhead and provider and
health care expenses.
   The bill would require the department to prepare and submit a
proposal for a demonstration project by July 31, 2010, for
participation in the federal Medicaid Demonstration Project for
Health Opportunity Accounts and would specify the details of that
demonstration project.
   The bill would also require the department, on or before January
1, 2011, to provide or arrange for the provision of an electronic
personal health record and an electronic personal benefits record for
beneficiaries of the Medi-Cal program. The bill would additionally
authorize the department to establish a Healthy Action Incentives and
Rewards Program as a covered benefit under the Medi-Cal program,
subject to federal financial participation and approval.
   The bill would state the intent of the Legislature to enact
legislation that would realign Medi-Cal benefits to more closely
resemble benefits offered through private health care coverage.
   The bill would also state the intent of the Legislature to enact
legislation that would establish a pilot project that utilizes a
self-directed "cash and counseling" model for providing Medi-Cal
services to disabled Medi-Cal enrollees. Under a "cash and counseling"
model, disabled Medi-Cal enrollees, with assistance from family
members and Medi-Cal case managers, would be given an individual
budget to manage and direct payment for their personal care services
and enable them to determine which supportive services they want and
from whom they wish to have these services delivered.
   Under existing law, the Director of Health Care Services may
contract with any qualified individual, organization, or entity to
provide services to, arrange for, or case manage the care of Medi-Cal
beneficiaries subject to specified requirements.
   This bill would state the intent of the Legislature to enact
legislation that would establish a pilot project in which Medi-Cal
managed care is used as a platform to transition from a
defined-benefit system, where the state pays for services used based
on a defined set of benefits, to a defined-contribution system, where
Medi-Cal enrollees would be assigned a risk-adjusted amount to
purchase private health care coverage.
   Existing law requires an applicant that is not currently enrolled
as a provider in the Medi-Cal program, a provider required to apply
for continued enrollment, or a provider not currently enrolled at a
location where the provider intends to provide Medi-Cal goods or
services to submit a complete application package for enrollment,
continuing enrollment, or enrollment at a new location, except as
specified. Existing law requires the department to provide, within 30
days of receipt, written notice that the application package has
been received, except as specified. Applicants or providers that meet
certain criteria may be granted preferred provisional provider
status for up to 18 months.
   This bill would, notwithstanding any other provision of law,
additionally provide that, on and after January 1, 2010, certain
licensed health care providers submitting an application to the
department pursuant to the above provisions shall be granted
preferred provisional provider status, effective from the date the
department received their application, if the applicant is in good
standing as a provider under the federal Medicare Program and with
his or her state licensing board.
   This bill would require the department to provide written notice
to the applicant that the application package has been received
within 15 days after receiving the application. The bill would
require the department to provide successful applicants with written
notice of their preferred provisional provider status within 30 days
after receiving the application.
   Existing law establishes, within the office of the Attorney
General, the Bureau of Medi-Cal Fraud for the investigation and
prosecution of violations of applicable laws pertaining to the
Medi-Cal program, and to review complaints alleging abuse or neglect
of patients in health care facilities receiving payments under the
Medi-Cal program.
   This bill would require the State Department of Health Care
Services to establish a computer modeling program to be used to
prevent and identify Medi-Cal fraud. The bill would require the
computer modeling program to alert the department when providers
engage in specified billing behavior. The bill would require the
department, upon receiving the alert, to conduct a Medi-Cal fraud
investigation if the department determines an investigation is
appropriate under the circumstances.
   Existing law, administered by the State Department of Public
Health, provides for the licensure and regulation of various clinics,
including primary care clinics, as defined.
   Existing law establishes the Medi-Cal Hospital/Uninsured Care
Demonstration Project Act that revises hospital reimbursement
methodologies in order to maximize the use of federal funds
consistent with federal Medicaid law and stabilize the distribution
of funding for hospitals.
   This bill would require the Director of Health Care Services to
provide to the Legislature, no later than July 1, 2010, a plan to
permit these funds to be used for the purpose of creating new, and
expanding existing, primary care clinics.
   Under existing law, one of the utilization controls to which
services are subject under the Medi-Cal program is the treatment
authorization request process, which is approval by a department
consultant of a specified service in advance of the rendering of that
service based upon a determination of medical necessity. Other
utilization controls include postservice prepayment audits and
postservice postpayment audits, that involve reviews for medical
necessity and program coverage.
   This bill would, instead, provide that treatment authorization
requests shall be approved based upon a determination that the
service is covered under Medi-Cal. The bill would also provide that
postservice prepayment audits and postservice postpayment audits
shall only involve reviews for program coverage.
   (7) Existing law allows the Controller, in his or her discretion,
to offset any amount due to a state agency by a person or entity
against any amount owed to that person or entity by a state agency.
   Existing law requires the Controller, to the extent feasible, to
offset any amount overdue and unpaid for a fine, penalty, assessment,
bail, vehicle parking penalty, or court-ordered reimbursement for
court-related services, from a person or entity, against any amount
owed to the person or entity by a state agency on a claim for a
refund from the Franchise Tax Board under the Personal Income Tax Law
or the Bank and Corporation Tax Law or from winnings in the
California State Lottery.
   This bill would permit a hospital or health care provider, as
defined, that provides health care services to an uninsured
individual who does not qualify for government health care benefits
to file a claim with the State Department of Health Care Services to
be reimbursed for those services if the recipient of the services
does not pay for those services. The bill would require the Director
of Health Care Services to certify the debt owed to the hospital or
health care provider to the Franchise Tax Board and the California
Lottery Commission in order to the have the debt satisfied with any
tax refund or lottery winnings owed to the debtor, as specified.
   (8) Under the Public Employees' Medical and Hospital Care Act, the
Board of Administration of the Public Employees' Retirement System
contracts for and administers health care benefit plans for public
employees and annuitants. Existing state and federal income tax laws
allow a deduction for contributions to a qualifying medical savings
account by a taxpayer who is covered under a high deductible health
plan, as defined. Money within this type of account may be used to
pay for qualified medical expenses, as defined.
   This bill would require the board to offer a high deductible
health plan, as defined in the federal tax law, and a Health Savings
Account option to public employees and annuitants, as specified. The
bill would establish the Public Employees' Health Savings Fund, a
continuously appropriated trust fund within the State Treasury, for
payment of qualified medical expenses of eligible employees and
annuitants who elect to enroll in the high deductible health plan and
participate in the Health Savings Account option, and would require
those employees and annuitants, and their employers, to make
specified contributions to that fund, thereby making an
appropriation.
   The bill would also require the board, on or before January 1,
2011, to provide or arrange for the provision of an electronic
personal health record and an electronic personal benefits record for
enrollees receiving health care benefits. The bill would
additionally authorize the board to provide a Healthy Action
Incentives and Rewards Program to its enrollees, as specified.
   (9) The Personal Income Tax Law and the Corporation Tax Law
authorize various credits against the taxes imposed by those laws.
   This bill would authorize a credit against those taxes for each
taxable year beginning on or after January 1, 2010, and before
January 1, 2015, in an amount equal to the amount paid or incurred
during the taxable year for qualified health expenses, as defined,
that do not exceed specified amounts.
   This bill would authorize a credit against personal income taxes
for each taxable year beginning on or after January 1, 2009, in an
amount equal to 25% of the tax imposed on a medical care professional
who provides medical services in a rural area. The bill would also
authorize a credit against personal income taxes, as specified, for a
primary care provider, as defined, and for uncompensated medical
care provided by a physician.
   This bill would authorize a credit under the Personal Income Tax
Law and the Corporation Tax Law for each taxable year beginning on or
after January 1, 2009, and before January 1, 2015, in an amount
equal to 15% of the amount paid or incurred by a qualified taxpayer,
as defined, during the taxable year for qualified health insurance,
as defined, for employees of the taxpayer. This bill would require
the Legislative Analyst to report to the Legislature on or before
March 1, 2014, on the effectiveness of the credit, as specified.
   The Personal Income Tax Law authorizes various deductions in
computing income subject to taxation.
   This bill would allow a deduction in computing adjusted gross
income for the costs of health insurance, as provided. This bill
would also allow a deduction in connection with Health Savings
Accounts in conformity with federal law. In general, the deduction
would be an amount equal to the aggregate amount paid in cash during
the taxable year by, or on behalf of, an eligible individual, as
defined, to a Health Savings Account of that individual, as provided.
This bill would also provide related conformity to that federal law
with respect to treatment of the account as a tax-exempt trust, the
allowance of rollovers from Archer Medical Savings Accounts to a
Health Savings Account, and penalties in connection therewith.
   (10) Existing law, with certain exceptions, establishes 8 hours as
a day's work and a 40-hour workweek, and requires payment of
prescribed overtime compensation for additional hours worked.
Existing law authorizes the adoption by 2/3 of employees in a work
unit of alternative workweek schedules providing for workdays no
longer than 10 hours within a 40-hour workweek.
   This bill would authorize an individual employee employed by an
employer with 50 or fewer employees that offers health care coverage
benefits to its employees to request a work schedule of up to 10
hours per day within a 40-hour workweek, and would authorize an
employer to implement this schedule without any obligation to pay
overtime compensation for hours worked as part of the schedule. The
bill would enact related provisions and would make other conforming
and technical changes.
   The bill would also authorize an employer to provide health
coverage that includes a Healthy Action Incentives and Rewards
Program to his or her employees. In addition, the bill would state
the intent of the Legislature to enact legislation providing
incentives to employers who offer health insurance, flex-time work
schedules, and other benefits agreed upon by employers and employees.

    (11) Existing law defines the term "medical assistant" and sets
forth the scope of services a medical assistant is authorized to
perform. Existing law provides that a medical assistant may
administer medication upon the specific authorization and supervision
of a licensed physician and surgeon or licensed podiatrist or, in
specified clinic settings, upon the specific authorization and
supervision of a nurse practitioner, nurse-midwife, or physician
assistant.
   This bill would remove the requirement that a medical assistant's
administration of medication upon the specific authorization and
supervision of a nurse practitioner, nurse-midwife, or physician
assistant occur in specified clinic settings, and would make related
changes.
   (12) Existing law provides for the licensure and regulation by the
Commissioner of Financial Institutions of money transmitters, who
receive money in this state for transmission to foreign countries,
and makes a violation of these provisions a crime.
   This bill would require a licensee, or its agent, to collect a 3%
fee on any money transmission received from a client who is unable to
provide documentation of lawful presence in the United States. The
bill would require the deposit of the fee in an unspecified fund to
be used to pay for emergency medical care provided in this state to
persons without documentation of legal residence in the United
States.
   Because a violation of this requirement would be a crime, the bill
would impose a state-mandated local program.
   In addition, the bill would memorialize the Congress and President
of the United States to enact legislation that would provide full
reimbursement for the costs of providing federally mandated health
care services to anyone, regardless of immigration status.
   (13) Existing law regulates the establishment and operation of
hospitals, including emergency rooms.
   This bill would state the intent of the Legislature to enact
legislation that would allow hospitals to offer preventative medical
services delivered through the hospital's primary care or
community-based clinic.
   (14) The bill would enact other related provisions and make
various technical, nonsubstantive changes.
   (15) This bill would result in a change in state taxes for the
purpose of increasing state revenues within the meaning of Section 3
of Article XIII A of the California Constitution, and thus would
require for passage the approval of 2/3 of the membership of each
house of the Legislature.
   (16) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.
   Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 734 is added to the  
Business and Professions Code   , to read:  
   734.  The failure of a person licensed under this division or
under an initiative act referred to in this division to conduct a
good faith examination as required under any of the following
provisions constitutes unprofessional conduct and grounds for
disciplinary action by the person's licensing board:
   (a) Paragraph (3) of subdivision (e) of Section 1367.01 of the
Health and Safety Code or paragraph (3) of subdivision (e) of Section
10123.135 of the Insurance Code.
   (b) Subdivision (b) of Section 1367.63 of the Health and Safety
Code or subdivision (b) of Section 10123.88 of the Insurance Code.
   (c) Subdivision (c) of Section 1367.635 of the Health and Safety
Code or subdivision (c) of Section 10123.86 of the Insurance Code.
   (d) Subdivision (a) of Section 1374.33 of the Health and Safety
Code or subdivision (a) of Section 10169.3 of the Insurance Code.

   SECTION 1.   SEC. 2.   Section 2069 of
the Business and Professions Code is amended to read:
   2069.  (a) (1) Notwithstanding any other provision of law, a
medical assistant may administer medication only by intradermal,
subcutaneous, or intramuscular injections and perform skin tests and
additional technical supportive services upon the specific
authorization and supervision of a licensed physician and surgeon,
nurse practitioner, nurse-midwife, physician assistant, or licensed
podiatrist.
   (2) The licensed physician and surgeon may, at his or her
discretion, in consultation with the nurse practitioner,
nurse-midwife, or physician assistant, provide written instructions
to be followed by a medical assistant in the performance of tasks or
supportive services. These written instructions may provide that the
supervisory function for the medical assistant for these tasks or
supportive services may be delegated to the nurse practitioner,
nurse-midwife, or physician assistant within the standardized
procedures or protocol, and that tasks may be performed when the
licensed physician and surgeon is not onsite, so long as the
following apply:
   (A) The nurse practitioner or nurse-midwife is functioning
pursuant to standardized procedures, as defined by Section 2725, or
protocol. The standardized procedures or protocol shall be developed
and approved by the supervising physician and surgeon, the nurse
practitioner or nurse-midwife, and the facility administrator or his
or her designee.
   (B) The physician assistant is functioning pursuant to regulated
services defined in Section 3502 and is approved to do so by the
supervising physician or surgeon.
   (b) As used in this section and Sections 2070 and 2071, the
following definitions shall apply:
   (1) "Medical assistant" means a person who may be unlicensed, who
performs basic administrative, clerical, and technical supportive
services in compliance with this section and Section 2070 for a
licensed physician and surgeon or a licensed podiatrist, or group
thereof, for a medical, nursing, or podiatry corporation, for a
physician assistant, a nurse practitioner, or a nurse-midwife as
provided in subdivision (a), or for a health care service plan, who
is at least 18 years of age, and who has had at least the minimum
amount of hours of appropriate training pursuant to standards
established by the Division of Licensing. The medical assistant shall
be issued a certificate by the training institution or instructor
indicating satisfactory completion of the required training. A copy
of the certificate shall be retained as a record by each employer of
the medical assistant.
   (2) "Specific authorization" means a specific written order
prepared by the licensed physician and surgeon, licensed podiatrist,
physician assistant, nurse practitioner, or nurse-midwife authorizing
the procedures to be performed on a patient, which shall be placed
in the patient's medical record, or a standing order prepared by the
licensed physician and surgeon, licensed podiatrist, physician
assistant, nurse practitioner, or nurse-midwife, authorizing the
procedures to be performed, the duration of which shall be consistent
with accepted medical practice. A notation of the standing order
shall be placed on the patient's medical record.
   (3) "Supervision" means the supervision of procedures authorized
by this section by the following practitioners, within the scope of
their respective practices, who shall be physically present in the
treatment facility during the performance of those procedures:
   (A) A licensed physician and surgeon.
   (B) A licensed podiatrist.
   (C) A physician assistant, nurse practitioner, or nurse-midwife.
   (4) "Technical supportive services" means simple routine medical
tasks and procedures that may be safely performed by a medical
assistant who has limited training and who functions under the
supervision of a licensed physician and surgeon, a licensed
podiatrist, a physician assistant, a nurse practitioner, or a
nurse-midwife.
   (c) Nothing in this section shall be construed as authorizing the
licensure of medical assistants. Nothing in this section shall be
construed as authorizing the administration of local anesthetic
agents by a medical assistant. Nothing in this section shall be
construed as authorizing the division to adopt any regulations that
violate the prohibitions on diagnosis or treatment in Section 2052.
   (d) Notwithstanding any other provision of law, a medical
assistant may not be employed for inpatient care in a licensed
general acute care hospital as defined in subdivision (a) of Section
1250 of the Health and Safety Code.
   (e) Nothing in this section shall be construed as authorizing a
medical assistant to perform any clinical laboratory test or
examination for which he or she is not authorized by Chapter 3
(commencing with Section 1200). Nothing in this section shall be
construed as authorizing a nurse practitioner, nurse-midwife, or
physician assistant to be a laboratory director of a clinical
laboratory, as those terms are defined in paragraph (7) of
subdivision (a) of Section 1206 and subdivision (a) of Section 1209.
   SEC. 2.   SEC. 3.   Section 1815.5 is
added to the Financial Code, to read:
   1815.5.  A licensee, or its agent, shall collect a 3 percent fee
on transmission money received from a customer who is unable to
provide documentation of lawful presence in the United States. This
fee shall be deposited in the ____ Fund, which is hereby established
in the State Treasury, to be used to pay for emergency medical care
provided in this state to persons without documentation of legal
residence in the United States. The fee imposed pursuant to this
subdivision shall be in addition to any other applicable fees.
   SEC. 3.   SEC. 4.   Section 22830.5 is
added to the Government Code, to read:
   22830.5.  (a) On or before January 1, 2011, the board shall
provide or arrange for the provision of an electronic personal health
record (PHR) and an electronic personal benefits record (PBR) for
enrollees receiving health care benefits. The records shall be
provided for the purpose of providing enrollees with information to
assist them in understanding their coverage benefits and managing
their health care.
   (b) The PBR shall provide access to real-time, patient-specific
information regarding eligibility for covered benefits, cost-sharing
requirements, and claims history. That access may be provided through
the use of an Internet-based system. Inclusion of this data shall be
at the option of the enrollee.
   (c) The PHR shall incorporate personal health information,
including, but not limited to, medical history, laboratory results,
prescription history, and other personal health information
authorized or provided by the enrollee. The PHR shall not be provided
through the use of an Internet-based system. Inclusion of this
additional data shall be at the option of the enrollee.
   (d) Systems, software, or devices that pertain to the PBR and PHR
shall adhere to accepted national standards for interoperability,
privacy, and data exchange, or shall be certified by a nationally
recognized certification body.
   (e) The PBR and PHR shall comply with applicable state and federal
confidentiality and data security requirements.
   SEC. 4.   SEC. 5.   Section 22830.6 is
added to the Government Code, to read:
   22830.6.  The board may provide or arrange for the provision of a
Healthy Action Incentives and Rewards Program, as described in
subdivision (b) of Section 1367.38 of the Health and Safety Code, to
all enrollees.
   SEC. 5.   SEC. 6.   Section 22869.5 is
added to the Government Code, to read:
   22869.5.  (a) The board shall offer a Health Savings Account
option to all employees and annuitants. In addition to the basic
health benefit plans described in Sections 22830 and 22850, and
notwithstanding any other provision of this part, the board shall
approve at least one high deductible health plan, as defined in
Section 223(c)(2) of the Internal Revenue Code.
   (b) The design and administration of the Health Savings Account
option shall comply with the standards provided in Section 223 of the
Internal Revenue Code and any other applicable revenue procedures or
provisions of the Internal Revenue Code and the Revenue and Taxation
Code.
   (c) (1) An employee or annuitant who qualifies as an eligible
individual, as defined in Section 223(c)(1)(A) of the Internal
Revenue Code, and who elects to participate in the Health Savings
Account option shall enroll in a high deductible health plan offered
by the board and shall contribute the total cost per month of the
benefit coverage afforded him or her under that plan less the portion
thereof to be contributed by the employer.
   (2) The employee or annuitant shall also designate an additional
amount to be deducted from his or her salary or retirement allowance
for qualified medical expenses. The amount shall be no less than
fifty dollars ($50) per month. The amount shall be deposited into the
Public Employees' Health Savings Fund and shall be credited to a
nominal, interest-bearing account in the name of the employee or
annuitant.
   (3) For purposes of this section, "qualified medical expenses"
means those expenses as defined in Section 223(d)(2) of the Internal
Revenue Code.
   (d) (1) The employer of an employee or annuitant who elects to
participate in the Health Savings Account option shall contribute a
portion, pursuant to Article 7 (commencing with Section 22870) or
Article 8 (commencing with Section 22890), of the cost of providing
the benefit coverage under the high deductible health plan.
   (2) The employer shall also contribute an amount equal to the
difference between the amount contributed pursuant to paragraph (1)
and the weighted average of the health benefit plan premiums the
employer would have paid if the employee or annuitant had enrolled in
a plan other than the high deductible health plan, and that amount
shall be deposited into the Public Employees' Health Savings Fund and
shall be credited to a nominal account in the name of the employee
or annuitant.
   (e) The limit on contributions made to an employee's or annuitant'
s Health Savings Account by the employee, annuitant, or the employer
of the employee or annuitant shall not exceed the maximum limit set
by the Internal Revenue Code for a Health Savings Account.
   (f) Moneys credited to the employee's or annuitant's nominal
account in the Public Employees' Health Savings Fund shall be
disbursed to pay qualified medical expenses incurred by the employee
or annuitant, in accordance with Section 223 of the Internal Revenue
Code.
   (g) The board shall adopt regulations necessary to implement this
section.
   SEC. 6.   SEC. 7.   Section 22917 is
added to the Government Code, to read:
   22917.  (a) There is in the State Treasury a Public Employees'
Health Savings Fund, the purpose of which is to pay the qualified
medical expenses of holders of Health Savings Accounts pursuant to
Section 22869.5 and pursuant to Section 223 of the Internal Revenue
Code. The board shall have the exclusive control of the
administration and investment of the fund.
   (b) The Public Employees' Health Savings Fund shall consist of
moneys deducted from the salary or retirement allowance of an
employee or annuitant, and moneys contributed by the employee's or
annuitant's employer, for qualified medical expenses pursuant to
Section 22869.5. Those moneys shall earn interest income.
   (c) The board may invest funds in the Public Employees' Health
Savings Fund pursuant to the law governing its investment of the
retirement fund, subject to the limitations contained in Section 223
of the Internal Revenue Code. Income, of whatever nature, earned on
the fund during any fiscal year shall be credited to the fund.
   (d) Notwithstanding Section 13340, the Public Employees' Health
Savings Fund is continuously appropriated, without regard to fiscal
years, to reimburse qualified medical expenses of holders of Health
Savings Accounts.
   (e) The Legislature finds and declares that the Public Employees'
Health Savings Fund is a trust fund held for the exclusive benefit of
employees and annuitants who elect the Health Savings Account option
pursuant to Section 22869.5.
   SEC. 7.   SEC. 8.   Section 1345 of the
Health and Safety Code is amended to read:
   1345.  As used in this chapter:
   (a) "Advertisement" means any written or printed communication or
any communication by means of recorded telephone messages or by
radio, television, or similar communications media, published in
connection with the offer or sale of plan contracts.
   (b) "Basic health care services" means all of the following:
   (1) Physician services, including consultation and referral.
   (2) Hospital inpatient services and ambulatory care services.
   (3) Diagnostic laboratory and diagnostic and therapeutic
radiologic services.
   (4) Home health services.
   (5) Preventive health services.
   (6) Emergency health care services, including ambulance and
ambulance transport services and out-of-area coverage. "Basic health
care services" includes ambulance and ambulance transport services
provided through the "911" emergency response system.
   (7) Hospice care pursuant to Section 1368.2.
   (c) "Enrollee" means a person who is enrolled in a plan and who is
a recipient of services from the plan.
   (d) "Evidence of coverage" means any certificate, agreement,
contract, brochure, or letter of entitlement issued to a subscriber
or enrollee setting forth the coverage to which the subscriber or
enrollee is entitled.
   (e) "Group contract" means a contract which by its terms limits
the eligibility of subscribers and enrollees to a specified group.
   (f) "Health care service plan" or "specialized health care service
plan" means either of the following:
   (1) Any person who undertakes to arrange for the provision of
health care services to subscribers or enrollees, or to pay for or to
reimburse any part of the cost for those services, in return for a
prepaid or periodic charge paid by or on behalf of the subscribers or
enrollees.
   (2) Any person, whether located within or outside of this state,
who solicits or contracts with a subscriber or enrollee in this state
to pay for or reimburse any part of the cost of, or who undertakes
to arrange or arranges for, the provision of health care services
that are to be provided wholly or in part in a foreign country in
return for a prepaid or periodic charge paid by or on behalf of the
subscriber or enrollee.
   (g) "License" means, and "licensed" refers to, a license as a plan
pursuant to Section 1353.
   (h) "Out-of-area coverage," for purposes of paragraph (6) of
subdivision (b), means coverage while an enrollee is anywhere outside
the service area of the plan, and shall also include coverage for
urgently needed services to prevent serious deterioration of an
enrollee's health resulting from unforeseen illness or injury for
which treatment cannot be delayed until the enrollee returns to the
plan's service area.
   (i) "Provider" means any professional person, organization, health
facility, or other person or institution licensed by the state to
deliver or furnish health care services.
   (j) "Person" means any person, individual, firm, association,
organization, partnership, business trust, foundation, labor
organization, corporation, limited liability company, public agency,
or political subdivision of the state.
   (k) "Service area" means a geographical area designated by the
plan within which a plan shall provide health care services.
   ()  "Solicitation" means any presentation or advertising conducted
by, or on behalf of, a plan, where information regarding the plan,
or services offered and charges therefor, is disseminated for the
purpose of inducing persons to subscribe to, or enroll in, the plan.
   (m) "Solicitor" means any person who engages in the acts defined
in subdivision ().
   (n) "Solicitor firm" means any person, other than a plan, who
through one or more solicitors engages in the acts defined in
subdivision ().
   (o) "Specialized health care service plan contract" means a
contract for health care services in a single specialized area of
health care, including dental care, for subscribers or enrollees, or
which pays for or which reimburses any part of the cost for those
services, in return for a prepaid or periodic charge paid by or on
behalf of the subscribers or enrollees.
   (p) "Subscriber" means the person who is responsible for payment
to a plan or whose employment or other status, except for family
dependency, is the basis for eligibility for membership in the plan.
   (q) Unless the context indicates otherwise, "plan" refers to
health care service plans and specialized health care service plans.
   (r) "Plan contract" means a contract between a plan and its
subscribers or enrollees or a person contracting on their behalf
pursuant to which health care services, including basic health care
services, are furnished; and unless the context otherwise indicates
it includes specialized health care service plan contracts; and
unless the context otherwise indicates it includes group contracts.
   (s) A service is "medically necessary" or a "medical necessity"
when it is reasonable and necessary to protect life, to prevent
significant illness or significant disability, or to alleviate severe
pain.
   (t) All references in this chapter to financial statements,
assets, liabilities, and other accounting items mean those financial
statements and accounting items prepared or determined in accordance
with generally accepted accounting principles, and fairly presenting
the matters which they purport to present, subject to any specific
requirement imposed by this chapter or by the director.
   SEC. 8.   SEC. 9.   Section 1346.2 is
added to the Health and Safety Code, to read:
   1346.2.  (a) The director shall encourage the design of health
care service plan contracts that conform to current requirements
under federal law for a high deductible health plan used in
conjunction with a Health Savings Account.
   (b) The director and the Insurance Commissioner shall standardize
the process used for the initial review and approval of a health care
service plan contract and for the initial review and approval of a
health insurance policy.
   (c) (1) The director shall report to the chair and to the vice
chairs of the Senate Committee on Banking, Finance and Insurance, the
Senate Committee on Appropriations, the Assembly Committee on
Insurance, and the Assembly Committee on Appropriations prior to
December 31, 2010, on the status of the requirements imposed by
subdivisions (a) and (b) and on the number of health care service
plans that have applied to the department for initial review and
approval of health care service plan contracts on and after the
effective date of this section.
   (2) The director shall also report to the chair and to the vice
chairs of the committees listed in paragraph (1) prior to December
31, 2011, on the increase in the number of persons enrolled in a
health care service plan contract as a result of the requirements
described in subdivisions (a) and (b).
   SEC. 9.   SEC. 10.   Section 1349.3 is
added to the Health and Safety Code, to read:
   1349.3.  (a) Notwithstanding any other provision of law, a carrier
domiciled in another state is exempt from Section 1349, if it meets
the following criteria:
   (1) It offers, sells, or renews a health care service plan
contract in this state that complies with all of the requirements of
the domiciliary state applicable to the plan contract.
   (2) It is authorized to issue the plan contract in the state where
it is domiciled and to transact business there.
   (b) Notwithstanding any other provision of law, a health care
service plan contract offered, sold, or renewed in this state by a
carrier that satisfies the criteria of subdivision (a) is exempt from
all other provisions of this chapter.
   SEC. 10.   SEC.   11.   Section
1357 of the Health and Safety Code is amended to read:
   1357.  As used in this article:
   (a) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health care plan contract
covering the employee, and includes dependents of guaranteed
association members and dependents of eligible association members if
the association elects to include dependents under its health
coverage at the same time it determines its membership composition
pursuant to subdivision (o).
   (b) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, at the small employer's regular
places of business, who has met any statutorily authorized
applicable waiting period requirements. The term includes sole
proprietors or partners of a partnership, if they are actively
engaged on a full-time basis in the small employer's business and
included as employees under a health care plan contract of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis. It includes any eligible employee, as
defined in this paragraph, who obtains coverage through a guaranteed
association or an eligible association. Employees of employers
purchasing through a guaranteed association or an eligible
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer. Permanent employees who work at least 20
hours but not more than 29 hours are deemed to be eligible employees
if all four of the following apply:
   (A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
   (B) The employer offers the employees health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
   (2) Any member of a guaranteed association or member of an
eligible association as defined in subdivision (o).
   (c) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
   (d) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan and who subsequently requests
enrollment in a health benefit plan of that small employer, provided
that the initial enrollment period shall be a period of at least 30
days. It also means any member of an association that is a guaranteed
association or an eligible association as well as any other person
eligible to purchase through the guaranteed association or eligible
association when that person has failed to purchase coverage during
the initial enrollment period provided under the terms of the
guaranteed association's or eligible association's plan contract and
who subsequently requests enrollment in the plan, provided that the
initial enrollment period shall be a period of at least 30 days.
However, an eligible employee, any other person eligible for coverage
through a guaranteed association or eligible association pursuant to
subdivision (o), or an eligible dependent shall not be considered a
late enrollee if any of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan, the Healthy Families Program, or no share-of-cost Medi-Cal
coverage at the time the individual was eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, or no share-of-cost Medi-Cal coverage was the
reason for declining enrollment, provided that, if the individual was
covered under another employer health plan, the individual was given
the opportunity to make the certification required by this
subdivision and was notified that failure to do so could result in
later treatment as a late enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the individual
or of a person through whom the individual was covered as a
dependent, termination of the other plan's coverage, cessation of an
employer's contribution toward an employee or dependent's coverage,
death of the person through whom the individual was covered as a
dependent, legal separation, divorce, loss of coverage under the
Healthy Families Program as a result of exceeding the program's
income or age limits, or loss of no share-of-cost Medi-Cal coverage.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan.
   (2) The employer offers multiple health benefit plans and the
employee elects a different plan during an open enrollment period.
      (3) A court has ordered that coverage be provided for a spouse
or minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee, as defined in
paragraph (1) of subdivision (b), the plan cannot produce a written
statement from the employer stating that the individual or the person
through whom the individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed, acknowledgment of an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the plan to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion, unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an association member who did not purchase
coverage through a guaranteed association or eligible association,
the plan cannot produce a written statement from the association
stating that the association sent a written notice in boldface type
to all potentially eligible members of the association at their last
known address prior to the initial enrollment period informing
members that failure to elect coverage during the initial enrollment
period permits the plan to impose, at the time of the member's later
decision to elect coverage, an exclusion from coverage for a period
of 12 months as well as a six-month preexisting condition exclusion
unless the member can demonstrate that he or she meets the
requirements of subparagraphs (A), (C), and (D) of paragraph (1) or
meets the requirements of paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association or eligible association, and did not do so, and would not
be eligible to purchase guaranteed coverage unless purchased through
a guaranteed association or eligible association, the employer or
person can demonstrate that he or she meets the requirements of
subparagraphs (A), (C), and (D) of paragraph (1), or meets the
requirements of paragraph (2) or (3), or that he or she recently had
a change in status that would make him or her eligible and that
application for enrollment was made within 30 days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted. For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 1373.621 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her coverage under the Healthy
Families Program as a result of exceeding the program's income or age
limits or no share-of-cost Medi-Cal coverage and requests enrollment
within 30 days after notification of this loss of coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies. Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period. That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan. The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated. Upon enrollment, coverage shall
be effective not later than the first day of the first calendar month
beginning after the date the request for enrollment is received.
Notice of the special enrollment rights contained in this paragraph
shall be provided by the employer to an employee at or before the
time the employee is offered an opportunity to enroll in plan
coverage.
   (e) "New business" means a health care service plan contract
issued to a small employer that is not the plan's in force business.
   (f) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the employee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (g) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare Program pursuant to Title XVIII of the
Social Security Act.
   (3) The Medicaid program pursuant to Title XIX of the Social
Security Act.
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (h) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than six
months.
   (i) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (j) "Risk adjustment factor" means the percentage adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
cost of services. This factor may not be more than 120 percent or
less than 80 percent until July 1, 1996. Effective July 1, 1996, this
factor may not be more than 110 percent or less than 90 percent.
   (k) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family composition of
the employee, plus the health benefit plan selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the plan
contract will be primary or secondary to benefits provided by the
federal Medicare Program pursuant to Title XVIII of the federal
Social Security Act.
   (2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:
   (A) Single.
   (B) Married couple.
   (C) One adult and child or children.
   (D) Married couple and child or children.
   (3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county, and
divide no county into more than two regions. Plans shall be deemed to
be operating statewide if their coverage area includes 90 percent or
more of the state's population. Geographic regions established
pursuant to this section shall, as a group, cover the entire state,
and the area encompassed in a geographic region shall be separate and
distinct from areas encompassed in other geographic regions.
Geographic regions may be noncontiguous.
   (B) (i) In determining rates for small employers, a plan that does
not operate statewide shall use no more than the number of
geographic regions in the state that is determined by the following
formula: the population, as determined in the last federal census, of
all counties that are included in their entirety in a plan's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No plan
shall have less than one geographic area.
   (ii) If the formula in clause (i) results in a plan that operates
in more than one county having only one geographic region, then the
formula in clause (i) shall not apply and the plan may have two
geographic regions, provided that no county is divided into more than
one region.
   Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan's existing service area.
   () "Small employer" means any of the following:
   (1) Any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least two, but no more than 50, eligible employees,
the majority of whom were employed within this state, that was not
formed primarily for purposes of buying health care service plan
contracts, and in which a bona fide employer-employee relationship
exists. In determining whether to apply the calendar quarter or
calendar year test, a health care service plan shall use the test
that ensures eligibility if only one test would establish
eligibility. However, for purposes of subdivisions (a), (b), and (c)
of Section 1357.03, the definition shall include employers with at
least three eligible employees until July 1, 1997, and two eligible
employees thereafter. In determining the number of eligible
employees, companies that are affiliated companies and that are
eligible to file a combined tax return for purposes of state taxation
shall be considered one employer. Subsequent to the issuance of a
health care service plan contract to a small employer pursuant to
this article, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually. Except as
otherwise specifically provided in this article, provisions of this
article that apply to a small employer shall continue to apply until
the plan contract anniversary following the date the employer no
longer meets the requirements of this definition. It includes any
small employer as defined in this paragraph who purchases coverage
through a guaranteed association or an eligible association, and any
employer purchasing coverage for employees through a guaranteed
association or an eligible association.
   (2) Any guaranteed association, as defined in subdivision (n),
that purchases health coverage for members of the association.
   (3) Any eligible association, as defined in subdivision (q), that
purchases health coverage for members of the association.
   (m) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (n) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in paragraph (1) of subdivision (), (2) does not
condition membership directly or indirectly on the health or claims
history of any person, (3) uses membership dues solely for and in
consideration of the membership and membership benefits, except that
the amount of the dues shall not depend on whether the member applies
for or purchases insurance offered to the association, (4) is
organized and maintained in good faith for purposes unrelated to
insurance, (5) has a constitution and bylaws, or other analogous
governing documents that provide for election of the governing board
of the association by its members, (6) offers any plan contract that
is purchased to all individual members and employer members in this
state, (7) includes any member choosing to enroll in the plan
contracts offered to the association provided that the member has
agreed to make the required premium payments, and (8) covers at least
100 persons with the health care service plan with which it
contracts. The requirement of 100 persons may be met if component
chapters of a statewide association contracting separately with the
same carrier cover at least 100 persons in the aggregate.
   This subdivision applies regardless of whether a contract issued
by a plan is with an association or a trust formed for, or sponsored
by, an association to administer benefits for association members.
   (o) "Members of a guaranteed association" or "members of an
eligible association" means any individual or employer meeting the
association's membership criteria if that person is a member of the
association and chooses to purchase health coverage through the
association. At the association's discretion, it also may include
employees of association members, association staff, retired members,
retired employees of members, and surviving spouses and dependents
of deceased members. However, if an association chooses to include
these persons as members of the guaranteed association or members of
the eligible association, the association shall make that election in
advance of purchasing a plan contract. Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
   (p) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.
   (q) "Eligible association" means a community or civic group or a
charitable or religious organization.
   SEC. 11.   SEC. 12.   Section 1357.03 of
the Health and Safety Code is amended to read:
   1357.03.  (a) A plan shall fairly and affirmatively offer, market,
and sell all of the plan's health care service plan contracts that
are sold to small employers or to associations that include small
employers to all small employers in each service area in which the
plan provides or arranges for the provision of health care services,
regardless of the employer's implementation of, or intent to
implement, any form of claim or benefit support to covered employees.
A plan contracting to participate in the voluntary purchasing pool
for small employers provided for under Article 4 (commencing with
Section 10730) of Chapter 8 of Part 2 of Division 2 of the Insurance
Code shall be deemed in compliance with this requirement for a
contract offered through the voluntary purchasing pool established
under Article 4 (commencing with Section 10730) of Chapter 8 of Part
2 of Division 2 of the Insurance Code in those geographic regions in
which plans participate in the pool, if the contract is offered
exclusively through the pool. Each plan shall make available to each
small employer all small employer health care service plan contracts
that the plan offers and sells to small employers or to associations
that include small employers in this state, regardless of the
employer's implementation of, or intent to implement, any form of
claim or benefit support to covered employees. No plan or solicitor
shall induce or otherwise encourage a small employer to separate or
otherwise exclude an eligible employee from a health care service
plan contract that is provided in connection with the employee's
employment or membership in a guaranteed association or an eligible
association.
   (b) Every plan shall file with the director the reasonable
employee participation requirements and employer contribution
requirements that will be applied in offering its plan contracts.
Participation requirements shall be applied uniformly among all small
employer groups, except that a plan may vary application of minimum
employee participation requirements by the size of the small employer
group and whether the employer contributes 100 percent of the
eligible employee's premium. Employer contribution requirements shall
not vary by employer size. A health care service plan shall not
establish a participation requirement that (1) requires a person who
meets the definition of a dependent in subdivision (a) of Section
1357 to enroll as a dependent if he or she is otherwise eligible for
coverage and wishes to enroll as an eligible employee and (2) allows
a plan to reject an otherwise eligible small employer because of the
number of persons that waive coverage due to coverage through another
employer. Members of an association eligible for health coverage
under subdivision (o) of Section 1357, but not electing any health
coverage through the association, shall not be counted as eligible
employees for purposes of determining whether the guaranteed
association or eligible association meets a plan's reasonable
participation standards.
   (c) The plan shall not reject an application from a small employer
for a health care service plan contract if all of the following are
met:
   (1) The small employer, as defined by paragraph (1) of subdivision
() of Section 1357, offers health benefits to 100 percent of its
eligible employees, as defined by paragraph (1) of subdivision (b) of
Section 1357. Employees who waive coverage on the grounds that they
have other group coverage shall not be counted as eligible employees.

   (2) The small employer agrees to make the required premium
payments.
   (3) The small employer agrees to inform the small employers'
employees of the availability of coverage and the provision that
those not electing coverage must wait one year to obtain coverage
through the group if they later decide they would like to have
coverage.
   (4) The employees and their dependents who are to be covered by
the plan contract work or reside in the service area in which the
plan provides or otherwise arranges for the provision of health care
services.
   (d) No plan or solicitor shall, directly or indirectly, engage in
the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a plan because of either of the
following:
   (A) The health status, claims experience, industry, occupation of
the small employer, or geographic location provided that it is within
the plan's approved service area.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (2) Encourage or direct small employers to seek coverage from
another plan or the voluntary purchasing pool established under
Article 4 (commencing with Section 10730) of Chapter 8 of Part 2 of
Division 2 of the Insurance Code because of either of the following:
   (A) The health status, claims experience, industry, occupation of
the small employer, or geographic location provided that it is within
the plan's approved service area.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (e) (1) A plan shall not, directly or indirectly, enter into any
contract, agreement, or arrangement with a solicitor that provides
for or results in the compensation paid to a solicitor for the sale
of a health care service plan contract to be varied because of either
of the following:
   (A) The health status, claims experience, industry, occupation, or
geographic location of the small employer.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (2) This subdivision does not apply to a compensation arrangement
that provides compensation to a solicitor on the basis of percentage
of premium, provided that the percentage shall not vary because of
the factors described in subparagraph (A) or (B) of paragraph (1).
   (f) A policy or contract that covers two or more employees shall
not establish rules for eligibility, including continued eligibility,
of an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health
status-related factors:
   (1) Health status.
   (2) Medical condition, including physical and mental illnesses.
   (3) Claims experience.
   (4) Receipt of health care.
   (5) Medical history.
   (6) Genetic information.
   (7) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (8) Disability.
   (g) A plan shall comply with the requirements of Section 1374.3.
   SEC. 12.   SEC. 13.   Section 1357.06 of
the Health and Safety Code is amended to read:
   1357.06.  (a) Preexisting condition provisions of a plan contract
shall not exclude coverage for a period beyond six months following
the individual's effective date of coverage and may only relate to
conditions for which medical advice, diagnosis, care, or treatment,
including prescription drugs, was recommended or received from a
licensed health practitioner during the six months immediately
preceding the effective date of coverage.
   (b) A plan that does not utilize a preexisting condition provision
may impose a waiting or affiliation period, not to exceed 60 days,
before the coverage issued subject to this article shall become
effective. During the waiting or affiliation period no premiums shall
be charged to the enrollee or the subscriber.
   (c) In determining whether a preexisting condition provision or a
waiting or affiliation period applies to any person, a plan shall
credit the time the person was covered under creditable coverage,
provided the person becomes eligible for coverage under the
succeeding plan contract within 62 days of termination of prior
coverage, exclusive of any waiting or affiliation period, and applies
for coverage with the succeeding plan contract within the applicable
enrollment period. A plan shall also credit any time an eligible
employee must wait before enrolling in the plan, including any
affiliation or employer-imposed waiting or affiliation period.
However, if a person's employment has ended, the availability of
health coverage offered through employment or sponsored by an
employer has terminated, or an employer's contribution toward health
coverage has terminated, a plan shall credit the time the person was
covered under creditable coverage if the person becomes eligible for
health coverage offered through employment or sponsored by an
employer within 180 days, exclusive of any waiting or affiliation
period, and applies for coverage under the succeeding plan contract
within the applicable enrollment period.
   (d) In addition to the preexisting condition exclusions authorized
by subdivision (a) and the waiting or affiliation period authorized
by subdivision (b), health plans providing coverage to a guaranteed
association or an eligible association may impose on employers or
individuals purchasing coverage who would not be eligible for
guaranteed coverage if they were not purchasing through the
association a waiting or affiliation period, not to exceed 60 days,
before the coverage issued subject to this article shall become
effective. During the waiting or affiliation
                 period, no premiums shall be charged to the enrollee
or the subscriber.
   (e) An individual's period of creditable coverage shall be
certified pursuant to subdivision (e) of Section 2701 of Title XXVII
of the federal Public Health Services Act (42 U.S.C. Sec. 300gg(e)).
   (f) A health care service plan issuing group coverage may not
impose a preexisting condition exclusion to any of the following:
   (1) To a newborn individual, who, as of the last day of the 30-day
period beginning with the date of birth, has applied for coverage
through the employer-sponsored plan.
   (2) To a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-day
period beginning with the date of adoption or placement for adoption,
is covered under creditable coverage and applies for coverage
through the employer-sponsored plan. This provision shall not apply
if, for 63 continuous days, the child is not covered under any
creditable coverage.
   (3) To a condition relating to benefits for pregnancy or maternity
care.
   SEC. 13.   SEC. 14.   Section 1357.14 of
the Health and Safety Code is amended to read:
   1357.14.  In connection with the offering for sale of any plan
contract to a small employer, each plan shall make a reasonable
disclosure, as part of its solicitation and sales materials, of the
following:
   (a) The extent to which premium rates for a specified small
employer are established or adjusted in part based upon the actual or
expected variation in service costs or actual or expected variation
in health condition of the employees and dependents of the small
employer.
   (b) The provisions concerning the plan's right to change premium
rates and the factors other than provision of services experience
that affect changes in premium rates.
   (c) Provisions relating to the guaranteed issue and renewal of
contracts.
   (d) Provisions relating to the effect of any preexisting condition
provision.
   (e) Provisions relating to the small employer's right to apply for
any contract written, issued, or administered by the plan at the
time of application for a new health care service plan contract, or
at the time of renewal of a health care service plan contract,
regardless of the employer's implementation of, or intent to
implement, any form of claim or benefit support to covered employees.

   (f) The availability, upon request, of a listing of all the plan's
contracts and benefit plan designs offered to small employers,
including the rates for each contract.
   (g) At the time it offers a contract to a small employer, each
plan shall provide the small employer with a statement of all of its
plan contracts offered to small employers, including the rates for
each plan contract, in the service area in which the employer's
employees and eligible dependents who are to be covered by the plan
contract work or reside. For purposes of this subdivision, plans that
are affiliated plans or that are eligible to file a consolidated
income tax return shall be treated as one health plan.
   (h) Each plan shall do all of the following:
   (1) Prepare a brochure that summarizes all of its plan contracts
offered to small employers and to make this summary available to any
small employer and to solicitors upon request. The summary shall
include for each contract information on benefits provided, a generic
description of the manner in which services are provided, such as
how access to providers is limited, benefit limitations, required
copayments and deductibles, standard employee risk rates, an
explanation of the manner in which creditable coverage is calculated
if a preexisting condition or affiliation period is imposed, and a
phone number that can be called for more detailed benefit
information. Plans are required to keep the information contained in
the brochure accurate and up to date and, upon updating the brochure,
send copies to solicitors and solicitor firms with whom the plan
contracts to solicit enrollments or subscriptions.
   (2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.
   (3) Provide to small employers and solicitors, upon request, for
any given small employer the sum of the standard employee risk rates
and the sum of the risk adjusted employee risk rates. When requesting
this information, small employers, solicitors, and solicitor firms
shall provide the plan with the information the plan needs to
determine the small employer's risk adjusted employee risk rate.
   (4) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.
   For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.
   (i) Every solicitor or solicitor firm contracting with one or more
plans to solicit enrollments or subscriptions from small employers
shall do all of the following:
   (1) When providing information on contracts to a small employer
but making no specific recommendations on particular plan contracts:
   (A) Advise the small employer of the plan's obligation to sell to
any small employer any plan contract it offers to small employers,
regardless of the employer's implementation of, or intent to
implement, any form of claim or benefit support to covered employees,
and provide them, upon request, with the actual rates that would be
charged to that employer for a given contract.
   (B) Notify the small employer that the solicitor or solicitor firm
will procure rate and benefit information for the small employer on
any plan contract offered by a plan whose contract the solicitor
sells.
   (C) Notify the small employer that upon request the solicitor or
solicitor firm will provide the small employer with the summary
brochure required under paragraph (1) of subdivision (h) for any plan
contract offered by a plan with whom the solicitor or solicitor firm
has contracted with to solicit enrollments or subscriptions.
   (2) When recommending a particular benefit plan design or designs,
advise the small employer that, upon request, the agent will provide
the small employer with the brochure required by paragraph (1) of
subdivision (h) containing the benefit plan design or designs being
recommended by the agent or broker.
   (3) Prior to filing an application for a small employer for a
particular contract:
   (A) For each of the plan contracts offered by the plan whose
contract the solicitor or solicitor firm is offering, provide the
small employer with the benefit summary required in paragraph (1) of
subdivision (h) and the sum of the standard employee risk rates for
that particular employer.
   (B) Notify the small employer that, upon request, the solicitor or
solicitor firm will provide the small employer with an evidence of
coverage brochure for each contract the plan offers.
   (C) Notify the small employer that actual rates may be 10 percent
higher or lower than the sum of the standard employee risk rates,
depending on how the plan assesses the risk of the small employer's
group.
   (D) Notify the small employer that, upon request, the solicitor or
solicitor firm will submit information to the plan to ascertain the
small employer's sum of the risk adjusted employee risk rate for any
contract the plan offers.
   (E) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this section.
   SEC. 14.   SEC. 15.   Section 1367.01 of
the Health and Safety Code is amended to read:
   1367.01.  (a) A health care service plan and any entity with which
it contracts for services that include utilization review or
utilization management functions, that prospectively,
retrospectively, or concurrently reviews and approves, modifies,
delays, or denies, based in whole or in part on medical necessity,
requests by providers prior to, retrospectively, or concurrent with
the provision of health care services to enrollees, or that delegates
these functions to medical groups or independent practice
associations or to other contracting providers, shall comply with
this section.
   (b) A health care service plan that is subject to this section
shall have written policies and procedures establishing the process
by which the plan prospectively, retrospectively, or concurrently
reviews and approves, modifies, delays, or denies, based in whole or
in part on medical necessity, requests by providers of health care
services for plan enrollees. These policies and procedures shall
ensure that decisions based on the medical necessity of proposed
health care services are consistent with criteria or guidelines that
are supported by clinical principles and processes. These criteria
and guidelines shall be developed pursuant to Section 1363.5. These
policies and procedures, and a description of the process by which
the plan reviews and approves, modifies, delays, or denies requests
by providers prior to, retrospectively, or concurrent with the
provision of health care services to enrollees, shall be filed with
the director for review and approval, and shall be disclosed by the
plan to providers and enrollees upon request, and by the plan to the
public upon request.
   (c) A health care service plan subject to this section, except a
plan that meets the requirements of Section 1351.2, shall employ or
designate a medical director who holds an unrestricted license to
practice medicine in this state issued pursuant to Section 2050 of
the Business and Professions Code or pursuant to the Osteopathic Act,
or, if the plan is a specialized health care service plan, a
clinical director with California licensure in a clinical area
appropriate to the type of care provided by the specialized health
care service plan. The medical director or clinical director shall
ensure that the process by which the plan reviews and approves,
modifies, or denies, based in whole or in part on medical necessity,
requests by providers prior to, retrospectively, or concurrent with
the provision of health care services to enrollees, complies with the
requirements of this section.
   (d) If health plan personnel, or individuals under contract to the
plan to review requests by providers, approve the provider's
request, pursuant to subdivision (b), the decision shall be
communicated to the provider pursuant to subdivision (h).
   (e) (1) No individual, other than  a person  
an individual  licensed to practice medicine pursuant to
Section 2050 of the Business and Professions Code or pursuant to the
Osteopathic Act  , or a   or a California
licensed health care professional  ,  acting within the
limitations of paragraph (2), may deny  , delay,  or modify
requests for authorization of health care services for an enrollee
for reasons of medical necessity. 
   (2) A licensed health care professional, other than a person
licensed to practice medicine pursuant to Section 2050 of the
Business and Professions Code or pursuant to the Osteopathic Act, may
deny 
    (2)     A licensee described in paragraph
(1) may deny, delay,  or modify requests for authorization of
health care services for an enrollee for reasons of medical necessity
only with respect to services that fall within his or her scope of
practice.  That professional's   The licensee
shall have at least the same scope of practice as the provider
submitting the request for authorization. The licensee's  review
shall also be subject to standardized protocol limitations or
supervision requirements applicable under his or her license.
   (3) The  physician or other health care professional
  licensee  described in this subdivision shall not
deny  , delay,  or modify a request for authorization of a
health care service for an enrollee for reasons of medical necessity
without first conducting a good faith examination of the enrollee.
This good faith examination shall not be required if the enrollee's
contract explicitly excludes coverage of the health care service in
question. 
   (4) The primary obligation of the licensee acting pursuant to this
subdivision shall be to the enrollee.  
   (4) 
    (5)  The decision of the  physician or other
health care professional described in   licensee acting
pursuant to  this subdivision shall be communicated to the
provider and the enrollee pursuant to subdivision (h).
   (f) The criteria or guidelines used by the health care service
plan to determine whether to approve, modify, or deny requests by
providers prior to, retrospectively, or concurrent with, the
provision of health care services to enrollees shall be consistent
with clinical principles and processes. These criteria and guidelines
shall be developed pursuant to the requirements of Section 1363.5.
   (g) If the health care service plan requests medical information
from providers in order to determine whether to approve, modify, or
deny requests for authorization, the plan shall request only the
information reasonably necessary to make the determination.
   (h) In determining whether to approve, modify, or deny requests by
providers prior to, retrospectively, or concurrent with the
provision of health care services to enrollees, based in whole or in
part on medical necessity, a health care service plan subject to this
section shall meet the following requirements:
   (1) Decisions to approve, modify, or deny, based on medical
necessity, requests by providers prior to, or concurrent with the
provision of health care services to enrollees that do not meet the
requirements for the 72-hour review required by paragraph (2), shall
be made in a timely fashion appropriate for the nature of the
enrollee's condition, not to exceed five business days from the plan'
s receipt of the information reasonably necessary and requested by
the plan to make the determination, including, but not limited to,
information from the good faith examination conducted pursuant to
subdivision (e). In cases where the review is retrospective, the
decision shall be communicated to the individual who received
services, or to the individual's designee, within 30 days of the
receipt of information that is reasonably necessary to make this
determination, including, but not limited to, information from the
good faith examination conducted pursuant to subdivision (e), and
shall be communicated to the provider in a manner that is consistent
with current law. For purposes of this section, retrospective reviews
shall be for care rendered on or after January 1, 2000.
   (2) When the enrollee's condition is such that the enrollee faces
an imminent and serious threat to his or her health, including, but
not limited to, the potential loss of life, limb, or other major
bodily function, or the normal timeframe for the decisionmaking
process, as described in paragraph (1), would be detrimental to the
enrollee's life or health or could jeopardize the enrollee's ability
to regain maximum function, decisions to approve, modify, or deny
requests by providers prior to, or concurrent with, the provision of
health care services to enrollees, shall be made in a timely fashion
appropriate for the nature of the enrollee's condition, not to exceed
72 hours after the plan's receipt of the information reasonably
necessary and requested by the plan to make the determination,
including, but not limited to, information from the good faith
examination conducted pursuant to subdivision (e). Nothing in this
section shall be construed to alter the requirements of subdivision
(b) of Section 1371.4. Notwithstanding Section 1371.4, the
requirements of this division shall be applicable to all health plans
and other entities conducting utilization review or utilization
management.
   (3) Decisions to approve, modify, or deny requests by providers
for authorization prior to, or concurrent with, the provision of
health care services to enrollees shall be communicated to the
requesting provider within 24 hours of the decision. Except for
concurrent review decisions pertaining to care that is underway,
which shall be communicated to the enrollee's treating provider
within 24 hours, decisions resulting in denial, delay, or
modification of all or part of the requested health care service
shall be communicated to the enrollee in writing within two business
days of the decision. In the case of concurrent review, care shall
not be discontinued until the enrollee's treating provider has been
notified of the plan's decision and a care plan has been agreed upon
by the treating provider that is appropriate for the medical needs of
that patient.
   (4) Communications regarding decisions to approve requests by
providers prior to, retrospectively, or concurrent with the provision
of health care services to enrollees shall specify the specific
health care service approved. Responses regarding decisions to deny,
delay, or modify health care services requested by providers prior
to, retrospectively, or concurrent with the provision of health care
services to enrollees shall be communicated to the enrollee in
writing, and to providers initially by telephone or facsimile, except
with regard to decisions rendered retrospectively, and then in
writing, and shall include a clear and concise explanation of the
reasons for the plan's decision, a description of the criteria or
guidelines used, and the clinical reasons for the decisions regarding
medical necessity. Any written communication to a physician or other
health care provider of a denial, delay, or modification of a
request shall include the name and telephone number of the health
care professional responsible for the denial, delay, or modification.
The telephone number provided shall be a direct number or an
extension, to allow the physician or health care provider easily to
contact the professional responsible for the denial, delay, or
modification. Responses shall also include information as to how the
enrollee may file a grievance with the plan pursuant to Section 1368,
and in the case of Medi-Cal enrollees, shall explain how to request
an administrative hearing and aid paid pending under Sections 51014.1
and 51014.2 of Title 22 of the California Code of Regulations.
   (5) If the health care service plan cannot make a decision to
approve, modify, or deny the request for authorization within the
timeframes specified in paragraph (1) or (2) because the plan is not
in receipt of all of the information reasonably necessary and
requested, including, but not limited to, information from the good
faith examination conducted pursuant to subdivision (e), or because
the plan requires consultation by an expert reviewer, or because the
plan has asked that an additional examination or test be performed
upon the enrollee, provided the examination or test is reasonable and
consistent with good medical practice, the plan shall, immediately
upon the expiration of the timeframe specified in paragraph (1) or
(2) or as soon as the plan becomes aware that it will not meet the
timeframe, whichever occurs first, notify the provider and the
enrollee, in writing, that the plan cannot make a decision to
approve, modify, or deny the request for authorization within the
required timeframe, and specify the information requested but not
received, or the expert reviewer to be consulted, or the additional
examinations or tests required. The plan shall also notify the
provider and enrollee of the anticipated date on which a decision may
be rendered. Upon receipt of all information reasonably necessary
and requested by the plan, the plan shall approve, modify, or deny
the request for authorization within the timeframes specified in
paragraph (1) or (2), whichever applies.
   (6) If the director determines that a health care service plan has
failed to meet any of the timeframes in this section, or has failed
to meet any other requirement of this section, the director may
assess, by order, administrative penalties for each failure. A
proceeding for the issuance of an order assessing administrative
penalties shall be subject to appropriate notice to, and an
opportunity for a hearing with regard to, the person affected, in
accordance with subdivision (a) of Section 1397. The administrative
penalties shall not be deemed an exclusive remedy for the director.
These penalties shall be paid to the Managed Care Administrative
Fines and Penalties Fund and shall be used for the purposes specified
in Section 1341.45.
   (i) A health care service plan subject to this section shall
maintain telephone access for providers to request authorization for
health care services.
   (j) A health care service plan subject to this section that
reviews requests by providers prior to, retrospectively, or
concurrent with, the provision of health care services to enrollees
shall establish, as part of the quality assurance program required by
Section 1370, a process by which the plan's compliance with this
section is assessed and evaluated. The process shall include
provisions for evaluation of complaints, assessment of trends,
implementation of actions to correct identified problems, mechanisms
to communicate actions and results to the appropriate health plan
employees and contracting providers, and provisions for evaluation of
any corrective action plan and measurements of performance.
   (k) The director shall review a health care service plan's
compliance with this section as part of its periodic onsite medical
survey of each plan undertaken pursuant to Section 1380, and shall
include a discussion of compliance with this section as part of its
report issued pursuant to that section.
   (l) This section shall not apply to decisions made for the care or
treatment of the sick who depend upon prayer or spiritual means for
healing in the practice of religion as set forth in subdivision (a)
of Section 1270.
   (m) Nothing in this section shall cause a health care service plan
to be defined as a health care provider for purposes of any
provision of law, including, but not limited to, Section 6146 of the
Business and Professions Code, Sections 3333.1 and 3333.2 of the
Civil Code, and Sections 340.5, 364, 425.13, 667.7, and 1295 of the
Code of Civil Procedure.
   SEC. 15.   SEC. 16.   Section 1367.38 is
added to the Health and Safety Code, to read:
   1367.38.  (a) Every health care service plan, except for a
Medicare supplement plan, that covers hospital, medical, or surgical
expenses on a group basis may offer to include a Healthy Action
Incentives and Rewards Program, as described in subdivision (b), to
be implemented in connection with a health care service plan, under
such terms and conditions as may be agreed upon between the
subscriber group and the health care service plan. Every plan that
offers a Healthy Action Incentive and Rewards Program shall
communicate the availability of the program to all prospective group
subscribers with whom it is negotiating and to existing group
subscribers upon renewal.
   (b) For purposes of this section, benefits under a Healthy Action
Incentives and Rewards Program may provide for the following, where
appropriate:
   (1) Health risk appraisals to be used to assess an individual's
overall health status and to identify risk factors, including, but
not limited to, smoking and smokeless tobacco use, alcohol abuse,
drug use, and nutrition and physical activity practices.
   (2) Enrollee access to an appropriate health care provider, as
medically necessary, to review and address the results of the health
risk appraisal. In addition, where appropriate, the Healthy Action
Incentives and Rewards Program may include followup through a
Web-based tool or a nurse hotline either in combination with a
referral to a provider or separately.
   (3) Incentives or rewards for enrollees to become more engaged in
their health care and to make appropriate choices that support good
health, including obtaining health risk appraisals, screening
services, immunizations, or participating in healthy lifestyle
programs and practices. These programs and practices may include, but
need not be limited to, smoking cessation, physical activity, or
nutrition. Incentives may include, but need not be limited to, health
premium reductions, differential copayment or coinsurance amounts,
and cash payments. Rewards may include, but need not be limited to,
nonprescription pharmacy products or services not otherwise covered
under an enrollee's health plan contract, exercise classes, gym
memberships, and weight management programs.
   (c) This section shall only be implemented if and to the extent
allowed under federal law. If any portion of this section is held to
be invalid, as determined by a final judgment of a court of competent
jurisdiction, this section shall become inoperative.
   SEC. 17.    Section 1367.63 of the   Health
and Safety Code   is amended to read: 
   1367.63.  (a) Every health care service plan contract, except a
specialized health care service plan contract, that is issued,
amended, renewed, or delivered in this state on or after July 1,
1999, shall cover reconstructive surgery, as defined in subdivision
(c), that is necessary to achieve the purposes specified in
paragraphs (1) or (2) of subdivision (c). Nothing in this section
shall be construed to require a plan to provide coverage for cosmetic
surgery, as defined in subdivision (d).
   (b) No individual, other than a  C   alifornia 
licensed physician competent to evaluate the specific clinical issues
involved in the care requested, may deny initial requests for
authorization of coverage for treatment pursuant to this section. For
a treatment authorization request submitted by a podiatrist or an
oral and maxillofacial surgeon, the request may be reviewed by a
similarly licensed individual  ,   who is
licensed in California and is  competent to evaluate the
specific clinical issues involved in the care requested.  A
licensee acting pursuant to this subdivision shall have a primary
obligation to the enrollee and shall not deny a treatment
authorization request without first conducting a good faith
examination of the enrollee. 
   (c) "Reconstructive surgery" means surgery performed to correct or
repair abnormal structures of the body caused by congenital defects,
developmental abnormalities, trauma, infection, tumors, or disease
to do either of the following:

    (1) To improve function.
   (2) To create a normal appearance, to the extent possible.
   (d) "Cosmetic surgery" means surgery that is performed to alter or
reshape normal structures of the body in order to improve
appearance.
   (e) In interpreting the definition of reconstructive surgery, a
health care service plan may utilize prior authorization and
utilization review that may include, but need not be limited to, any
of the following:
   (1) Denial of the proposed surgery if there is another more
appropriate surgical procedure that will be approved for the
enrollee.
   (2) Denial of the proposed surgery or surgeries if the procedure
or procedures, in accordance with the standard of care as practiced
by physicians specializing in reconstructive surgery, offer only a
minimal improvement in the appearance of the enrollee.
   (3) Denial of payment for procedures performed without prior
authorization.
   (4) For services provided under the Medi-Cal program (Chapter 7
(commencing with Section 14000) of Part 3 of Division 9 of the
Welfare and Institutions Code), denial of the proposed surgery if the
procedure offers only a minimal improvement in the appearance of the
enrollee, as may be defined in any regulations that may be
promulgated by the State Department of Health Services.
   SEC. 18.    Section 1367.635 of the   Health
and Safety Code   is amended to read: 
   1367.635.  (a) Every health care service plan contract that is
issued, amended, renewed, or delivered on or after January 1, 1999,
that provides coverage for surgical procedures known as mastectomies
and lymph node dissections, shall do all of the following:
   (1) Allow the length of a hospital stay associated with those
procedures to be determined by the attending physician and surgeon in
consultation with the patient, consistent with sound clinical
principles and processes. No health care service plan shall require a
treating physician and surgeon to receive prior approval from the
plan in determining the length of hospital stay following those
procedures.
   (2) Cover prosthetic devices or reconstructive surgery, including
devices or surgery to restore and achieve symmetry for the patient
incident to the mastectomy. Coverage for prosthetic devices and
reconstructive surgery shall be subject to the deductible and
coinsurance conditions applicable to other benefits.
   (3) Cover all complications from a mastectomy, including
lymphedema.
   (b)  As used in this section, all of the following definitions
apply:
   (1) "Coverage for prosthetic devices or reconstructive surgery"
means any initial and subsequent reconstructive surgeries or
prosthetic devices, and followup care deemed necessary by the
attending physician and surgeon.
   (2) "Prosthetic devices" means and includes the provision of
initial and subsequent prosthetic devices pursuant to an order of the
patient's physician and surgeon.
   (3) "Mastectomy" shall have the same meaning as in Section 1367.6.

   (4) "To restore and achieve symmetry" means that, in addition to
coverage of prosthetic devices and reconstructive surgery for the
diseased breast on which the mastectomy was performed, prosthetic
devices and reconstructive surgery for a healthy breast is also
covered if, in the opinion of the attending physician and surgeon,
this surgery is necessary to achieve normal symmetrical appearance.
   (c) No individual, other than a  California  licensed
physician and surgeon competent to evaluate the specific clinical
issues involved in the care requested, may deny requests for
authorization of health care services pursuant to this section. 
A licensee acting pursuant to this subdivision shall have a primary
obligation to the enrollee and shall not deny the request for
authorization without first conducting a good faith examination of
the enrollee. 
   (d) No health care service plan shall do any of the following in
providing the coverage described in subdivision (a):
   (1) Reduce or limit the reimbursement of the attending provider
for providing care to an individual enrollee or subscriber in
accordance with the coverage requirements.
   (2) Provide monetary or other incentives to an attending provider
to induce the provider to provide care to an individual enrollee or
subscriber in a manner inconsistent with the coverage requirements.
   (3) Provide monetary payments or rebates to an individual enrollee
or subscriber to encourage acceptance of less than the coverage
requirements.
   (e) On or after July 1, 1999, every health care service plan shall
include notice of the coverage required by this section in the plan'
s evidence of coverage.
   (f) Nothing in this section shall be construed to limit
retrospective utilization review and quality assurance activities by
the plan.
   SEC. 16.   SEC. 19.   Section 1374.32 of
the Health and Safety Code is amended to read:
   1374.32.  (a) The department shall contract with one or more
independent medical review organizations in the state to conduct
reviews for purposes of this article. The independent medical review
organizations shall be independent of any health care service plan
doing business in this state. The director may establish additional
requirements, including conflict-of-interest standards, consistent
with the purposes of this article, that an organization shall be
required to meet in order to qualify for participation in the
Independent Medical Review System and to assist the department in
carrying out its responsibilities.
   (b) The independent medical review organizations and the medical
professionals retained to conduct reviews shall be deemed to be
medical consultants for purposes of Section 43.98 of the Civil Code.
   (c) The independent medical review organization, any experts it
designates to conduct a review, or any officer, director, or employee
of the independent medical review organization shall not have any
material professional, familial, or financial affiliation, as
determined by the director, with any of the following:
   (1) The plan.
   (2) Any officer, director, or employee of the plan.
   (3) A physician, the physician's medical group, or the independent
practice association involved in the health care service in dispute.

   (4) The facility or institution at which either the proposed
health care service, or the alternative service, if any, recommended
by the plan, would be provided.
   (5) The development or manufacture of the principal drug, device,
procedure, or other therapy proposed by the enrollee whose treatment
is under review, or the alternative therapy, if any, recommended by
the plan.
   (6) The enrollee or the enrollee's immediate family.
   (d) In order to contract with the department for purposes of this
article, an independent medical review organization shall meet all of
the following requirements:
   (1) The organization shall not be an affiliate or a subsidiary of,
nor in any way be owned or controlled by, a health plan or a trade
association of health plans. A board member, director, officer, or
employee of the independent medical review organization shall not
serve as a board member, director, or employee of a health care
service plan. A board member, director, or officer of a health plan
or a trade association of health plans shall not serve as a board
member, director, officer, or employee of an independent medical
review organization.
   (2) The organization shall submit to the department the following
information upon initial application to contract for purposes of this
article and, except as otherwise provided, annually thereafter upon
any change to any of the following information:
   (A) The names of all stockholders and owners of more than 5
percent of any stock or options, if a publicly held organization.
   (B) The names of all holders of bonds or notes in excess of one
hundred thousand dollars ($100,000), if any.
   (C) The names of all corporations and organizations that the
independent medical review organization controls or is affiliated
with, and the nature and extent of any ownership or control,
including the affiliated organization's type of business.
   (D) The names and biographical sketches of all directors,
officers, and executives of the independent medical review
organization, as well as a statement regarding any past or present
relationships the directors, officers, and executives may have with
any health care service plan, disability insurer, managed care
organization, provider group, or board or committee of a plan,
managed care organization, or provider group.
   (E) (i) The percentage of revenue the independent medical review
organization receives from expert reviews, including, but not limited
to, external medical reviews, quality assurance reviews, and
utilization reviews.
   (ii) The names of any health care service plan or provider group
for which the independent medical review organization provides review
services, including, but not limited to, utilization review, quality
assurance review, and external medical review. Any change in this
information shall be reported to the department within five business
days of the change.
   (F) A description of the review process including, but not limited
to, the method of selecting expert reviewers and matching the expert
reviewers to specific cases.
   (G) A description of the system the independent medical review
organization uses to identify and recruit medical professionals to
review treatment and treatment recommendation decisions, the number
of medical professionals credentialed, and the types of cases and
areas of expertise that the medical professionals are credentialed to
review.
   (H) A description of how the independent medical review
organization ensures compliance with the conflict-of-interest
provisions of this section.
   (3) The organization shall demonstrate that it has a quality
assurance mechanism in place that does the following:
   (A) Ensures that the medical professionals retained are
appropriately credentialed and privileged.
   (B) Ensures that the reviews provided by the medical professionals
are timely, clear, and credible, and that reviews are monitored for
quality on an ongoing basis.
   (C) Ensures that the method of selecting medical professionals for
individual cases achieves a fair and impartial panel of medical
professionals who are qualified to render recommendations regarding
the clinical conditions and the medical necessity of treatments or
therapies in question.
   (D) Ensures the confidentiality of medical records and the review
materials, consistent with the requirements of this section and
applicable state and federal law.
   (E) Ensures the independence of the medical professionals retained
to perform the reviews through conflict-of-interest policies and
prohibitions, and ensures adequate screening for
conflicts-of-interest, pursuant to paragraph (5).
   (4) Medical professionals selected by independent medical review
organizations to review medical treatment decisions shall be
physicians or other appropriate providers who meet the following
minimum requirements:
   (A) The medical professional shall be a clinician knowledgeable in
the treatment of the enrollee's medical condition, knowledgeable
about the proposed treatment, and familiar with guidelines and
protocols in the area of treatment under review. Review by a 
medical professional, other than a physician licensed to practice
medicine pursuant to Section 2050 of the Business and Professions
Code or pursuant to the Osteopathic Act, shall be limited to services
  medical professional shall be limited to services
 that fall within that professional's scope of practice and
shall be subject to standardized protocol limitations or supervision
requirements applicable under his or her license.  In addition,
the medical professional reviewer or reviewers shall have at least
the same scope of practice as the health care professional that
denied, delayed, or modified the health care service in question.

   (B) Notwithstanding any other provision of law, the medical
professional shall hold a nonrestricted California license, and for
physicians, a current license to practice medicine pursuant to
Section 2050 of the Business and Professions Code or pursuant to the
Osteopathic Act.
   (C) The medical professional shall have no history of disciplinary
action or sanctions, including, but not limited to, loss of staff
privileges or participation restrictions, taken or pending by any
hospital, government, or regulatory body.
   (5) Neither the expert reviewer, nor the independent medical
review organization, shall have any material professional, material
familial, or material financial affiliation with any of the
following:
   (A) The plan or a provider group of the plan, except that an
academic medical center under contract to the plan to provide
services to enrollees may qualify as an independent medical review
organization provided it will not provide the service and provided
the center is not the developer or manufacturer of the proposed
treatment.
   (B) Any officer, director, or management employee of the plan.
   (C) The physician, the physician's medical group, or the
independent practice association (IPA) proposing the treatment.
   (D) The institution at which the treatment would be provided.
   (E) The development or manufacture of the treatment proposed for
the enrollee whose condition is under review.
   (F) The enrollee or the enrollee's immediate family.
   (6) For purposes of this section, the following terms shall have
the following meanings:
   (A) "Material familial affiliation" means any relationship as a
spouse, child, parent, sibling, spouse's parent, or child's spouse.
   (B) "Material professional affiliation" means any
physician-patient relationship, any partnership or employment
relationship, a shareholder or similar ownership interest in a
professional corporation, or any independent contractor arrangement
that constitutes a material financial affiliation with any expert or
any officer or director of the independent medical review
organization. "Material professional affiliation" does not include
affiliations that are limited to staff privileges at a health
facility.
   (C) "Material financial affiliation" means any financial interest
of more than 5 percent of total annual revenue or total annual income
of an independent medical review organization or individual to which
this subdivision applies. "Material financial affiliation" does not
include payment by the plan to the independent medical review
organization for the services required by this section, nor does
"material financial affiliation" include an expert's participation as
a contracting plan provider where the expert is affiliated with an
academic medical center or a National Cancer Institute-designated
clinical cancer research center.
   (e) The department shall provide, upon the request of any
interested person, a copy of all nonproprietary information, as
determined by the director, filed with it by an independent medical
review organization seeking to contract under this article. The
department may charge a nominal fee to the interested person for
photocopying the requested information.
   SEC. 17.  SEC. 20.   Section 1374.33 of
the Health and Safety Code is amended to read:
   1374.33.  (a)  (1)    Upon receipt of
information and documents related to a case, the medical professional
reviewer or reviewers selected to conduct the review by the
independent medical review organization shall promptly review all
pertinent medical records of the enrollee, provider reports, as well
as any other information submitted to the organization as authorized
by the department or requested from any of the parties to the dispute
by the reviewers. If reviewers request information from any of the
parties, a copy of the request and the response shall be provided to
all of the parties. The reviewer or reviewers shall also review
relevant information related to the criteria set forth in subdivision
(b). In addition, at least one medical professional reviewer
selected to conduct the review shall conduct a good faith examination
of the enrollee. This good faith examination shall not be required
if the enrollee's contract explicitly excludes coverage of the
disputed health care service. 
   (2) In acting pursuant to this section, the primary obligation of
the reviewer or reviewers shall be to the enrollee. 
   (b) Following its review, the reviewer or reviewers shall
determine whether the disputed health care service was medically
necessary based on the specific medical needs of the enrollee and any
of the following:
   (1) Peer-reviewed scientific and medical evidence regarding the
effectiveness of the disputed service.
   (2) Nationally recognized professional standards.
   (3) Expert opinion.
   (4) Generally accepted standards of medical practice.
   (5) Treatments that are likely to provide a benefit to a patient
for conditions for which other treatments are not clinically
efficacious.
   (c) The organization shall complete its review and make its
determination in writing, and in layperson's terms to the maximum
extent practicable, within 30 days of the receipt of the application
for review and supporting documentation, including, but not limited
to, information from the good faith examination conducted pursuant to
subdivision (a), or within less time as prescribed by the director.
If the disputed health care service has not been provided and the
enrollee's provider or the department certifies in writing that an
imminent and serious threat to the health of the enrollee may exist,
including, but not limited to, serious pain, the potential loss of
life, limb, or major bodily function, or the immediate and serious
deterioration of the health of the enrollee, the analyses and
determinations of the reviewers shall be expedited and rendered
within three days of the receipt of the information, including, but
not limited to, information from the good faith examination conducted
pursuant to subdivision (a). Subject to the approval of the
department, the deadlines for analyses and determinations involving
both regular and expedited reviews may be extended by the director
for up to three days in extraordinary circumstances or for good
cause.
   (d) The medical professionals' analyses and determinations shall
state whether the disputed health care service is medically
necessary. Each analysis shall cite the enrollee's medical condition,
the relevant documents in the record, the relevant results of the
good faith examination, and the relevant findings associated with the
provisions of subdivision (b) to support the determination. If more
than one medical professional reviews the case, the recommendation of
the majority shall prevail. If the medical professionals reviewing
the case are evenly split as to whether the disputed health care
service should be provided, the decision shall be in favor of
providing the service.
   (e) The independent medical review organization shall provide the
director, the plan, the enrollee, and the enrollee's provider with
the analyses and determinations of the medical professionals
reviewing the case, and a description of the qualifications of the
medical professionals. The independent medical review organization
shall keep the names of the reviewers confidential in all
communications with entities or individuals outside the independent
medical review organization, except in cases where the reviewer is
called to testify and in response to court orders. If more than one
medical professional reviewed the case and the result was differing
determinations, the independent medical review organization shall
provide each of the separate reviewer's analyses and determinations.
   (f) The director shall immediately adopt the determination of the
independent medical review organization, and shall promptly issue a
written decision to the parties that shall be binding on the plan.
   (g) After removing the names of the parties, including, but not
limited to, the enrollee, all medical providers, the plan, and any of
the insurer's employees or contractors, director decisions adopting
a determination of an independent medical review organization shall
be made available by the department to the public upon request, at
the department's cost and after considering applicable laws governing
disclosure of public records, confidentiality, and personal privacy.

   SEC. 18.   SEC. 21.   Section 1374.58 of
the Health and Safety Code is amended to read:
   1374.58.  (a) A group health care service plan that provides
hospital, medical, or surgical expense benefits shall provide equal
coverage to employers, guaranteed associations, or eligible
associations, as defined in Section 1357, for the registered domestic
partner of an employee or subscriber to the same extent, and subject
to the same terms and conditions, as provided to a spouse of the
employee or subscriber, and shall inform employers, guaranteed
associations, and eligible associations of this coverage. A plan may
not offer or provide coverage for a registered domestic partner that
is not equal to the coverage provided to the spouse of an employee or
subscriber.
   (b) If an employer, guaranteed association, or eligible
association has purchased coverage for spouses and registered
domestic partners pursuant to subdivision (a), a health care service
plan that provides hospital, medical, or surgical expense benefits
for employees or subscribers and their spouses shall enroll, upon
application by the employer or group administrator, a registered
domestic partner of an employee or subscriber in accordance with the
terms and conditions of the group contract that apply generally to
all spouses under the plan, including coordination of benefits.
   (c) For purposes of this section, the term "domestic partner"
shall have the same meaning as that term is used in Section 297 of
the Family Code.
   (d) (1) A health care service plan may require that the employee
or subscriber verify the status of the domestic partnership by
providing to the plan a copy of a valid Declaration of Domestic
Partnership filed with the Secretary of State pursuant to Section 298
of the Family Code or an equivalent document issued by a local
agency of this state, another state, or a local agency of another
state under which the partnership was created. The plan may also
require that the employee or subscriber notify the plan upon the
termination of the domestic partnership.
   (2) Notwithstanding paragraph (1), a health care service plan may
require the information described in that paragraph only if it also
requests from the employee or subscriber whose spouse is provided
coverage, verification of marital status and notification of
dissolution of the marriage.
   (e) Nothing in this section shall be construed to expand the
requirements of Section 4980B of Title 26 of the United States Code,
Section 1161, and following, of Title 29 of the United States Code,
or Section 300bb-1, and following, of Title 42 of the United States
Code, as added by the Consolidated Omnibus Budget Reconciliation Act
of 1985 (Public Law 99-272), and as those provisions may be later
amended.
   (f) A plan subject to this section that is issued, amended,
delivered, or renewed in this state on or after January 2, 2005,
shall be deemed to provide coverage for registered domestic partners
that is equal to the coverage provided to a spouse of an employee or
subscriber.
   SEC. 22.    Section 1395 of the   Health and
Safety Code   is amended to read: 
   1395.  (a)  (1)    Notwithstanding Article 6
(commencing with Section 650) of Chapter 1 of Division 2 of the
Business and Professions Code, any health care service plan or
specialized health care service plan may, except as limited by this
subdivision, solicit or advertise with regard to the cost of
subscription or enrollment, facilities and services rendered,
provided, however, Article 5 (commencing with Section 600) of Chapter
1 of Division 2 of the Business and Professions Code remains in
effect. Any price advertisement shall be exact, without the use of
such phrases as "as low as," "and up," "lowest prices" or words or
phrases of similar import. Any advertisement that refers to services,
or costs for the services, and that uses words of comparison must be
based on verifiable data substantiating the comparison. Any health
care service plan or specialized health care service plan so
advertising shall be prepared to provide information sufficient to
establish the accuracy of the comparison. Price advertising shall not
be fraudulent, deceitful, or misleading, nor contain any offers of
discounts, premiums, gifts, or bait of similar nature. In connection
with price advertising, the price for each product or service shall
be clearly identifiable. The price advertised for products shall
include charges for any related professional services, including
dispensing and fitting services, unless the advertisement
specifically and clearly indicates otherwise. 
   (2) Benefits offered pursuant to a Healthy Action Incentives and
Rewards Program described in Section 1367.38 shall not be considered
discounts, premiums, gifts, or bait of similar nature under paragraph
(1). 
   (b) Plans licensed under this chapter shall not be deemed to be
engaged in the practice of a profession, and may employ, or contract
with, any professional licensed pursuant to Division 2 (commencing
with Section 500) of the Business and Professions Code to deliver
professional services. Employment by or a contract with a plan as a
provider of professional services shall not constitute a ground for
disciplinary action against a health professional licensed pursuant
to Division 2 (commencing with Section 500) of the Business and
Professions Code by a licensing agency regulating a particular health
care profession.
   (c) A health care service plan licensed under this chapter may
directly own, and may directly operate through its professional
employees or contracted licensed professionals, offices and
subsidiary corporations, including pharmacies that satisfy the
requirements of subdivision (d) of Section 4080.5 of the Business and
Professions Code, as are necessary to provide health care services
to the plan's subscribers and enrollees.
   (d) A professional licensed pursuant to the provisions of Division
2 (commencing with Section 500) of the Business and Professions Code
who is employed by, or under contract to, a plan may not own or
control offices or branch offices beyond those expressly permitted by
the provisions of the Business and Professions Code.
                                                            (e)
Nothing in this chapter shall be construed to repeal, abolish, or
diminish the effect of Section 129450 of the Health and Safety Code.
   (f) Except as specifically provided in this chapter, nothing in
this chapter shall be construed to limit the effect of the laws
governing professional corporations, as they appear in applicable
provisions of the Business and Professions Code, upon specialized
health care service plans.
   (g) No representative of a participating health, dental, or vision
plan or its subcontractor representative shall in any manner use
false or misleading claims to misrepresent itself, the plan, the
subcontractor, or the Healthy Families or Medi-Cal program while
engaging in application assistance activities that are subject to
this section. Notwithstanding any other provision of this chapter,
any representative of the health, dental, or vision care plan or of
the health, dental, or vision care plan's subcontractor who violates
any of the provisions of Section 12693.325 of the Insurance Code
shall only be subject to a fine of five hundred dollars ($500) for
each of those violations.
   (h) A health care service plan shall comply with Section 12693.325
of the Insurance Code and Section 14409 of the Welfare and
Institutions Code. In addition to any other disciplinary powers
provided by this chapter, if a health care service plan violates any
of the provisions of Section 12693.325 of the Insurance Code, the
department may prohibit the health care service plan from providing
application assistance and contacting applicants pursuant to Section
12693.325 of the Insurance Code.
   SEC. 19.   SEC. 23.   Article 12
(commencing with Section 1399.830) is added to Chapter 2.2 of
Division 2 of the Health and Safety Code, to read:

      Article 12.  Mandate-Free Individual Coverage


   1399.830.  (a) Notwithstanding any other provision of this
chapter, on and after January 1, 2011, a health care service plan may
offer, market, and sell an individual health care service plan
contract that does not include all of the health benefits mandated
under this chapter to an individual if all of the following
requirements are met:
   (1) The individual has an income below 350 percent of the federal
poverty level.
   (2) The individual waives the benefits pursuant to subdivision
(c).
   (3) The plan contract is approved by the director.
   (b) The director, in consultation with the Insurance Commissioner,
shall prepare a disclosure form prior to July 1, 2010, that is
easily understood and that summarizes the benefits a health care
service plan is required to include in its health care service plan
contract under this chapter.
   (c) Before a health care service plan contract described in
subdivision (a) may be issued, the individual shall sign the
disclosure form described in subdivision (b), specifying the benefits
he or she is waiving and indicating that the plan has explained the
contents of the disclosure and that he or she understands those
contents.
   SEC. 20.  SEC. 24.   Section 699.6 is
added to the Insurance Code, to read:
   699.6.  (a) Notwithstanding any other provision of law, a carrier
domiciled in another state is exempt from Section 700, if it meets
the following criteria:
   (1) It offers, sells, or renews a health insurance policy in this
state that complies with all of the requirements of the domiciliary
state applicable to the policy.
   (2) It is authorized to issue the policy in the state where it is
domiciled and to transact business there.
   (b) Notwithstanding any other provision of law, a health insurance
policy offered, sold, or renewed in this state by a carrier that
satisfies the criteria of subdivision (a) is exempt from all other
provisions of this code.
   SEC. 21.   SEC. 25.   Section 10121.7 of
the Insurance Code is amended to read:
   10121.7.  (a) A policy of group health insurance that provides
hospital, medical, or surgical expense benefits shall provide equal
coverage to employers, guaranteed associations, or eligible
associations, as defined in Section 10700, for the registered
domestic partner of an employee, insured, or policyholder to the same
extent, and subject to the same terms and conditions, as provided to
a spouse of the employee, insured, or policyholder, and shall inform
employers, guaranteed associations, and eligible associations of
this coverage. A policy may not offer or provide coverage for a
registered domestic partner that is not equal to the coverage
provided to the spouse of an employee, insured, or policyholder.
   (b) If an employer, guaranteed association, or eligible
association has purchased coverage for spouses and registered
domestic partners pursuant to subdivision (a), a health insurer that
provides hospital, medical, or surgical expense benefits for
employees, insureds, or policyholders and their spouses shall enroll,
upon application by the employer or group administrator, a
registered domestic partner of the employee, insured, or policyholder
in accordance with the terms and conditions of the group contract
that apply generally to all spouses under the policy, including
coordination of benefits.
   (c) For purposes of this section, the term "domestic partner"
shall have the same meaning as that term is used in Section 297 of
the Family Code.
   (d) (1) A policy of group health insurance may require that the
employee, insured, or policyholder verify the status of the domestic
partnership by providing to the insurer a copy of a valid Declaration
of Domestic Partnership filed with the Secretary of State pursuant
to Section 298 of the Family Code or an equivalent document issued by
a local agency of this state, another state, or a local agency of
another state under which the partnership was created. The policy may
also require that the employee, insured, or policyholder notify the
insurer upon the termination of the domestic partnership.
   (2) Notwithstanding paragraph (1), a policy may require the
information described in that paragraph only if it also requests from
the employee, insured, or policyholder whose spouse is provided
coverage, verification of marital status and notification of
dissolution of the marriage.
   (e) Nothing in this section shall be construed to expand the
requirements of Section 4980B of Title 26 of the United States Code,
Section 1161, and following, of Title 29 of the United States Code,
or Section 300bb-1, and following, of Title 42 of the United States
Code, as added by the Consolidated Omnibus Budget Reconciliation Act
of 1985 (Public Law 99-272), and as those provisions may be later
amended.
   (f) A group health insurance policy subject to this section that
is issued, amended, delivered, or renewed in this state on or after
January 2, 2005, shall be deemed to provide coverage for registered
domestic partners that is equal to the coverage provided to a spouse
of an employee, insured, or policyholder.
   SEC. 22.   SEC. 26.   Section 10123.56
is added to the Insurance Code, to read:
   10123.56.  (a) Every policy of health insurance, except for a
Medicare supplement policy, that covers hospital, medical, or
surgical expenses on a group basis may offer to include a Healthy
Action Incentives and Rewards Program, as described in subdivision
(b), to be implemented in connection with a health insurance policy,
under such terms and conditions as may be agreed upon between the
group policyholder and the health insurer. Every insurer that offers
a Healthy Action Incentives and Rewards Program shall communicate the
availability of that program to all prospective group policyholders
with whom it is negotiating and to existing group policyholders upon
renewal.
   (b) For purposes of this section, benefits under a Healthy Action
Incentives and Rewards Program may provide for the following where
appropriate:
   (1) Health risk appraisals to be used to assess an individual's
overall health status and to identify risk factors, including, but
not limited to, smoking and smokeless tobacco use, alcohol abuse,
drug use, and nutrition and physical activity practices.
   (2) Enrollee access to an appropriate health care provider, as
medically necessary, to review and address the results of the health
risk appraisal. In addition, where appropriate, the Healthy Action
Incentives and Rewards Program may include followup through a
Web-based tool or a nurse hotline either in combination with a
referral to a provider or separately.
   (3) Incentives or rewards for policyholders to become more engaged
in their health care and to make appropriate choices that support
good health, including obtaining health risk appraisals, screening
services, immunizations, or participating in healthy lifestyle
programs and practices. These programs and practices may include, but
need not be limited to, smoking cessation, physical activity, or
nutrition. Incentives may include, but need not be limited to, health
premium reductions, differential copayment or coinsurance amounts,
and cash payments. Rewards may include, but need not be limited to,
nonprescription pharmacy products or services not otherwise covered
under a policyholder's health insurance policy, exercise classes, gym
memberships, and weight management programs.
   (c) This section shall only be implemented if and to the extent
allowed under federal law. If any portion of this section is held to
be invalid, as determined by a final judgment of a court of competent
jurisdiction, this section shall become inoperative.
   SEC. 27.    Section 10123.86 of the  
Insurance Code   is amended to read: 
   10123.86.  (a) Every policy of disability insurance covering
hospital, surgical, or medical expenses that is issued, amended,
renewed, or delivered on or after January 1, 1999, that provides
coverage for surgical procedures known as mastectomies and lymph node
dissections, shall do all of the following:
   (1) Allow the length of a hospital stay associated with those
procedures to be determined by the attending physician and surgeon in
consultation with the patient, consistent with sound clinical
principles and processes. No disability insurer shall require a
treating physician and surgeon to receive prior approval in
determining the length of hospital stay following those procedures.
   (2) Cover prosthetic devices or reconstructive surgery, including
devices or surgery to restore and achieve symmetry for the patient
incident to the mastectomy. Coverage for prosthetic devices and
reconstructive surgery shall be subject to the deductible and
coinsurance conditions applicable to other benefits.
   (3) Cover all complications from a mastectomy, including
lymphedema.
   (b) As used in this section, all of the following definitions
apply:
   (1) "Coverage for prosthetic devices or reconstructive surgery"
means any initial and subsequent reconstructive surgeries or
prosthetic devices, and followup care deemed necessary by the
attending physician and surgeon.
   (2) "Prosthetic devices" means and includes the provision of
initial and subsequent prosthetic devices pursuant to an order of the
patient's physician and surgeon.
   (3) "Mastectomy" shall have the same meaning as in Section
10123.8.
   (4) "To restore and achieve symmetry" means that, in addition to
coverage of prosthetic devices and reconstructive surgery for the
diseased breast on which the mastectomy was performed, prosthetic
devices and reconstructive surgery for a healthy breast is also
covered if, in the opinion of the attending physician and surgeon,
this surgery is necessary to achieve normal symmetrical appearance.
   (c) No individual, other than a  California  licensed
physician and surgeon competent to evaluate the specific clinical
issues involved in the care requested, may deny requests for
authorization of health care services pursuant to this section. 
A licensee acting pursuant to this subdivision shall have a primary
obligation to the insured and shall not deny the request for
authorization without first conducting a good faith examination of
the insured. 
   (d) No insurer shall do any of the following in providing the
coverage described in subdivision (a):
   (1) Reduce or limit the reimbursement of the attending provider
for providing care to an insured in accordance with the coverage
requirements.
   (2) Provide monetary or other incentives to an attending provider
to induce the provider to provide care to an insured in a manner
inconsistent with the coverage requirements.
   (3) Provide monetary payments or rebates to an insured to
encourage acceptance of less than the coverage requirements.
   (e) On or after July 1, 1999, every insurer shall include notice
of the coverage required by this section in the insurer's evidence of
coverage or certificate of insurance.
   (f) Nothing in this section shall be construed to limit
retrospective utilization review and quality assurance activities by
the insurer.
   (g) This section shall only apply to health benefit plans, as
defined in subdivision (a) of Section 10198.6, except that for
accident only, specified disease, or hospital indemnity insurance,
coverage for benefits under this section shall apply to the extent
that the benefits are covered under the general terms and conditions
that apply to all other benefits under the policy. Nothing in this
section shall be construed as imposing a new benefit mandate on
accident only, specified disease, or hospital indemnity insurance.
   SEC. 28.    Section 10123.88 of the  
Insurance Code   is amended to read: 
   10123.88.  (a) Every policy of disability insurance covering
hospital, medical, or surgical expenses that is issued, amended,
renewed, or delivered in this state on or after July 1, 1999, shall
cover reconstructive surgery, as defined in subdivision (c), that is
necessary to achieve the purposes specified in paragraphs (1) or (2)
of subdivision (c). Nothing in this section shall be construed to
require a policy to provide coverage for cosmetic surgery, as defined
in subdivision (d). This section shall only apply to health benefit
plans, as defined in subdivision (a) of Section 10198.6, except that
for accident only, specified disease, or hospital indemnity
insurance, coverage for benefits under this section shall apply to
the extent that the benefits are covered under the general terms and
conditions that apply to all other benefits under the policy. Nothing
in this section shall be construed as imposing a new benefit mandate
on accident only, specified disease, or hospital indemnity
insurance.
   (b) No individual, other than a  California  licensed
physician competent to evaluate the specific clinical issues involved
in the care requested, may deny initial requests for authorization
of coverage for treatment pursuant to this section. For a treatment
authorization request submitted by a podiatrist or an oral and
maxillofacial surgeon, the request may be reviewed by a similarly
licensed individual  ,   who is licensed in
California and is  competent to evaluate the specific clinical
issues involved in the care requested.  A licensee acting
pursuant to this subdivision shall have a primary obligation to the
insured and shall not deny a treatment authorization request without
first conducting a good faith examination of the insured. 
   (c) "Reconstructive surgery" means surgery performed to correct or
repair abnormal structures of the body caused by congenital defects,
developmental abnormalities, trauma, infection, tumors, or disease
to do either of the following:
   (1) To improve function.
   (2) To create a normal appearance, to the extent possible.
   (d) Nothing in this section shall be construed to require an
insurer to provide coverage for cosmetic surgery. "Cosmetic surgery"
means surgery that is performed to alter or reshape normal structures
of the body in order to improve the patient's appearance.
   (e) In interpreting the definition of reconstructive surgery, an
insurer may utilize prior authorization and utilization review that
may include, but need not be limited to, any of the following:
   (1) Denial of the proposed surgery if there is another more
appropriate surgical procedure that will be approved for the
enrollee.
   (2) Denial of the proposed surgery or surgeries if the procedure
or procedures, in accordance with the standard of care as practiced
by physicians specializing in reconstructive surgery, offer only a
minimal improvement in the appearance of the enrollee.
   (3) Denial of payment for procedures performed without prior
authorization.
   SEC. 23.   SEC. 29.   Section 10123.135
of the Insurance Code is amended to read:
   10123.135.  (a) Every disability insurer, or an entity with which
it contracts for services that include utilization review or
utilization management functions, that covers hospital, medical, or
surgical expenses and that prospectively, retrospectively, or
concurrently reviews and approves, modifies, delays, or denies, based
in whole or in part on medical necessity, requests by providers
prior to, retrospectively, or concurrent with the provision of health
care services to insureds, or that delegates these functions to
medical groups or independent practice associations or to other
contracting providers, shall comply with this section.
   (b) A disability insurer that is subject to this section, or any
entity with which an insurer contracts for services that include
utilization review or utilization management functions, shall have
written policies and procedures establishing the process by which the
insurer prospectively, retrospectively, or concurrently reviews and
approves, modifies, delays, or denies, based in whole or in part on
medical necessity, requests by providers of health care services for
insureds. These policies and procedures shall ensure that decisions
based on the medical necessity of proposed health care services are
consistent with criteria or guidelines that are supported by clinical
principles and processes. These criteria and guidelines shall be
developed pursuant to subdivision (f). These policies and procedures,
and a description of the process by which an insurer, or an entity
with which an insurer contracts for services that include utilization
review or utilization management functions, reviews and approves,
modifies, delays, or denies requests by providers prior to,
retrospectively, or concurrent with the provision of health care
services to insureds, shall be filed with the commissioner, and shall
be disclosed by the insurer to insureds and providers upon request,
and by the insurer to the public upon request.
   (c) If the number of insureds covered under health benefit plans
in this state that are issued by an insurer subject to this section
constitute at least 50 percent of the number of insureds covered
under health benefit plans issued nationwide by that insurer, the
insurer shall employ or designate a medical director who holds an
unrestricted license to practice medicine in this state issued
pursuant to Section 2050 of the Business and Professions Code or the
Osteopathic Initiative Act, or the insurer may employ a clinical
director licensed in California whose scope of practice under
California law includes the right to independently perform all those
services covered by the insurer. The medical director or clinical
director shall ensure that the process by which the insurer reviews
and approves, modifies, delays, or denies, based in whole or in part
on medical necessity, requests by providers prior to,
retrospectively, or concurrent with the provision of health care
services to insureds, complies with the requirements of this section.
Nothing in this subdivision shall be construed as restricting the
existing authority of the Medical Board of California.
   (d) If an insurer subject to this section, or individuals under
contract to the insurer to review requests by providers, approve the
provider's request pursuant to subdivision (b), the decision shall be
communicated to the provider pursuant to subdivision (h).
   (e) (1) An individual, other than  a person  
an individual  licensed to practice medicine pursuant to
Section 2050 of the Business and Professions Code or pursuant to the
Osteopathic Act  , or a   or a California 
licensed health care professional  ,  acting within the
limitations of paragraph (2), may not deny  , delay,  or
modify requests for authorization of health care services for an
insured for reasons of medical necessity. 
   (2) A licensed health care professional, other than a person
licensed to practice medicine pursuant to Section 2050 of the
Business and Professions Code or pursuant to the Osteopathic Act,

    (2)     A licensee described in paragraph
(1)  may deny  , delay,  or modify requests for
authorization of health care services for an insured for reasons of
medical necessity only with respect to services that fall within his
or her scope of practice.  That professional's 
The licensee shall have at least t   he same scope of
practice as the provider submitting the request for authorization.
The licensee's  review shall also be subject to standardized
protocol limitations or supervision requirements applicable under his
or her license.
   (3) The  physician or other health care professional
  licensee  described in this subdivision shall not
deny  , delay,  or modify a request for authorization of a
health care service for an insured for reasons of medical necessity
without first conducting a good faith examination of the insured.
This good faith examination shall not be required if the insured's
policy explicitly excludes coverage of the health care service in
question. 
   (4) The primary obligation of the licensee acting pursuant to this
subdivision shall be to the insured.  
   (4)
    (5)  The decision of the  physician or other
health care provider described in   licensee acting
pursuant to  this subdivision shall be communicated to the
provider and the insured pursuant to subdivision (h).
   (f) (1) An insurer shall disclose, or provide for the disclosure,
to the commissioner and to network providers, the process the
insurer, its contracting provider groups, or any entity with which it
contracts for services that include utilization review or
utilization management functions, uses to authorize, delay, modify,
or deny health care services under the benefits provided by the
insurance contract, including coverage for subacute care,
transitional inpatient care, or care provided in skilled nursing
facilities. An insurer shall also disclose those processes to
policyholders or persons designated by a policyholder, or to any
other person or organization, upon request.
   (2) The criteria or guidelines used by an insurer, or an entity
with which an insurer contracts for utilization review or utilization
management functions, to determine whether to authorize, modify,
delay, or deny health care services, shall comply with all of the
following:
   (A) Be developed with involvement from actively practicing health
care providers.
   (B) Be consistent with sound clinical principles and processes.
   (C) Be evaluated, and updated if necessary, at least annually.
   (D) If used as the basis of a decision to modify, delay, or deny
services in a specified case under review, be disclosed to the
provider and the policyholder in that specified case.
   (E) Be available to the public upon request. An insurer shall only
be required to disclose the criteria or guidelines for the specific
procedures or conditions requested. An insurer may charge reasonable
fees to cover administrative expenses related to disclosing criteria
or guidelines pursuant to this paragraph that are limited to copying
and postage costs. The insurer may also make the criteria or
guidelines available through electronic communication means.
   (3) The disclosure required by subparagraph (E) of paragraph (2)
shall be accompanied by the following notice: "The materials provided
to you are guidelines used by this insurer to authorize, modify, or
deny health care benefits for persons with similar illnesses or
conditions. Specific care and treatment may vary depending on
individual need and the benefits covered under your insurance
contract."
   (g) If an insurer subject to this section requests medical
information from providers in order to determine whether to approve,
modify, or deny requests for authorization, the insurer shall request
only the information reasonably necessary to make the determination.

   (h) In determining whether to approve, modify, or deny requests by
providers prior to, retrospectively, or concurrent with the
provision of health care services to insureds, based in whole or in
part on medical necessity, every insurer subject to this section
shall meet the following requirements:
   (1) Decisions to approve, modify, or deny, based on medical
necessity, requests by providers prior to, or concurrent with, the
provision of health care services to insureds that do not meet the
requirements for the 72-hour review required by paragraph (2), shall
be made in a timely fashion appropriate for the nature of the insured'
s condition, not to exceed five business days from the insurer's
receipt of the information reasonably necessary and requested by the
insurer to make the determination, including, but not limited to,
information from the good faith examination conducted pursuant to
subdivision (e). In cases where the review is retrospective, the
decision shall be communicated to the individual who received
services, or to the individual's designee, within 30 days of the
receipt of information that is reasonably necessary to make this
determination, including, but not limited to, information from the
good faith examination conducted pursuant to subdivision (e), and
shall be communicated to the provider in a manner that is consistent
with current law. For purposes of this section, retrospective reviews
shall be for care rendered on or after January 1, 2000.
   (2) When the insured's condition is such that the insured faces an
imminent and serious threat to his or her health, including, but not
limited to, the potential loss of life, limb, or other major bodily
function, or the normal timeframe for the decisionmaking process, as
described in paragraph (1), would be detrimental to the insured's
life or health or could jeopardize the insured's ability to regain
maximum function, decisions to approve, modify, or deny requests by
providers prior to, or concurrent with, the provision of health care
services to insureds shall be made in a timely fashion, appropriate
for the nature of the insured's condition, but not to exceed
                                       72 hours after the insurer's
receipt of the information reasonably necessary and requested by the
insurer to make the determination, including, but not limited to,
information from the good faith examination conducted pursuant to
subdivision (e).
   (3) Decisions to approve, modify, or deny requests by providers
for authorization prior to, or concurrent with, the provision of
health care services to insureds shall be communicated to the
requesting provider within 24 hours of the decision. Except for
concurrent review decisions pertaining to care that is underway,
which shall be communicated to the insured's treating provider within
24 hours, decisions resulting in denial, delay, or modification of
all or part of the requested health care service shall be
communicated to the insured in writing within two business days of
the decision. In the case of concurrent review, care shall not be
discontinued until the insured's treating provider has been notified
of the insurer's decision and a care plan has been agreed upon by the
treating provider that is appropriate for the medical needs of that
patient.
   (4) Communications regarding decisions to approve requests by
providers prior to, retrospectively, or concurrent with the provision
of health care services to insureds shall specify the specific
health care service approved. Responses regarding decisions to deny,
delay, or modify health care services requested by providers prior
to, retrospectively, or concurrent with the provision of health care
services to insureds shall be communicated to insureds in writing,
and to providers initially by telephone or facsimile, except with
regard to decisions rendered retrospectively, and then in writing,
and shall include a clear and concise explanation of the reasons for
the insurer's decision, a description of the criteria or guidelines
used, and the clinical reasons for the decisions regarding medical
necessity. Any written communication to a physician or other health
care provider of a denial, delay, or modification or a request shall
include the name and telephone number of the health care professional
responsible for the denial, delay, or modification. The telephone
number provided shall be a direct number or an extension, to allow
the physician or health care provider easily to contact the
professional responsible for the denial, delay, or modification.
Responses shall also include information as to how the provider or
the insured may file an appeal with the insurer or seek department
review under the unfair practices provisions of Article 6.5
(commencing with Section 790) of Chapter 1 of Part 2 of Division 1
and the regulations adopted thereunder.
   (5) If the insurer cannot make a decision to approve, modify, or
deny the request for authorization within the timeframes specified in
paragraph (1) or (2) because the insurer is not in receipt of all of
the information reasonably necessary and requested, including, but
not limited to, information from the good faith examination conducted
pursuant to subdivision (e), or because the insurer requires
consultation by an expert reviewer, or because the insurer has asked
that an additional examination or test be performed upon the insured,
provided that the examination or test is reasonable and consistent
with good medical practice, the insurer shall, immediately upon the
expiration of the timeframe specified in paragraph (1) or (2), or as
soon as the insurer becomes aware that it will not meet the
timeframe, whichever occurs first, notify the provider and the
insured, in writing, that the insurer cannot make a decision to
approve, modify, or deny the request for authorization within the
required timeframe, and specify the information requested but not
received, or the expert reviewer to be consulted, or the additional
examinations or tests required. The insurer shall also notify the
provider and enrollee of the anticipated date on which a decision may
be rendered. Upon receipt of all information reasonably necessary
and requested by the insurer, the insurer shall approve, modify, or
deny the request for authorization within the timeframes specified in
paragraph (1) or (2), whichever applies.
   (6) If the commissioner determines that an insurer has failed to
meet any of the timeframes in this section, or has failed to meet any
other requirement of this section, the commissioner may assess, by
order, administrative penalties for each failure. A proceeding for
the issuance of an order assessing administrative penalties shall be
subject to appropriate notice to, and an opportunity for a hearing
with regard to, the person affected. The administrative penalties
shall not be deemed an exclusive remedy for the commissioner. These
penalties shall be paid to the Insurance Fund.
   (i) Every insurer subject to this section shall maintain telephone
access for providers to request authorization for health care
services.
   (j) Nothing in this section shall cause a disability insurer to be
defined as a health care provider for purposes of any provision of
law, including, but not limited to, Section 6146 of the Business and
Professions Code, Sections 3333.1 and 3333.2 of the Civil Code, and
Sections 340.5, 364, 425.13, 667.7, and 1295 of the Code of Civil
Procedure.
   SEC. 24.   SEC. 30.   Section 10123.136
is added to the Insurance Code, to read:
   10123.136.  For purposes of this code, with respect to a policy of
health insurance, a service is "medically necessary" or a "medical
necessity" when it is reasonable and necessary to protect life, to
prevent significant illness or significant disability, or to
alleviate severe pain.
   SEC. 25.   SEC. 31.   Section 10169.2 of
the Insurance Code is amended to read:
   10169.2.  (a) The department shall contract with one or more
independent medical review organizations in the state to conduct
reviews for purposes of this article. The independent medical review
organizations shall be independent of any disability insurer doing
business in this state. The commissioner may establish additional
requirements, including conflict-of-interest standards, consistent
with the purposes of this article, that an organization shall be
required to meet in order to qualify for participation in the
Independent Medical Review System and to assist the department in
carrying out its responsibilities.
   (b) The independent medical review organizations and the medical
professionals retained to conduct reviews shall be deemed to be
medical consultants for purposes of Section 43.98 of the Civil Code.
   (c) The independent medical review organization, any experts it
designates to conduct a review, or any officer, director, or employee
of the independent medical review organization shall not have any
material professional, familial, or financial affiliation, as
determined by the commissioner, with any of the following:
   (1) The insurer.
   (2) Any officer, director, or employee of the insurer.
   (3) A physician, the physician's medical group, or the independent
practice association involved in the health care service in dispute.

   (4) The facility or institution at which either the proposed
health care service, or the alternative service, if any, recommended
by the insurer, would be provided.
   (5) The development or manufacture of the principal drug, device,
procedure, or other therapy proposed by the insured whose treatment
is under review, or the alternative therapy, if any, recommended by
the insurer.
   (6) The insured or the insured's immediate family.
   (d) In order to contract with the department for purposes of this
article, an independent medical review organization shall meet all of
the following requirements:
   (1) The organization shall not be an affiliate or a subsidiary of,
nor in any way be owned or controlled by, a disability insurer or a
trade association of insurers. A board member, director, officer, or
employee of the independent medical review organization shall not
serve as a board member, director, or employee of a disability
insurer. A board member, director, or officer of a disability insurer
or a trade association of insurers shall not serve as a board
member, director, officer, or employee of an independent medical
review organization.
   (2) The organization shall submit to the department the following
information upon initial application to contract for purposes of this
article and, except as otherwise provided, annually thereafter upon
any change to any of the following information:
   (A) The names of all stockholders and owners of more than 5
percent of any stock or options, if a publicly held organization.
   (B) The names of all holders of bonds or notes in excess of one
hundred thousand dollars ($100,000), if any.
   (C) The names of all corporations and organizations that the
independent medical review organization controls or is affiliated
with, and the nature and extent of any ownership or control,
including the affiliated organization's type of business.
   (D) The names and biographical sketches of all directors,
officers, and executives of the independent medical review
organization, as well as a statement regarding any past or present
relationships the directors, officers, and executives may have with
any health care service plan, disability insurer, managed care
organization, provider group, or board or committee of an insurer, a
plan, a managed care organization, or a provider group.
   (E) (i) The percentage of revenue the independent medical review
organization receives from expert reviews, including, but not limited
to, external medical reviews, quality assurance reviews, and
utilization reviews.
   (ii) The names of any insurer or provider group for which the
independent medical review organization provides review services,
including, but not limited to, utilization review, quality assurance
review, and external medical review. Any change in this information
shall be reported to the department within five business days of the
change.
   (F) A description of the review process including, but not limited
to, the method of selecting expert reviewers and matching the expert
reviewers to specific cases.
   (G) A description of the system the independent medical review
organization uses to identify and recruit medical professionals to
review treatment and treatment recommendation decisions, the number
of medical professionals credentialed, and the types of cases and
areas of expertise that the medical professionals are credentialed to
review.
   (H) A description of how the independent medical review
organization ensures compliance with the conflict-of-interest
provisions of this section.
   (3) The organization shall demonstrate that it has a quality
assurance mechanism in place that does the following:
   (A) Ensures that the medical professionals retained are
appropriately credentialed and privileged.
   (B) Ensures that the reviews provided by the medical professionals
are timely, clear, and credible, and that reviews are monitored for
quality on an ongoing basis.
   (C) Ensures that the method of selecting medical professionals for
individual cases achieves a fair and impartial panel of medical
professionals who are qualified to render recommendations regarding
the clinical conditions and the medical necessity of treatments or
therapies in question.
   (D) Ensures the confidentiality of medical records and the review
materials, consistent with the requirements of this section and
applicable state and federal law.
   (E) Ensures the independence of the medical professionals retained
to perform the reviews through conflict-of-interest policies and
prohibitions, and ensures adequate screening for
conflicts-of-interest, pursuant to paragraph (5).
   (4) Medical professionals selected by independent medical review
organizations to review medical treatment decisions shall be
physicians or other appropriate providers who meet the following
minimum requirements:
   (A) The medical professional shall be a clinician knowledgeable in
the treatment of the insured's medical condition, knowledgeable
about the proposed treatment, and familiar with guidelines and
protocols in the area of treatment under review. Review by a 
medical professional, other than a physician licensed to practice
medicine pursuant to Section 2050 of the Business and Professions
Code or pursuant to the Osteopathic Act, shall be limited to services
  medical professional shall be limited to services
 that fall within that professional's scope of practice and
shall be subject to standardized protocol limitations or supervision
requirements applicable under his or her license.  In addition,
the medical professional reviewer or reviewers shall have at least
the same scope of practice as the health care professional that
denied, delayed, or modified the health care service in question.

   (B) Notwithstanding any other provision of law, the medical
professional shall hold a nonrestricted California license, and for
physicians, a current license to practice medicine pursuant to
Section 2050 of the Business and Professions Code or pursuant to the
Osteopathic Act.
   (C) The medical professional shall have no history of disciplinary
action or sanctions, including, but not limited to, loss of staff
privileges or participation restrictions, taken or pending by any
hospital, government, or regulatory body.
   (5) Neither the expert reviewer, nor the independent medical
review organization, shall have any material professional, material
familial, or material financial affiliation with any of the
following:
   (A) The disability insurer or a provider group of the insurer,
except that an academic medical center under contract to the insurer
to provide services to insureds may qualify as an independent medical
review organization provided it will not provide the service and
provided the center is not the developer or manufacturer of the
proposed treatment.
   (B) Any officer, director, or management employee of the insurer.
   (C) The physician, the physician's medical group, or the
independent practice association (IPA) proposing the treatment.
   (D) The institution at which the treatment would be provided.
   (E) The development or manufacture of the treatment proposed for
the insured whose condition is under review.
   (F) The insured or the insured's immediate family.
   (6) For purposes of this section, the following terms shall have
the following meanings:
   (A) "Material familial affiliation" means any relationship as a
spouse, child, parent, sibling, spouse's parent, or child's spouse.
   (B) "Material professional affiliation" means any
physician-patient relationship, any partnership or employment
relationship, a shareholder or similar ownership interest in a
professional corporation, or any independent contractor arrangement
that constitutes a material financial affiliation with any expert or
any officer or director of the independent medical review
organization. "Material professional affiliation" does not include
affiliations that are limited to staff privileges at a health
facility.
   (C) "Material financial affiliation" means any financial interest
of more than 5 percent of total annual revenue or total annual income
of an independent medical review organization or individual to which
this subdivision applies. "Material financial affiliation" does not
include payment by the insurer to the independent medical review
organization for the services required by this section, nor does
"material financial affiliation" include an expert's participation as
a contracting provider where the expert is affiliated with an
academic medical center or a National Cancer Institute-designated
clinical cancer research center.
   (e) The department shall provide, upon the request of any
interested person, a copy of all nonproprietary information, as
determined by the commissioner, filed with it by an independent
medical review organization seeking to contract under this article.
The department may charge a nominal fee to the interested person for
photocopying the requested information.
   (f) The commissioner may contract with the Department of Managed
Health Care to administer the independent medical review process
established by this article.
   SEC. 26.   SEC. 32.   Section 10169.3 of
the Insurance Code is amended to read:
   10169.3.  (a)  (1)    Upon receipt of
information and documents related to a case, the medical professional
reviewer or reviewers selected to conduct the review by the
independent medical review organization shall promptly review all
pertinent medical records of the insured, provider reports, as well
as any other information submitted to the organization as authorized
by the department or requested from any of the parties to the dispute
by the reviewers. If reviewers request information from any of the
parties, a copy of the request and the response shall be provided to
all of the parties. The reviewer or reviewers shall also review
relevant information related to the criteria set forth in subdivision
(b). In addition, at least one medical professional reviewer
selected to conduct the review shall conduct a good faith examination
of the insured. This good faith examination shall not be required if
the insured's policy explicitly excludes coverage of the disputed
health care service. 
   (2) In acting pursuant to this section, the primary obligation of
the reviewer or reviewers shall be to the insured. 
   (b) Following its review, the reviewer or reviewers shall
determine whether the disputed health care service was medically
necessary based on the specific medical needs of the insured and any
of the following:
   (1) Peer-reviewed scientific and medical evidence regarding the
effectiveness of the disputed service.
   (2) Nationally recognized professional standards.
   (3) Expert opinion.
   (4) Generally accepted standards of medical practice.
   (5) Treatments that are likely to provide a benefit to a patient
for conditions for which other treatments are not clinically
efficacious.
   (c) The organization shall complete its review and make its
determination in writing, and in layperson's terms to the maximum
extent practicable, within 30 days of the receipt of the application
for review and supporting documentation, including, but not limited
to, information from the good faith examination conducted pursuant to
subdivision (a), or within less time as prescribed by the
commissioner. If the disputed health care service has not been
provided and the insured's provider or the department certifies in
writing that an imminent and serious threat to the health of the
insured may exist, including, but not limited to, serious pain, the
potential loss of life, limb, or major bodily function, or the
immediate and serious deterioration of the health of the insured, the
analyses and determinations of the reviewers shall be expedited and
rendered within three days of the receipt of the information,
including, but not limited to, information from the good faith
examination conducted pursuant to subdivision (a). Subject to the
approval of the department, the deadlines for analyses and
determinations involving both regular and expedited reviews may be
extended by the commissioner for up to three days in extraordinary
circumstances or for good cause.
   (d) The medical professionals' analyses and determinations shall
state whether the disputed health care service is medically
necessary. Each analysis shall cite the insured's medical condition,
the relevant documents in the record, the relevant results of the
good faith examination, and the relevant findings associated with the
provisions of subdivision (b) to support the determination. If more
than one medical professional reviews the case, the recommendation of
the majority shall prevail. If the medical professionals reviewing
the case are evenly split as to whether the disputed health care
service should be provided, the decision shall be in favor of
providing the service.
   (e) The independent medical review organization shall provide the
director, the insurer, the insured, and the insured's provider with
the analyses and determinations of the medical professionals
reviewing the case, and a description of the qualifications of the
medical professionals. The independent medical review organization
shall keep the names of the reviewers confidential in all
communications with entities or individuals outside the independent
medical review organization, except in cases where the reviewer is
called to testify and in response to court orders. If more than one
medical professional reviewed the case and the result was differing
determinations, the independent medical review organization shall
provide each of the separate reviewer's analyses and determinations.
   (f) The commissioner shall immediately adopt the determination of
the independent medical review organization, and shall promptly issue
a written decision to the parties that shall be binding on the
insurer.
   (g) After removing the names of the parties, including, but not
limited to, the insured, all medical providers, the insurer, and any
of the insurer's employees or contractors, commissioner decisions
adopting a determination of an independent medical review
organization shall be made available by the department to the public
upon request, at the department's cost and after considering
applicable laws governing disclosure of public records,
confidentiality, and personal privacy.
   SEC. 27.   SEC. 33.   Section 10700 of
the Insurance Code is amended to read:
   10700.  As used in this chapter:
   (a) "Agent or broker" means a person or entity licensed under
Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
   (b) "Benefit plan design" means a specific health coverage product
issued by a carrier to small employers, to trustees of associations
that include small employers, or to individuals if the coverage is
offered through employment or sponsored by an employer. It includes
services covered and the levels of copayment and deductibles, and it
may include the professional providers who are to provide those
services and the sites where those services are to be provided. A
benefit plan design may also be an integrated system for the
financing and delivery of quality health care services which has
significant incentives for the covered individuals to use the system.

   (c) "Board" means the Major Risk Medical Insurance Board.
   (d) "Carrier" means any disability insurance company or any other
entity that writes, issues, or administers health benefit plans that
cover the employees of small employers, regardless of the situs of
the contract or master policyholder. For the purposes of Articles 3
(commencing with Section 10719) and 4 (commencing with Section
10730), "carrier" also includes health care service plans.
   (e) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health benefit plan covering the
employee, and includes dependents of guaranteed association members
and dependents of eligible association members if the association
elects to include dependents under its health coverage at the same
time it determines its membership composition pursuant to subdivision
(z).
   (f) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, in the small employer's regular
place of business, who has met any statutorily authorized applicable
waiting period requirements. The term includes sole proprietors or
partners of a partnership, if they are actively engaged on a
full-time basis in the small employer's business, and they are
included as employees under a health benefit plan of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis. It includes any eligible employee as
defined in this paragraph who obtains coverage through a guaranteed
association or an eligible association. Employees of employers
purchasing through a guaranteed association or an eligible
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer. A permanent employee who works at least 20
hours but not more than 29 hours is deemed to be an eligible employee
if all four of the following apply:
   (A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.
   (B) The employer offers the employee health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The insurer may request any necessary information
to document the hours and time period in question, including, but not
limited to, payroll records and employee wage and tax filings.
   (2) Any member of a guaranteed association or member of an
eligible association as defined in subdivision (z).
   (g) "Enrollee" means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.
   (h) "Financially impaired" means, for the purposes of this
chapter, a carrier that, on or after the effective date of this
chapter, is not insolvent and is either:
   (1) Deemed by the commissioner to be potentially unable to fulfill
its contractual obligations.
   (2) Placed under an order of rehabilitation or conservation by a
court of competent jurisdiction.
   (i) "Fund" means the California Small Group Reinsurance Fund.
   (j) "Health benefit plan" means a policy or contract written or
administered by a carrier that arranges or provides health care
benefits for the covered eligible employees of a small employer and
their dependents. The term does not include accident only, credit,
disability income, coverage of Medicare services pursuant to
contracts with the United States government, Medicare supplement,
long-term care insurance, dental, vision, coverage issued as a
supplement to liability insurance, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (k) "In force business" means an existing health benefit plan
issued by the carrier to a small employer.
            () "Late enrollee" means an eligible employee or
dependent who has declined health coverage under a health benefit
plan offered by a small employer at the time of the initial
enrollment period provided under the terms of the health benefit
plan, and who subsequently requests enrollment in a health benefit
plan of that small employer, provided that the initial enrollment
period shall be a period of at least 30 days. It also means any
member of an association that is a guaranteed association or an
eligible association as well as any other person eligible to purchase
through the guaranteed association or eligible association when that
person has failed to purchase coverage during the initial enrollment
period provided under the terms of the guaranteed association's or
eligible association's health benefit plan and who subsequently
requests enrollment in the plan, provided that the initial enrollment
period shall be a period of at least 30 days. However, an eligible
employee, another person eligible for coverage through a guaranteed
association or an eligible association pursuant to subdivision (z),
or an eligible dependent shall not be considered a late enrollee if
any of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan, the Healthy Families Program, or no share-of-cost Medi-Cal
coverage at the time the individual was eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, or no share-of-cost Medi-Cal coverage was the
reason for declining enrollment provided that, if the individual was
covered under another employer health plan, the individual was given
the opportunity to make the certification required by this
subdivision and was notified that failure to do so could result in
later treatment as a late enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the
individual, or of a person through whom the individual was covered as
a dependent, the termination of the other plan's coverage, cessation
of an employer's contribution toward an employee or dependent's
coverage, death of the person through whom the individual was covered
as a dependent, legal separation, divorce, loss of coverage under
the Healthy Families Program as a result of exceeding the program's
income or age limits, or loss of no share-of-cost Medi-Cal coverage.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan.
   (2) The individual is employed by an employer who offers multiple
health benefit plans and the individual elects a different plan
during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee as defined in
paragraph (1) of subdivision (f), the carrier cannot produce a
written statement from the employer stating that the individual or
the person through whom an individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed acknowledgment of, an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the carrier to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an eligible employee who is a guaranteed
association member or an eligible association member, the plan cannot
produce a written statement from the guaranteed association or
eligible association stating that the association sent a written
notice in boldface type to all potentially eligible members of the
association at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or meets the requirements of
paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association or eligible association, and did not do so, and would not
be eligible to purchase guaranteed coverage unless purchased through
a guaranteed association or eligible association, the employer or
person can demonstrate that he or she meets the requirements of
subparagraphs (A), (C), and (D) of paragraph (1), or meets the
requirements of paragraph (2) or (3), or that he or she recently had
a change in status that would make him or her eligible and that
application for coverage was made within 30 days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted. For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 10116.5 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her coverage under the Healthy
Families Program as a result of exceeding the program's income or age
limits or no share-of-cost Medi-Cal coverage and requests enrollment
within 30 days after notification of this loss of coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf, and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies. Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period. That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan. The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated. Upon enrollment, coverage shall
be effective not later than the first day of the first calendar month
beginning after the date the request for enrollment is received.
Notice of the special enrollment rights contained in this paragraph
shall be provided by the employer to an employee at or before the
time the employee is offered an opportunity to enroll in plan
coverage.
   (m) "New business" means a health benefit plan issued to a small
employer that is not the carrier's in force business.
   (n) "Participating carrier" means a carrier that has entered into
a contract with the program to provide health benefits coverage under
this part.
   (o) "Plan of operation" means the plan of operation of the fund,
including articles, bylaws and operating rules adopted by the fund
pursuant to Article 3 (commencing with Section 10719).
   (p) "Program" means the Health Insurance Plan of California.
   (q) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (r) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program, that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare Program pursuant to Title XVIII of the
Social Security Act.
   (3) The Medicaid program pursuant to Title XIX of the Social
Security Act.
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (s) "Rating period" means the period for which premium rates
established by a carrier are in effect and shall be no less than six
months.
   (t) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (u) "Risk adjustment factor" means the percent adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
claims. This factor may not be more than 120 percent or less than 80
percent until July 1, 1996. Effective July 1, 1996, this factor may
not be more than 110 percent or less than 90 percent.
   (v) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family size of the
employee, plus the benefit plan design selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the health
benefit plan will be primary or secondary to benefits provided by the
federal Medicare Program pursuant to Title XVIII of the federal
Social Security Act.
   (2) Small employer carriers shall base rates to small employers
using no more than the following family size categories:
   (A) Single.
   (B) Married couple.
   (C) One adult and child or children.
   (D) Married couple and child or children.
   (3) (A) In determining rates for small employers, a carrier that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county and
shall divide no county into more than two regions. Carriers shall be
deemed to be operating statewide if their coverage area includes 90
percent or more of the state's population. Geographic regions
established pursuant to this section shall, as a group, cover the
entire state, and the area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other geographic
regions. Geographic regions may be noncontiguous.
   (B) In determining rates for small employers, a carrier that does
not operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties which are included in their entirety in a carrier's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No
carrier shall have less than one geographic area.
   (w) "Small employer" means any of the following:
   (1) Any person, proprietary or nonprofit firm, corporation,
partnership, public agency, or association that is actively engaged
in business or service that, on at least 50 percent of its working
days during the preceding calendar quarter, or preceding calendar
year, employed at least two, but not more than 50, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health insurance and
in which a bona fide employer-employee relationship exists. In
determining whether to apply the calendar quarter or calendar year
test, the insurer shall use the test that ensures eligibility if only
one test would establish eligibility. However, for purposes of
subdivisions (b) and (h) of Section 10705, the definition shall
include employers with at least three eligible employees until July
1, 1997, and two eligible employees thereafter. In determining the
number of eligible employees, companies that are affiliated companies
and that are eligible to file a combined income tax return for
purposes of state taxation shall be considered one employer.
Subsequent to the issuance of a health benefit plan to a small
employer pursuant to this chapter, and for the purpose of determining
eligibility, the size of a small employer shall be determined
annually. Except as otherwise specifically provided, provisions of
this chapter that apply to a small employer shall continue to apply
until the health benefit plan anniversary following the date the
employer no longer meets the requirements of this definition. It
includes any small employer as defined in this paragraph who
purchases coverage through a guaranteed association or an eligible
association, and any employer purchasing coverage for employees
through a guaranteed association or an eligible association.
   (2) Any guaranteed association, as defined in subdivision (y),
that purchases health coverage for members of the association.
   (3) Any eligible association, as defined in subdivision (ab), that
purchases health coverage for members of the association.
   (x) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (y) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in paragraph (1) of subdivision (w), (2) does
not condition membership directly or indirectly on the health or
claims history of any person, (3) uses membership dues solely for and
in consideration of the membership and membership benefits, except
that the amount of the dues shall not depend on whether the member
applies for or purchases insurance offered by the association, (4) is
organized and maintained in good faith for purposes unrelated to
insurance, (5) has a constitution and bylaws, or other analogous
governing documents that provide for election of the governing board
of the association by its members, (6) offers any benefit plan design
that is purchased to all individual members and employer members in
this state, (7) includes any member choosing to enroll in the benefit
plan design offered to the association provided that the member has
agreed to make the required premium payments, and (8) covers at least
100 persons with the carrier with which it contracts. The
requirement of 100 persons may be met if component chapters of a
statewide association contracting separately with the same carrier
cover at least 100 persons in the aggregate.
   This subdivision applies regardless of whether a master policy by
an admitted insurer is delivered directly to the association or a
trust formed for or sponsored by an association to administer
benefits for association members.
   (z) "Members of a guaranteed association" or "members of an
eligible association" means any individual or employer meeting the
association's membership criteria if that person is a member of the
association and chooses to purchase health coverage through the
association. At the association's discretion, it may also include
employees of association members, association staff, retired members,
retired employees of members, and surviving spouses and dependents
of deceased members. However, if an association chooses to include
those persons as members of the guaranteed association or members of
the eligible association, the association must so elect in advance of
purchasing coverage from a plan. Health plans may require an
association to adhere to the membership composition it selects for up
to 12 months.
   (aa) "Affiliation period" means a period that, under the terms of
the health benefit plan, must expire before health care services
under the plan become effective.
   (ab) "Eligible association" means a community or civic group or a
charitable or religious organization.
   SEC. 28.   SEC. 34.   Section 10705 of
the Insurance Code is amended to read:
   10705.  (a) No group or individual policy or contract or
certificate of group insurance or statement of group coverage
providing benefits to employees of small employers as defined in this
chapter shall be issued or delivered by a carrier subject to the
jurisdiction of the commissioner regardless of the situs of the
contract or master policyholder or of the domicile of the carrier
nor, except as otherwise provided in Sections 10270.91 and 10270.92,
shall a carrier provide coverage subject to this chapter until a copy
of the form of the policy, contract, certificate, or statement of
coverage is filed with and approved by the commissioner in accordance
with Sections 10290 and 10291, and the carrier has complied with the
requirements of Section 10717.
   (b) Each carrier, except a self-funded employer, shall fairly and
affirmatively offer, market, and sell all of the carrier's benefit
plan designs that are sold to, offered through, or sponsored by,
small employers or associations that include small employers to all
small employers in each geographic region in which the carrier makes
coverage available or provides benefits, regardless of the employer's
implementation of, or intent to implement, any form of claim or
benefit support to covered employees. A carrier contracting to
participate in the Voluntary Alliance Uniting Employers Purchasing
Program shall be deemed to be in compliance with this requirement for
a benefit plan design offered through the program in those
geographic regions in which the carrier participates in the program
and the benefit plan design is offered exclusively through the
program.
   (1) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market or sell a benefit plan design to those who
are not members of the association. However, if the association
markets, offers or sells a benefit plan design to those who are not
members of the association it is subject to the requirements of this
section. This shall apply to an association that otherwise meets the
requirements of paragraph (5).
   (2) A carrier which (A) effective January 1, 1992, and at least 20
years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer or sell any other individual, selected group, or group
policy or contract providing medical, hospital and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital and
surgical benefits to those who are not members of the association it
is subject to the requirements of this section.
   (3) Each carrier that sells health benefit plans to members of one
association pursuant to paragraph (2) shall submit an annual
statement to the commissioner which states that the carrier is
selling health benefit plans pursuant to paragraph (2) and which, for
the one association, lists all the information required by paragraph
(4).
   (4) Each carrier that sells health benefit plans to members of any
association shall submit an annual statement to the commissioner
which lists each association to which the carrier sells health
benefit plans, the industry, profession, community or civic group, or
charitable or religious organization which is served by the
association, the association's membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.
   (5) For purposes of paragraphs (1) and (2), an association is one
of the following:
   (A) A nonprofit organization comprised of a group of individuals
or employers who associate based solely on participation in a
specified profession or industry, accepting for membership any
individual or small employer meeting its membership criteria, which
do not condition membership directly or indirectly on the health or
claims history of any person, which uses membership dues solely for
and in consideration of the membership and membership benefits,
except that the amount of the dues shall not depend on whether the
member applies for or purchases insurance offered by the association,
which is organized and maintained in good faith for purposes
unrelated to insurance, which has a constitution and bylaws, or other
analogous governing documents which provide for election of the
governing board of the association by its members, which has
contracted with one or more carriers to offer one or more health
benefit plans to all individual members and small employer members in
this state.
   (B) A community or civic group or a charitable or religious
organization that has contracted with one or more carriers to offer
one or more health benefit plans to all individual members and small
employer members in this state.
   (c) Each carrier shall make available to each small employer all
benefit plan designs that the carrier offers or sells to small
employers or to associations that include small employers regardless
of the employer's implementation of, or intent to implement, any form
of claim or benefit support to covered employees. Notwithstanding
subdivision (d) of Section 10700, for purposes of this subdivision,
companies that are affiliated companies or that are eligible to file
a consolidated income tax return shall be treated as one carrier.
   (d) Each carrier shall do all of the following:
   (1) Prepare a brochure that summarizes all of its benefit plan
designs and make this summary available to small employers, agents
and brokers upon request. The summary shall include for each benefit
plan design information on benefits provided, a generic description
of the manner in which services are provided, such as how access to
providers is limited, benefit limitations, required copayments and
deductibles, standard employee risk rates, an explanation of how
creditable coverage is calculated if a preexisting condition or
affiliation period is imposed, and a telephone number that can be
called for more detailed benefit information. Carriers are required
to keep the information contained in the brochure accurate and up to
date, and, upon updating the brochure, send copies to agents and
brokers representing the carrier. Any entity that provides
administrative services only with regard to a benefit plan design
written or issued by another carrier shall not be required to prepare
a summary brochure which includes that benefit plan design.
   (2) For each benefit plan design, prepare a more detailed evidence
of coverage and make it available to small employers, agents and
brokers upon request. The evidence of coverage shall contain all
information that a prudent buyer would need to be aware of in making
selections of benefit plan designs. An entity that provides
administrative services only with regard to a benefit plan design
written or issued by another carrier
              shall not be required to prepare an evidence of
coverage for that benefit plan design.
   (3) Provide to small employers, agents, and brokers, upon request,
for any given small employer the sum of the standard employee risk
rates and the sum of the risk adjusted standard employee risk rates.
When requesting this information, small employers, agents and brokers
shall provide the carrier with the information the carrier needs to
determine the small employer's risk adjusted employee risk rate.
   (4) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the brochure,
send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.
   (5) Notwithstanding subdivision (d) of Section 10700, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be
treated as one carrier.
   (e) Every agent or broker representing one or more carriers for
the purpose of selling health benefit plans to small employers shall
do all of the following:
   (1) When providing information on a health benefit plan to a small
employer but making no specific recommendations on particular
benefit plan designs:
   (A) Advise the small employer of the carrier's obligation to sell
to any small employer any of the benefit plan designs it offers to
small employers, regardless of the employer's implementation of, or
intent to implement, any form of claim or benefit support to covered
employees, and provide them, upon request, with the actual rates that
would be charged to that employer for a given benefit plan design.
   (B) Notify the small employer that the agent or broker will
procure rate and benefit information for the small employer on any
benefit plan design offered by a carrier for whom the agent or broker
sells health benefit plans.
   (C) Notify the small employer that, upon request, the agent or
broker will provide the small employer with the summary brochure
required in paragraph (1) of subdivision (d) for any benefit plan
design offered by a carrier whom the agent or broker represents.
   (2) When recommending a particular benefit plan design or designs,
advise the small employer that, upon request, the agent will provide
the small employer with the brochure required by paragraph (1) of
subdivision (d) containing the benefit plan design or designs being
recommended by the agent or broker.
   (3) Prior to filing an application for a small employer for a
particular health benefit plan:
   (A) For each of the benefit plan designs offered by the carrier
whose benefit plan design the agent or broker is presenting, provide
the small employer with the benefit summary required in paragraph (1)
of subdivision (d) and the sum of the standard employee risk rates
for that particular employer.
   (B) Notify the small employer that, upon request, the agent or
broker will provide the small employer with an evidence of coverage
brochure for each benefit plan design the carrier offers.
   (C) Notify the small employer that actual rates may be 10 percent
higher or lower than the sum of the standard employee risk rates
depending on how the carrier assesses the risk of the small employer'
s group.
   (D) Notify the small employer that, upon request, the agent or
broker will submit information to the carrier to ascertain the small
employer's sum of the risk adjusted standard employee risk rate for
any benefit plan design the carrier offers.
   (E) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by paragraph (3) of subdivision (e) and by Section 10716.
   (f) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of an
eligible employee meeting the definition in paragraph (1) of
subdivision (f) of Section 10700, is provided in connection with the
employee's employment or which, in the case of an eligible employee
as defined in paragraph (2) of subdivision (f) of Section 10700, is
provided in connection with a guaranteed association or an eligible
association.
   (g) No carrier shall reject an application from a small employer
for a benefit plan design provided:
   (1) The small employer as defined by paragraph (1) of subdivision
(w) of Section 10700 offers health benefits to 100 percent of its
eligible employees as defined in paragraph (1) of subdivision (f) of
Section 10700. Employees who waive coverage on the grounds that they
have other group coverage shall not be counted as eligible employees.

   (2) The small employer agrees to make the required premium
payments.
   (h) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a carrier because of either of the
following:
   (A) The health status, claims experience, industry, occupation, or
geographic location within the carrier's approved service area of
the small employer or the small employer's employees.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (2) Encourage or direct small employers to seek coverage from
another carrier or the program because of either of the following:
   (A) The health status, claims experience, industry, occupation, or
geographic location within the carrier's approved service area of
the small employer or the small employer's employees.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (i) (1) No carrier shall, directly or indirectly, enter into any
contract, agreement, or arrangement with an agent or broker that
provides for or results in the compensation paid to an agent or
broker for a health benefit plan to be varied because of either of
the following:
   (A) The health status, claims experience, industry, occupation, or
geographic location of the small employer or the small employer's
employees.
   (B) The small employer's implementation of, or intent to
implement, any form of claim or benefit support for its covered
employees through a health reimbursement arrangement, a medical
expense reimbursement plan, a limited purpose flexible spending
account, or any other form of wraparound plan or payment for any
portion of claims that apply to the health plan deductible or other
benefits.
   (2) This subdivision shall not apply with respect to a
compensation arrangement that provides compensation to an agent or
broker on the basis of percentage of premium, provided that the
percentage shall not vary because of the factors described in
subparagraph (A) or (B) of paragraph (1).
   (j) Except in the case of a late insured, or for satisfaction of a
preexisting condition clause in the case of initial coverage of an
eligible employee, a disability insurer may not exclude any eligible
employee or dependent who would otherwise be entitled to health care
services on the basis of any of the following: the health status, the
medical condition, including both physical and mental illnesses, the
claims experience, the medical history, the genetic information, or
the disability or evidence of insurability, including conditions
arising out of acts of domestic violence of that employee or
dependent. No health benefit plan may limit or exclude coverage for a
specific eligible employee or dependent by type of illness,
treatment, medical condition, or accident, except for preexisting
conditions as permitted by Section 10198.7 or 10708.
   (k) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.
   () (1) With respect to the obligation to provide coverage newly
issued under subdivision (d), the carrier may cease enrolling new
small employer groups and new eligible employees as defined by
paragraph (2) of subdivision (f) of Section 10700 if it certifies to
the commissioner that the number of eligible employees and
dependents, of the employers newly enrolled or insured during the
current calendar year by the carrier equals or exceeds: (A) in the
case of a carrier that administers any self-funded health benefits
arrangement in California, 10 percent of the total number of eligible
employees, or eligible employees and dependents, respectively,
enrolled or insured in California by that carrier as of December 31
of the preceding year, or (B) in the case of a carrier that does not
administer any self-funded health benefit arrangements in California,
8 percent of the total number of eligible employees, or eligible
employees and dependents, respectively, enrolled or insured by the
carrier in California as of December 31 of the preceding year.
   (2) Certification shall be deemed approved if not disapproved
within 45 days after submission to the commissioner. If that
certification is approved, the small employer carrier shall not offer
coverage to any small employers under any health benefit plans
during the remainder of the current year. If the certification is not
approved, the carrier shall continue to issue coverage as required
by subdivision (d) and be subject to administrative penalties as
established in Section 10718.
   SEC. 29.   SEC. 35.   Section 10706 of
the Insurance Code is amended to read:
   10706.  Every carrier shall file with the commissioner the
reasonable participation requirements and employer contribution
requirements that are to be included in its health benefit plans.
Participation requirements shall be applied uniformly among all small
employer groups, except that a carrier may vary application of
minimum employer participation requirements by the size of the small
employer group and whether the employer contributes 100 percent of
the eligible employee's premium. Employer contribution requirements
shall not vary by employer size. A carrier shall not establish a
participation requirement that (1) requires a person who meets the
definition of a dependent in subdivision (e) of Section 10700 to
enroll as a dependent if he or she is otherwise eligible for coverage
and wishes to enroll as an eligible employee and (2) allows a
carrier to reject an otherwise eligible small employer because of the
number of persons that waive coverage due to coverage through
another employer. Members of an association eligible for health
coverage eligible under subdivision (z) of Section 10700 but not
electing any health coverage through the association shall not be
counted as eligible employees for purposes of determining whether the
guaranteed association or the eligible association meets a carrier's
reasonable participation standards.
   SEC. 30.   SEC. 36.   Section 10708 of
the Insurance Code is amended to read:
   10708.  (a) Preexisting condition provisions of health benefit
plans shall not exclude coverage for a period beyond six months
following the individual's effective date of coverage and may only
relate to conditions for which medical advice, diagnosis, care, or
treatment, including the use of prescription medications, was
recommended by or received from a licensed health practitioner during
the six months immediately preceding the effective date of coverage.

   (b) A carrier that does not utilize a preexisting condition
provision may impose a waiting or affiliation period, not to exceed
60 days, before the coverage issued subject to this chapter shall
become effective. During the waiting or affiliation period, the
carrier is not required to provide health care benefits and no
premiums shall be charged to the subscriber or enrollee.
   (c) In determining whether a preexisting condition provision or a
waiting period applies to any person, a plan shall credit the time
the person was covered under creditable coverage, provided the person
becomes eligible for coverage under the succeeding plan contract
within 62 days of termination of prior coverage, exclusive of any
waiting or affiliation period, and applies for coverage with the
succeeding health benefit plan contract within the applicable
enrollment period. A plan shall also credit any time an eligible
employee must wait before enrolling in the health benefit plan,
including any postenrollment or employer-imposed waiting or
affiliation period. However, if a person's employment has ended, the
availability of health coverage offered through employment or
sponsored by an employer has terminated, or an employer's
contribution toward health coverage has terminated, a plan shall
credit the time the person was covered under creditable coverage if
the person becomes eligible for health coverage offered through
employment or sponsored by an employer within 180 days, exclusive of
any waiting or affiliation period, and applies for coverage under the
succeeding health benefit plan within the applicable enrollment
period.
   (d) Group health benefit plans may not impose a preexisting
conditions exclusion to the following:
   (1) To a newborn individual, who, as of the last day of the 30-day
period beginning with the date of birth, applied for coverage
through the employer-sponsored plan.
   (2) To a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-day
period beginning with the date of adoption or placement for adoption,
is covered under creditable coverage and applies for coverage
through the employer-sponsored plan. This provision shall not apply
if, for 63 continuous days, the child is not covered under any
creditable coverage.
   (3) To a condition relating to benefits for pregnancy or maternity
care.
   (e) A carrier providing aggregate or specific stop loss coverage
or any other assumption of risk with reference to a health benefit
plan shall provide that the plan meets all requirements of this
section concerning preexisting condition provisions and waiting or
affiliation periods.
   (f) In addition to the preexisting condition exclusions authorized
by subdivision (a) and the waiting or affiliation period authorized
by subdivision (b), carriers providing coverage to a guaranteed
association or an eligible association may impose on employers or
individuals purchasing coverage who would not be eligible for
guaranteed coverage if they were not purchasing through the
association a waiting or affiliation period, not to exceed 60 days,
before the coverage issued subject to this chapter shall become
effective. During the waiting or affiliation period, the carrier is
not required to provide health care benefits and no premiums shall be
charged to the insured.
   SEC. 31.   SEC. 37.   Chapter 9.7
(commencing with Section 10920) is added to Part 2 of Division 2 of
the Insurance Code, to read:
      CHAPTER 9.7.  MANDATE-FREE INDIVIDUAL COVERAGE


   10920.  (a) Notwithstanding any other provision of this code, on
and after January 1, 2011, a health insurer may offer, market, and
sell an individual health insurance policy that does not include all
of the health benefits mandated under this code to an individual if
all of the following requirements are met:
   (1) The individual has an income below 350 percent of the federal
poverty level.
   (2) The individual waives the benefits pursuant to subdivision
(c).
   (3) The insurance policy is approved by the commissioner.
   (b) The commissioner, in consultation with the Director of the
Department of Managed Health Care, shall prepare a disclosure form
prior to July 1, 2010, that is easily understood and that summarizes
the benefits a health insurer is required to include in its health
insurance policy under this code.
   (c) Before a health insurance policy described in subdivision (a)
may be issued, the individual shall sign the disclosure form
described in subdivision (b), specifying the benefits he or she is
waiving and indicating that the insurer has explained the contents of
the disclosure and that he or she understands those contents.
   SEC. 32.   SEC. 38.   Article 7
(commencing with Section 11885) is added to Chapter 4 of Part 3 of
Division 2 of the Insurance Code, to read:

      Article 7.  24-Hour Care Policies


   11885.  Any insurer admitted to transact health insurance or
workers' compensation insurance, or a health care service plan
licensed pursuant to the Knox-Keene Health Care Service Plan Act of
1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the
Health and Safety Code), may make a written application to the
commissioner for a license to offer a single policy that provides
health care coverage and workers' compensation benefits.
   SEC. 33.   SEC. 39.   Section 12938.1 is
added to the Insurance Code, to read:
   12938.1.  (a) The commissioner shall encourage the design of
health insurance policies that conform to current requirements under
federal law for a high deductible health plan used in conjunction
with a Health Savings Account.
   (b) The commissioner and the Director of the Department of Managed
Health Care shall standardize the process used for the initial
review and approval of a health care service plan contract and for
the initial review and approval of a health insurance policy.
   (c) (1) The commissioner shall report to the chair and to the vice
chairs of the Senate Committee on Banking, Finance and Insurance,
the Senate Committee on Appropriations, the Assembly Committee on
Insurance, and the Assembly Committee on Appropriations prior to
December 31, 2010, on the status of the requirements imposed by
subdivisions (a) and (b) and on the number of health insurers that
have applied to the department for initial review and approval of new
health insurance policies on and after the effective date of this
section.
   (2) The commissioner shall also report to the chair and to the
vice chairs of the committees listed in paragraph (1), prior to
December 31, 2011, on the increase in the number of persons insured
by a health insurance policy as a result of the requirements
described in subdivisions (a) and (b).
   SEC. 34.   SEC. 40.   Section 96.8 is
added to the Labor Code, to read:
   96.8.  (a) Notwithstanding any other provision in this chapter, an
employer may provide health coverage that includes a Healthy Action
Incentives and Rewards Program that meets the requirements of Section
1367.38 of the Health and Safety Code, or Section 10123.56 of the
Insurance Code, to the employer's employees.
   (b) A Healthy Action Incentives and Rewards Program offered
pursuant to this section may include, but need not be limited to,
monetary incentives and health coverage premium cost reductions for
employees for nonsmokers and smoking cessation.
   SEC. 35.   SEC. 41.   Section 511 of the
Labor Code is amended to read:
   511.  (a) Upon the proposal of an employer, the employees of an
employer may adopt a regularly scheduled alternative workweek that
authorizes work by the affected employees for no longer than 10 hours
per day within a 40-hour workweek without the payment to the
affected employees of an overtime rate of compensation pursuant to
this section. A proposal to adopt an alternative workweek schedule
shall be deemed adopted only if it receives approval in a secret
ballot election by at least two-thirds of affected employees in a
work unit. The regularly scheduled alternative workweek proposed by
an employer for adoption by employees may be a single work schedule
that would become the standard schedule for workers in the work unit,
or a menu of work schedule options, from which each employee in the
unit would be entitled to choose.
   (b) This subdivision shall be known as the "Small Business Family
Scheduling Option." Notwithstanding subdivision (a), an employer with
50 or fewer employees that offers health care coverage benefits to
its employees may approve a written request of an employee to work an
alternative workweek schedule for no longer than 10 hours per day
within a 40-hour workweek without the payment to the affected
employee of an overtime rate of compensation pursuant to this
section. An employee shall provide a voluntary, signed written
request that includes the start date of the alternative workweek
schedule and the days and the number of hours per day for the
alternative workweek schedule. If agreed, the employer and employee
shall execute a written agreement that includes the start date of the
alternative workweek schedule and the days and the number of hours
per day for the alternative workweek schedule. The employer shall
maintain the written agreement as a record for three years beyond the
termination of the alternative workweek agreement. The employee or
employer may terminate the agreement at any time upon seven days'
advance written notice.
   (c) An affected employee working longer than eight hours but not
more than 12 hours in a day pursuant to an alternative workweek
schedule adopted pursuant to this section shall be paid an overtime
rate of compensation of no less than one and one-half times the
regular rate of pay of the employee for any work in excess of the
regularly scheduled hours established by the alternative workweek
agreement and for any work in excess of 40 hours per week. An
overtime rate of compensation of no less than double the regular rate
of pay of the employee shall be paid for any work in excess of 12
hours per day and for any work in excess of eight hours on those days
worked beyond the regularly scheduled workdays established by the
alternative workweek agreement. Nothing in this section requires an
employer to combine more than one rate of overtime compensation in
order to calculate the amount to be paid to an employee for any hour
of overtime work.
   (d) An employer shall not reduce an employee's regular rate of
hourly pay as a result of the adoption, repeal, termination, or
nullification of an alternative workweek schedule.
   (e) An employer shall make a reasonable effort to find a work
schedule not to exceed eight hours in a workday, in order to
accommodate any affected employee who was eligible to vote in an
election authorized by subdivision (a) and who is unable to work the
alternative schedule hours established as the result of that
election. An employer shall be permitted to provide a work schedule
not to exceed eight hours in a workday to accommodate any employee
who was hired after the date of the election and who is unable to
work the alternative schedule established as the result of that
election. An employer shall explore any available reasonable
alternative means of accommodating the religious belief or observance
of an affected employee that conflicts with an adopted alternative
workweek schedule, in the manner provided by subdivision (i) of
Section 12940 of the Government Code.
   (f) The results of any election conducted pursuant to subdivision
(a) shall be reported by an employer to the Division of Labor
Statistics and Research within 30 days after the results are final.
   (g) Any type of alternative workweek schedule that is authorized
by this code and that was in effect on January 1, 2000, may be
repealed by the affected employees pursuant to this section. Any
alternative workweek schedule that was adopted pursuant to Wage Order
Numbers 1, 4, 5, 7, or 9 of the Industrial Welfare Commission is
null and void, except for an alternative workweek providing for a
regular schedule of no more than 10 hours' work in a workday that was
adopted by a two-thirds vote of affected employees in a secret
ballot election pursuant to wage orders of the Industrial Welfare
Commission in effect prior to 1998. This subdivision does not apply
to exemptions authorized pursuant to Section 515.
   (h) Notwithstanding subdivision (g), an alternative workweek
schedule in the health care industry adopted by a two-thirds vote of
affected employees in a secret ballot election pursuant to Wage Order
Numbers 4 and 5 in effect prior to 1998 that provided for workdays
exceeding 10 hours but not exceeding 12 hours in a day without the
payment of overtime compensation shall be valid until July 1, 2000.
An employer in the health care industry shall make a reasonable
effort to accommodate any employee in the health care industry who is
unable to work the alternative schedule established as the result of
a valid election held in accordance with provisions of Wage Order
Number 4 or 5 that were in effect prior to 1998.
   (i) Notwithstanding subdivision (g), if an employee is voluntarily
working an alternative workweek schedule providing for a regular
work schedule of not more than 10 hours work in a workday as of July
1, 1999, an employee may continue to work that alternative workweek
schedule without the entitlement of the payment of daily overtime
compensation for the hours provided in that schedule if the employer
approves a written request of the employee to work that schedule.
   SEC. 36.   SEC. 42.   Section 515 of the
Labor Code is amended to read:
   515.  (a) The Industrial Welfare Commission may establish
exemptions from the requirement that an overtime rate of compensation
be paid pursuant to Sections 510 and 511 for executive,
administrative, and professional employees, provided that the
employee is primarily engaged in the duties that meet the test of the
exemption, customarily and regularly exercises discretion and
independent judgment in performing those duties, and earns a monthly
salary equivalent to no less than two times the state minimum wage
for full-time employment. The commission shall conduct a review of
the duties that meet the test of the exemption. The commission may,
based upon this review, convene a public hearing to adopt or modify
regulations at that hearing pertaining to duties that meet the test
of the exemption without convening wage boards. Any hearing conducted
pursuant to this subdivision shall be concluded not later than July
1, 2000.
                                                (b) Except as
otherwise provided in this section and in subdivision (h) of Section
511, nothing in this section requires the commission to alter any
exemption from provisions regulating hours of work that was contained
in any valid wage order in effect in 1997. Except as otherwise
provided in this division, the commission may review, retain, or
eliminate any exemption from provisions regulating hours of work that
was contained in any valid wage order in effect in 1997.
   (c) For purposes of this section, "full-time employment" means
employment in which an employee is employed for 40 hours per week.
   (d) For the purpose of computing the overtime rate of compensation
required to be paid to a nonexempt full-time salaried employee, the
employee's regular hourly rate shall be 1/40th of the employee's
weekly salary.
   (e) For purposes of this section, "primarily" means more than
one-half of the employee's worktime.
   (f) (1) In addition to the requirements of subdivision (a),
registered nurses employed to engage in the practice of nursing shall
not be exempted from coverage under any part of the orders of the
Industrial Welfare Commission, unless they individually meet the
criteria for exemptions established for executive or administrative
employees.
   (2) This subdivision does not apply to any of the following:
   (A) A certified nurse midwife who is primarily engaged in
performing duties for which certification is required pursuant to
Article 2.5 (commencing with Section 2746) of Chapter 6 of Division 2
of the Business and Professions Code.
   (B) A certified nurse anesthetist who is primarily engaged in
performing duties for which certification is required pursuant to
Article 7 (commencing with Section 2825) of Chapter 6 of Division 2
of the Business and Professions Code.
   (C) A certified nurse practitioner who is primarily engaged in
performing duties for which certification is required pursuant to
Article 8 (commencing with Section 2834) of Chapter 6 of Division 2
of the Business and Professions Code.
   (D) Nothing in this paragraph shall exempt the occupations set
forth in subparagraphs (A), (B), and (C) from meeting the
requirements of subdivision (a).
   SEC. 37.   SEC. 43.   Section 17053.58
is added to the Revenue and Taxation Code, to read:
   17053.58.  (a) For each taxable year beginning on or after January
1, 2010, and before January 1, 2015, there shall be allowed as a
credit against the "net tax," as defined in Section 17039, an amount
equal to the amount paid or incurred by the taxpayer during the
taxable year for qualified health expenses. The credit shall not
exceed any of the following for the taxable year:
   (1) Seven and one-half percent of the taxpayer gross income.
   (2) Two thousand five hundred dollars ($2,500) per each individual
covered by the plan.
   (3) Five thousand dollars ($5,000) for all individuals covered by
the plan.
   (b) For purposes of this section, "qualified health expenses"
means the total amount the taxpayer paid or incurred during the
taxable year for health insurance and health care service plans for
the taxpayer and his or her spouse and dependents.
   (c) No other credit or deduction shall be allowed under other
provisions of this part for qualified health expenses for which a
credit is taken under this section.
   (d) This section shall remain in effect only until December 1,
2015, and as of that date is repealed.
   SEC. 38.   SEC. 44.   Section 17053.77
is added to the Revenue and Taxation Code, to read:
   17053.77.  (a) For each taxable year beginning on or after January
1, 2009, and before January 1, 2015, there shall be allowed as a
credit against the "net tax," as defined in Section 17039, an amount
equal to 15 percent of the amount paid or incurred by a qualified
taxpayer during the taxable year for qualified health insurance for
employees of the taxpayer who perform services in this state.
   (b) For purposes of this section:
   (1) "Qualified health insurance" means amounts paid on behalf of
employees to a high deductible health plan, as defined by Section 223
(c)(2) of the Internal Revenue Code, or to a Health Savings Account,
as defined by Section 223(d) of the Internal Revenue Code.
   (2) "Qualified taxpayer" means any small or medium employer, or
any small or medium employer that, during the five taxable years
immediately preceding the taxable year, has not provided health
insurance to employees employed by the employer in this state.
   (3) For purposes of this paragraph:
   (A) "Small employer" means a person, as defined in Section 7701(a)
of the Internal Revenue Code, employing, for wages or salary, at
least two but no more than 50 persons.
   (B) "Medium employer" means a person, as defined in Section 7701
(a) of the Internal Revenue Code, employing, for wages or salary, at
least 51 but no more than 250 persons.
   (c) The credit allowed by this section shall be in lieu of any
deduction to which the taxpayer otherwise may be entitled for
expenses on which a credit under this section is claimed.
   (d) On or before September 1, 2013, the Franchise Tax Board shall
report to the Legislature on the usage of the credit under this
section.
   (e) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years if necessary, until the
credit is exhausted.
   (f) This section shall remain in effect only until December 1,
2015, and as of that date is repealed, unless a later enacted
statute, that is enacted before December 1, 2015, deletes or extends
that date.
   SEC. 39.   SEC. 45.   Section 17053.91
is added to the Revenue and Taxation Code, to read:
   17053.91.  (a) For each taxable year beginning on or after January
1, 2009, there shall be allowed as a credit against the "net tax,"
as defined in Section 17039, an amount equal to 25 percent of the
"net tax," of an individual who is a qualified medical care
professional.
   (b) For purposes of this section:
   (1) "Qualified medical care professional" means any individual,
licensed as a healing arts practitioner under Division 2 (commencing
with Section 500) of the Business and Professions Code, who provides
medical services in a rural area.
   (2) "Rural area" means any open country or any place, town,
village, or city which, by itself, and taken together with any other
places, towns, villages, or cities that it is part of, or associated
with, either has a population not exceeding 10,000, or has a
population not exceeding 20,000 and is contained within a
nonmetropolitan area. "Rural area" also includes any open country,
place, town, village, or city located within a standard metropolitan
statistical area within this state, as established by the United
States Office of Management and Budget, if the population thereof
does not exceed 20,000 and the area is not part of, or associated
with, an urban area and is rural in character.
   (c) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years if necessary, until the
credit is exhausted.
   SEC. 40.   SEC. 46.   Section 17053.102
is added to the Revenue and Taxation Code, to read:
   17053.102.  (a) There shall be allowed as a credit against the
"net tax," as defined by Section 17039, an amount equal to 50 percent
of the fair market value of uncompensated medical care provided by a
physician during the taxable year to an eligible individual.
   (b) For purposes of this section:
   (1) "Physician" means a physician and surgeon licensed by the
Medical Board of California or the Osteopathic Medical Board of
California.
   (2) "Eligible individual" means a resident of this state who is
not covered by health insurance and is a member of a household whose
combined household adjusted gross income for the taxable year is less
than 150 percent of the federal poverty level for that household for
the applicable taxable year.
   (3) "Fair market value of uncompensated medical care" shall
include only those medical procedures covered by Medicare or Medi-Cal
and shall not exceed the Area 9 (Santa Clara County) reimbursement
rate authorized under Medicare for any medical procedure for which a
credit is allowed by this section.
   (c) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years if necessary, until the
credit is exhausted.
   SEC. 41.   SEC. 47.   Section 17053.103
is added to the Revenue and Taxation Code, to read:
   17053.103.  (a) There shall be allowed a credit against the "net
tax," as defined by Section 17039, an amount equal to 10 percent of
the "net tax" for the taxable year to a primary care provider who
provides primary care for patients in this state during the taxable
year.
   (b) For purposes of this section, "primary care provider" means a
physician and surgeon, a nurse practitioner, or a physician's
assistant.
   (c) The credit shall be allowed by this section only to a primary
care provider who first commences providing primary care services in
this state on or after January 1, 2007.
   (d) The credit shall be allowed by this section only for the first
10 taxable years for which the primary care provider provides
primary care services in this state.
   (e) In the case of a primary care provider who is a physician and
surgeon who changes his or her practice from primary care to
specialty care, any credit previously allowed by this section shall
be recaptured by adding the amount of the credit to the "net tax" for
the taxable year in which the change of practice occurs.
   (f) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years if necessary, until the
credit is exhausted.
   SEC. 42.   SEC. 48.   Section 17072 of
the Revenue and Taxation Code is amended to read:
   17072.  (a) Section 62 of the Internal Revenue Code, relating to
adjusted gross income defined, shall apply, except as otherwise
provided.
   (b) Section 62(a)(2)(D) of the Internal Revenue Code, relating to
certain expenses of elementary and secondary school teachers, shall
not apply.
   (c) The deduction allowed by Section 17204, relating to medical
care, shall be allowed in computing adjusted gross incomes.
   (d) The deduction allowed by Section 17216, relating to Health
Savings Accounts, shall be allowed in computing adjusted gross
income. This subdivision shall apply only to each taxable year
beginning on or after January 1, 2009.
   SEC. 43.   SEC. 49.   Section 17138.5 is
added to the Revenue and Taxation Code, to read:
   17138.5.  For each taxable year beginning on or after January 1,
2009, Section 106 of the Internal Revenue Code, as amended by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to Health
Savings Accounts, shall apply, except as otherwise provided.
   SEC. 44.   SEC. 50.   Section 17138.6 is
added to the Revenue and Taxation Code, to read:
   17138.6.  For each taxable year beginning on or after January 1,
2009, Section 125 of the Internal Revenue Code, as amended by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to Health
Savings Accounts, shall apply, except as otherwise provided.
   SEC. 45.   SEC. 51.   Section 17204 is
added to the Revenue and Taxation Code, to read:
   17204.  (a) For each taxable year beginning on or after January 1,
2010, and before January 1, 2015, there shall be allowed a deduction
in an amount equal to the cost, not compensated by insurance or
otherwise, paid or incurred during the taxable year by the taxpayer
for medical care for the taxpayer, his or her spouse, his or her
dependents, and, in the case of a married couple, any dependents of
each spouse. The deduction shall not exceed any of the following for
the taxable year:
   (1) Seven and one-half percent of the taxpayer's gross income.
   (2) Two thousand dollars ($2,000) per person.
   (3) Five thousand dollars ($5,000) per family.
   (b) For purposes of this section:
   (1) "Taxpayer" means any person subject to the tax imposed by this
part.
   (2) "Dependent" has the same meaning ascribed to that term by
Section 17056.
   (3) "Medical care" has the same meaning ascribed to that term by
Section 213(d) of the Internal Revenue Code.
   (c) The deduction allowed by this section shall be in lieu of any
other deduction otherwise allowable by this part for the costs for
which the deduction is allowed by this section.
   (d) This section shall remain in effect only until December 1,
2015, and as of that date is repealed.
   SEC. 46.   SEC. 52.   Section 17215 of
the Revenue and Taxation Code is amended to read:
   17215.  (a) Section 220(a) of the Internal Revenue Code, relating
to deduction allowed, is modified to provide that the amount allowed
as a deduction shall be an amount equal to the amount allowed to that
individual as a deduction under Section 220 of the Internal Revenue
Code, relating to medical savings accounts, on the federal income tax
return filed for the same taxable year by that individual.
   (b) Section 220(f)(4) of the Internal Revenue Code, relating to
additional tax on distributions not used for qualified medical
expenses, is modified by substituting "10 percent" in lieu of "15
percent."
   (c) Section 220(f)(5) of the Internal Revenue Code, as amended by
Section 1201(c) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to rollovers
from Archer MSAs permitted, shall apply, except as otherwise
provided.
   (d) The amendments made to this section by the act adding this
subdivision shall apply only to each taxable year beginning on or
after January 1, 2009.
   SEC. 47.  SEC. 53.   Section 17216 is
added to the Revenue and Taxation Code, to read:
   17216.  For each taxable year beginning on or after January 1,
2009, all of the following apply:
   (a) Section 223 of the Internal Revenue Code, as added by Section
1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to Health
Savings Accounts, shall apply, except as otherwise provided.
   (b) Section 223(e)(1) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), shall be modified by
substituting the phrase "Section 17651" for the phrase "section 511
(relating to imposition of tax of unrelated business income of
charitable, etc., organizations)," contained therein.
   (c) Section 223(f)(4)(A) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), shall be modified by
substituting "21/2 percent" for "10 percent," contained therein.
   SEC. 48.   SEC. 54.   Section 19184 of
the Revenue and Taxation Code is amended to read:
   19184.  (a) A penalty of fifty dollars ($50) shall be imposed for
each failure, unless it is shown that the failure is due to
reasonable cause, by any person required to file who fails to file a
report at the time and in the manner required by any of the following
provisions:
   (1) Subdivision (c) of Section 17507, relating to individual
retirement accounts.
   (2) Section 220(h) of the Internal Revenue Code, relating to
medical savings accounts for taxable years beginning on or after
January 1, 1997.
   (3) Section 223(h) of the Internal Revenue Code, as added by
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), relating to Health
Savings Accounts.
   (4) Subdivision (b) of Section 17140.3 or subdivision (b) of
Section 23711 relating to qualified tuition programs.
   (5) Subdivision (e) of Section 23712, relating to Coverdell
education savings accounts.
   (b) (1) Any individual who:
   (A) Is required to furnish information under Section 17508 as to
the amount designated nondeductible contributions made for any
taxable year, and
   (B) Overstates the amount of those contributions made for that
taxable year, shall pay a penalty of one hundred dollars ($100) for
each overstatement unless it is shown that the overstatement is due
to reasonable cause.
   (2) Any individual who fails to file a form required to be filed
by the Franchise Tax Board under Section 17508 shall pay a penalty of
fifty dollars ($50) for each failure unless it is shown that the
failure is due to reasonable cause.
   (c) Article 3 (commencing with Section 19031) of this chapter
(relating to deficiency assessments) shall not apply in respect of
the assessment or collection of any penalty imposed under this
section.
   (d) The amendments made to this section by the act adding this
subdivision shall apply only to each taxable year beginning on or
after January 1, 2009.
   SEC. 49.   SEC. 55.   Section 23658 is
added to the Revenue and Taxation Code, to read:
   23658.  (a) For each taxable year beginning on or after January 1,
2010, and before January 1, 2015, there shall be allowed as a credit
against the "tax," as defined in Section 23036, an amount equal to
the amount paid or incurred by the taxpayer during the taxable year
for qualified health expenses. The credit shall not exceed any of the
following for the taxable year:
   (1) Seven and one-half percent of the taxpayer's gross income.
   (2) Two thousand five hundred dollars ($2,500) per each individual
covered by the plan.
   (3) Five thousand dollars ($5,000) for all individuals covered by
the plan.
   (b) For purposes of this section "qualified health expenses" means
the total amount the taxpayer paid or incurred during the taxable
year for health insurance and health care service plans for the
taxpayer and his or her spouse and dependents.
   (c) No other credit or deduction shall be allowed under other
provisions of this part for qualified health expenses for which a
credit is taken under this section.
   (d) This section shall remain in effect only until December 1,
2015, and as of that date is repealed.
   SEC. 50.   SEC. 56.   Section 23677 is
added to the Revenue and Taxation Code, to read:
   23677.  (a) For each taxable year beginning on or after January 1,
2009, and before January 1, 2015, there shall be allowed as a credit
against the "tax," as defined in Section 23036, an amount equal to
15 percent of the amount paid or incurred by a qualified taxpayer
during the taxable year for qualified health insurance for employees
of the taxpayer who perform services in this state.
   (b) For purposes of this section:
   (1) "Qualified health insurance" means amounts paid on behalf of
employees to a high deductible health plan, as defined by Section 223
(c)(2) of the Internal Revenue Code, or to a Health Savings Account,
as defined by Section 223(d) of the Internal Revenue Code.
   (2) "Qualified taxpayer" means any small or medium employer, or
any small or medium employer that, during the five taxable years
immediately preceding the taxable year, has not provided health
insurance to employees employed by the employer in this state.
   (3) For purposes of this paragraph:
   (A) "Small employer" means a person, as defined in Section 7701(a)
of the Internal Revenue Code, employing, for wages or salary, at
least two but no more than 50 persons.
   (B) "Medium employer" means a person, as defined in Section 7701
(a) of the Internal Revenue Code, employing, for wages or salary, at
least 51 but no more than 250 persons.
   (c) The credit allowed by this section shall be in lieu of any
deduction to which the taxpayer otherwise may be entitled for
expenses on which a credit under this section is claimed.
   (d) On or before September 1, 2013, the Franchise Tax Board shall
report to the Legislature on the usage of the credit under this
section.
   (e) In the case where the credit allowed by this section exceeds
the "tax," the excess may be carried over to reduce the "tax" in the
following year, and succeeding years if necessary, until the credit
is exhausted.
   (f) This section shall remain in effect only until December 1,
2015, and as of that date is repealed, unless a later enacted
statute, that is enacted before December 1, 2015, deletes or extends
that date.
   SEC. 51.   SEC. 57.   Section 14026.7 is
added to the Welfare and Institutions Code, to read:
   14026.7.  (a) The State Department of Health Care Services shall
establish a computer modeling program to be used to prevent and
identify Medi-Cal fraud. The computer modeling program shall alert
the department when a provider does any of the following:
   (1) Bills the department for a service or procedure using a high
acuity Current Procedural Terminology (CPT) code with a frequency
over 20 percent higher than the frequency the average provider in the
same specialty or setting uses the same code.
   (2) Bills the department with the identical CPT code more than
once for the same patient for the same date of service.
   (3) Bills the department for the identical procedural service,
which does not include an office visit, for the same patient more
than once within a 12-month period.
   (b) When the department receives an alert from the computer
modeling program established pursuant to subdivision (a), the
department shall conduct a Medi-Cal fraud investigation if the
department determines an investigation is appropriate under the
circumstances.
   SEC. 52.   SEC. 58.   Section 14029.7 is
added to the Welfare and Institutions Code, to read:
   14029.7.  The State Department of Health Care Services shall
ensure the existence and operation of a single searchable Internet
Web site, accessible by the public at no cost, that specifies
Medi-Cal expenditures, including a line item breakdown of
administrative overhead and provider and health care expenses.
   SEC. 53.   SEC. 59.   Section 14043.26
of the Welfare and Institutions Code is amended to read:
   14043.26.  (a) (1) On and after January 1, 2004, an applicant that
currently is not enrolled in the Medi-Cal program, or a provider
applying for continued enrollment, upon written notification from the
department that enrollment for continued participation of all
providers in a specific provider of service category or subgroup of
that category to which the provider belongs will occur, or, except as
provided in subdivisions (b) and (e), a provider not currently
enrolled at a location where the provider intends to provide
services, goods, supplies, or merchandise to a Medi-Cal beneficiary,
shall submit a complete application package for enrollment,
continuing enrollment, or enrollment at a new location or a change in
location.
   (2) Clinics licensed by the department pursuant to Chapter 1
(commencing with Section 1200) of Division 2 of the Health and Safety
Code and certified by the department to participate in the Medi-Cal
program shall not be subject to this section.
   (3) Health facilities licensed by the department pursuant to
Chapter 2 (commencing with Section 1250) of Division 2 of the Health
and Safety Code and certified by the department to participate in the
Medi-Cal program shall not be subject to this section.
   (4) Adult day health care providers licensed pursuant to Chapter
3.3 (commencing with Section 1570) of Division 2 of the Health and
Safety Code and certified by the department to participate in the
Medi-Cal program shall not be subject to this section.
   (5) Home health agencies licensed pursuant to Chapter 8
(commencing with Section 1725) of Division 2 of the Health and Safety
Code and certified by the department to participate in the Medi-Cal
program shall not be subject to this section.
   (6) Hospices licensed pursuant to Chapter 8.5 (commencing with
Section 1745) of Division 2 of the Health and Safety Code and
certified by the department to participate in the Medi-Cal program
shall not be subject to this section.
   (b) A physician and surgeon licensed by the Medical Board of
California or the Osteopathic Medical Board of California practicing
in an individual physician practice, who is enrolled and in good
standing in the Medi-Cal program, and who is changing locations of
that individual physician practice within the same county, shall be
eligible to continue enrollment at the new location by filing a
change of location form to be developed by the department. The form
shall comply with all minimum federal requirements related to
Medicaid provider enrollment. Filing this form shall be in lieu of
submitting a complete application package pursuant to subdivision
(a).
   (c) (1) Except as provided in paragraph (2), within 30 days after
receiving an application package submitted pursuant to subdivision
(a), the department shall provide written notice that the application
package has been received and, if applicable, that there is a
moratorium on the enrollment of providers in the specific provider of
service category or subgroup of the category to which the applicant
or provider belongs. This moratorium shall bar further processing of
the application package.
   (2) Within 15 days after receiving an application package from a
physician, or a group of physicians, licensed by the Medical Board of
California or the Osteopathic Medical Board of California, or a
change of location form pursuant to subdivision (b), the department
shall provide written notice that the application package or the
change of location form has been received.
   (d) (1) Except as provided in paragraph (4), if the application
package submitted pursuant to subdivision (a) is from an applicant or
provider who meets the criteria listed in paragraph (2), the
applicant or provider shall be considered a preferred provider and
shall be granted preferred provisional provider status pursuant to
this section and for a period of no longer than 18 months, effective
from the date on the notice from the department. The ability to
request consideration as a preferred provider and the criteria
necessary for the consideration shall be publicized to all applicants
and providers. An applicant or provider who desires consideration as
a preferred provider pursuant to this subdivision shall request
consideration from the department by making a notation to that effect
on the application package, by cover letter, or by other means
identified by the department in a provider bulletin. Request for
consideration as a preferred provider shall be made with each
application package submitted in order for the department to
                                      grant the consideration. An
applicant or provider who requests consideration as a preferred
provider shall be notified within 60 days whether the applicant or
provider meets or does not meet the criteria listed in paragraph (2).
If an applicant or provider is notified that the applicant or
provider does not meet the criteria for a preferred provider, the
application package submitted shall be processed in accordance with
the remainder of this section.
   (2) Except as provided in paragraph (4), to be considered a
preferred provider, the applicant or provider shall meet all of the
following criteria:
   (A) Hold a current license as a physician and surgeon issued by
the Medical Board of California or the Osteopathic Medical Board of
California, which license shall not have been revoked, whether stayed
or not, suspended, placed on probation, or subject to other
limitation.
   (B) Be a current faculty member of a teaching hospital or a
children's hospital, as defined in Section 10727, accredited by the
Joint Commission or the American Osteopathic Association, or be
credentialed by a health care service plan that is licensed under the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code) or county organized health system, or be a current member in
good standing of a group that is credentialed by a health care
service plan that is licensed under the Knox-Keene Act.
   (C) Have full, current, unrevoked, and unsuspended privileges at a
Joint Commission or American Osteopathic Association accredited
general acute care hospital.
   (D) Not have any adverse entries in the federal Healthcare
Integrity and Protection Data Bank.
   (3) The department may recognize other providers as qualifying as
preferred providers if criteria similar to those set forth in
paragraph (2) are identified for the other providers. The department
shall consult with interested parties and appropriate stakeholders to
identify similar criteria for other providers so that they may be
considered as preferred providers.
   (4) (A) For purposes of this paragraph, an applicant shall only
include the following:
   (i) Dentists.
   (ii) Physicians and surgeons.
   (iii) Osteopathic physicians and surgeons.
   (iv) Nurse anesthetists.
   (v) Nurse practitioners.
   (vi) Physician assistants.
   (B) Notwithstanding paragraphs (1) and (2) or any other provision
of law, on and after January 1, 2010, an applicant submitting an
application to the department pursuant to subdivision (a) shall be
granted preferred provisional provider status if he or she meets both
the following conditions:
   (i) The applicant is in good standing as a provider under the
federal Medicare Program.
   (ii) The applicant is in good standing with his or her state
licensing board.
   (C) In order for the department to determine if the applicant
satisfies the conditions specified in subparagraph (B), the
application package shall include the applicant's National Provider
Identifier issued pursuant to Subpart D of Part 162 of Title 42 of
the Code of Federal Regulations and state professional license
number.
   (D) Within 15 days after receiving an application package
submitted pursuant to subdivision (a) from a provider to which this
paragraph applies, the department shall provide written notice that
the application package has been received.
   (E) (i) If the application package is from an applicant who
satisfies the conditions specified in subparagraph (B), the applicant
shall be considered a preferred provisional provider and shall be
granted preferred provisional provider status, effective from the
date the department received the application package.
   (ii) The department shall provide written notice to an applicant
or provider informing them whether they meet the criteria listed in
subparagraph (B) within 30 days after receiving the application
package.
   (e) (1) If a Medi-Cal applicant meets the criteria listed in
paragraph (2), the applicant shall be enrolled in the Medi-Cal
program after submission and review of a short form application to be
developed by the department. The form shall comply with all minimum
federal requirements related to Medicaid provider enrollment. The
department shall notify the applicant that the department has
received the application within 15 days of receipt of the
application. The department shall issue the applicant a provider
number or notify the applicant that the applicant does not meet the
criteria listed in paragraph (2) within 90 days of receipt of the
application.
   (2) Notwithstanding any other provision of law, an applicant or
provider who meets all of the following criteria shall be eligible
for enrollment in the Medi-Cal program pursuant to this subdivision,
after submission and review of a short form application:
   (A) The applicant's or provider's practice is based in one or more
of the following: a general acute care hospital, a rural general
acute care hospital, or an acute psychiatric hospital, as defined in
subdivisions (a) and (b) of Section 1250 of the Health and Safety
Code.
   (B) The applicant or provider holds a current, unrevoked, or
unsuspended license as a physician and surgeon issued by the Medical
Board of California or the Osteopathic Medical Board of California.
An applicant or provider shall not be in compliance with this
subparagraph if a license revocation has been stayed, the licensee
has been placed on probation, or the license is subject to any other
limitation.
   (C) The applicant or provider does not have an adverse entry in
the federal Healthcare Integrity and Protection Data Bank.
   (3) An applicant shall be granted provisional provider status
under this subdivision for a period of 12 months.
   (f) Except as provided in subdivision (g), within 180 days after
receiving an application package submitted pursuant to subdivision
(a), or from the date of the notice to an applicant or provider that
the applicant or provider does not qualify as a preferred provider
under subdivision (d), the department shall give written notice to
the applicant or provider that any of the following applies, or shall
on the 181st day grant the applicant or provider provisional
provider status pursuant to this section for a period no longer than
12 months, effective from the 181st day:
   (1) The applicant or provider is being granted provisional
provider status for a period of 12 months, effective from the date on
the notice.
   (2) The application package is incomplete. The notice shall
identify additional information or documentation that is needed to
complete the application package.
   (3) The department is exercising its authority under Section
14043.37, 14043.4, or 14043.7, and is conducting background checks,
preenrollment inspections, or unannounced visits.
   (4) The application package is denied for any of the following
reasons:
   (A) Pursuant to Section 14043.2 or 14043.36.
   (B) For lack of a license necessary to perform the health care
services or to provide the goods, supplies, or merchandise directly
or indirectly to a Medi-Cal beneficiary, within the applicable
provider of service category or subgroup of that category.
   (C) The period of time during which an applicant or provider has
been barred from reapplying has not passed.
   (D) For other stated reasons authorized by law.
   (g) Notwithstanding subdivision (f), within 90 days after
receiving an application package submitted pursuant to subdivision
(a) from a physician or physician group licensed by the Medical Board
of California or the Osteopathic Medical Board of California, or
from the date of the notice to that physician or physician group that
does not qualify as a preferred provider under subdivision (d), or
within 90 days after receiving a change of location form submitted
pursuant to subdivision (b), the department shall give written notice
to the applicant or provider that either paragraph (1), (2), (3), or
(4) of subdivision (f) applies, or shall on the 91st day grant the
applicant or provider provisional provider status pursuant to this
section for a period no longer than 12 months, effective from the
91st day.
   (h) (1) If the application package that was noticed as incomplete
under paragraph (2) of subdivision (f) is resubmitted with all
requested information and documentation, and received by the
department within 60 days of the date on the notice, the department
shall, within 60 days of the resubmission, send a notice that any of
the following applies:
   (A) The applicant or provider is being granted provisional
provider status for a period of 12 months, effective from the date on
the notice.
   (B) The application package is denied for any other reasons
provided for in paragraph (4) of subdivision (f).
   (C) The department is exercising its authority under Section
14043.37, 14043.4, or 14043.7 to conduct background checks,
preenrollment inspections, or unannounced visits.
   (2) (A) If the application package that was noticed as incomplete
under paragraph (2) of subdivision (f) is not resubmitted with all
requested information and documentation and received by the
department within 60 days of the date on the notice, the application
package shall be denied by operation of law. The applicant or
provider may reapply by submitting a new application package that
shall be reviewed de novo.
   (B) If the failure to resubmit is by a provider applying for
continued enrollment, the failure shall make the provider also
subject to deactivation of the provider's number and all of the
business addresses used by the provider to provide services, goods,
supplies, or merchandise to Medi-Cal beneficiaries.
   (C) Notwithstanding subparagraph (A), if the notice of an
incomplete application package included a request for information or
documentation related to grounds for denial under Section 14043.2 or
14043.36, the applicant or provider shall not reapply for enrollment
or continued enrollment in the Medi-Cal program or for participation
in any health care program administered by the department or its
agents or contractors for a period of three years.
   (i) (1) If the department exercises its authority under Section
14043.37, 14043.4, or 14043.7 to conduct background checks,
preenrollment inspections, or unannounced visits, the applicant or
provider shall receive notice, from the department, after the
conclusion of the background check, preenrollment inspection, or
unannounced visit of either of the following:
   (A) The applicant or provider is granted provisional provider
status for a period of 12 months, effective from the date on the
notice.
   (B) Discrepancies or failure to meet program requirements, as
prescribed by the department, have been found to exist during the
preenrollment period.
   (2) (A) The notice shall identify the discrepancies or failures,
and whether remediation can be made or not, and if so, the time
period within which remediation must be accomplished. Failure to
remediate discrepancies and failures as prescribed by the department,
or notification that remediation is not available, shall result in
denial of the application by operation of law. The applicant or
provider may reapply by submitting a new application package that
shall be reviewed de novo.
   (B) If the failure to remediate is by a provider applying for
continued enrollment, the failure shall make the provider also
subject to deactivation of the provider's number and all of the
business addresses used by the provider to provide services, goods,
supplies, or merchandise to Medi-Cal beneficiaries.
   (C) Notwithstanding subparagraph (A), if the discrepancies or
failure to meet program requirements, as prescribed by the director,
included in the notice were related to grounds for denial under
Section 14043.2 or 14043.36, the applicant or provider shall not
reapply for three years.
   (j) If provisional provider status or preferred provisional
provider status is granted pursuant to this section, a provider
number shall be used by the provider for each business address for
which an application package has been approved. This provider number
shall be used exclusively for the locations for which it is issued,
unless the practice of the provider's profession or delivery of
services, goods, supplies, or merchandise is such that services,
goods, supplies, or merchandise are rendered or delivered at
locations other than the provider's business address and this
practice or delivery of services, goods, supplies, or merchandise has
been disclosed in the application package approved by the department
when the provisional provider status or preferred provisional
provider status was granted.
   (k) Except for providers subject to subdivision (c) of Section
14043.47, a provider currently enrolled in the Medi-Cal program at
one or more locations who has submitted an application package for
enrollment at a new location or a change in location pursuant to
subdivision (a), or filed a change of location form pursuant to
subdivision (b), may submit claims for services, goods, supplies, or
merchandise rendered at the new location until the application
package or change of location form is approved or denied under this
section, and shall not be subject, during that period, to
deactivation, or be subject to any delay or nonpayment of claims as a
result of billing for services rendered at the new location as
herein authorized. However, the provider shall be considered during
that period to have been granted provisional provider status or
preferred provisional provider status and be subject to termination
of that status pursuant to Section 14043.27. A provider that is
subject to subdivision (c) of Section 14043.47 may come within the
scope of this subdivision upon submitting documentation in the
application package that identifies the physician providing
supervision for every three locations. If a provider submits claims
for services rendered at a new location before the application for
that location is received by the department, the department may deny
the claim.
   (l) An applicant or a provider whose application for enrollment,
continued enrollment, or a new location or change in location has
been denied pursuant to this section, may appeal the denial in
accordance with Section 14043.65.
   (m) (1) Upon receipt of a complete and accurate claim for an
individual nurse provider, the department shall adjudicate the claim
within an average of 30 days.
   (2) During the budget proceedings of the 2006-07 fiscal year, and
each fiscal year thereafter, the department shall provide data to the
Legislature specifying the timeframe under which it has processed
and approved the provider applications submitted by individual nurse
providers.
   (3) For purposes of this subdivision, "individual nurse providers"
are providers authorized under certain home- and community-based
waivers and under the state plan to provide nursing services to
Medi-Cal recipients in the recipients' own homes rather than in
institutional settings.
   (n) The amendments to subdivision (b), which implement a change of
location form, and the addition of paragraph (2) to subdivision (c),
the amendments to subdivision (e), and the addition of subdivision
(g), which prescribe different processing timeframes for physicians
and physician groups, as contained in Chapter 693 of the Statutes of
2007, shall become operative on July 1, 2008.
   SEC. 54.   SEC. 60.   Section 14079.7 is
added to the Welfare and Institutions Code, to read:
   14079.7.  (a) (1) Notwithstanding any other provision of this
chapter, on January 1, 2010, the reimbursement levels for
fee-for-service physician services under Medi-Cal shall be increased
to 80 percent of the amount that the federal Medicare Program
reimburses for these same services in Area 9 (Santa Clara County).
This reimbursement change shall apply only to services reimbursed at
rates below 80 percent of the amount that the federal Medicare
Program reimburses for these same services in Area 9.
   (2) After the implementation of the rate increase described in
paragraph (1), physician rates shall be increased annually in
accordance with the California Consumer Price Index.
   (b) The increase of reimbursement rates described in subdivision
(a) shall be made for fee-for-service physician services rendered on
or after January 1, 2010.
   SEC. 55.   SEC. 61.   Article 2.94
(commencing with Section 14091.50) is added to Chapter 7 of Part 3 of
Division 9 of the Welfare and Institutions Code, to read:

      Article 2.94.  The Medi-Cal Empowerment Act


   14091.50.  This article shall be known, and may be cited, as the
"Medi-Cal Empowerment Act."
   14091.51.  The Legislature finds and declares the following:
   (a) Medi-Cal provides health coverage to approximately 6.6 million
low-income, aged, and disabled beneficiaries at a total projected
cost for the 2006-07 fiscal year of $35 billion, $13.7 billion from
the General Fund.
   (b) Since 2000, General Fund expenditures on Medi-Cal have risen
by 44 percent.
   (c) In 2000, Medi-Cal expenditures comprised 13 percent of the
General Fund budget, but are projected to rise to 21 percent of the
General Fund budget by 2015.
   (d) Including federal funds, Medi-Cal expended about three
thousand seven hundred dollars ($3,700) per enrollee in the 2006-07
fiscal year.
   (e) Cost increases to the Medi-Cal program are unsustainable
without reductions in eligibility or benefits.
   (f) Medi-Cal is a large purchaser of health care services and
should share in the responsibility of helping stabilize runaway
health care costs that can contribute towards increasing the
population of the uninsured.
   (g) Empowering Medi-Cal beneficiaries to become more active
participants in their utilization of health care services will help
reduce the perceived or actual stigma associated with receiving
government assistance.
   (h) The federal Deficit Reduction Act of 2005 authorizes Medicaid
Demonstration Projects for up to 10 states to implement Health
Opportunity Accounts, that allow states to use federal matching
dollars to deposit up to two thousand five hundred dollars ($2,500)
per adult and one thousand dollars ($1,000) per child into an account
accessible by a Medicaid enrollee that can be used to pay for
out-of-pocket medical expenses to meet the deductible of an approved
insurance product of the enrollee's choice. As a national leader,
California should be one of these states.
   14091.52.  The State Department of Health Care Services shall
prepare and submit a proposal to the federal government by July 31,
2010, for participation in the Medicaid Demonstration Project for
Health Opportunity Accounts (HOA) in accordance with the federal
Deficit Reduction Act of 2005.
   14091.53.  The program design shall achieve the following:
   (a) Create patient awareness of the high cost of medical care.
   (b) Provide incentives to patients to seek preventive care
services, including one or more of the following:
   (1) Additional account contributions for an individual
demonstrating healthy prevention practices.
   (2) Periodic health evaluations, including tests and diagnostic
procedures ordered in connection with routine examinations, such as
annual physicals.
   (3) Routine prenatal and well-child care.
   (4) Child and adult immunizations.
   (5) Tobacco cessation programs.
   (6) Obesity weight loss programs.
   (7) Screening services.
   (8) Other incentives as determined by the department and agreed to
by the federal government under the demonstration project.
   (c) Reduce inappropriate use of health care services.
   (d) Enable patients to take responsibility for health outcomes.
   (e) Provide enrollment counselors and ongoing education
activities.
   (f) Allow transactions involving HOAs to be conducted
electronically and without cash.
   (g) Provide access to negotiated provider payment rates.
   14091.54.  (a) The department shall select up to 10 counties in
which to implement this demonstration project after considering the
per enrollee Medi-Cal cost in each county as well as the overall
Medi-Cal cost per county.
   (b) An eligible individual shall be enrolled into the
demonstration program only if the individual voluntarily enrolls.
   (c) Enrollment shall be effective for a period of 12 months, and
may be extended for additional periods of 12 months each with the
consent of the individual.
   (d) An individual who, for any reason, is disenrolled from the
demonstration program under this section shall not be permitted to
reenroll earlier than one year after disenrollment.
   14091.55.  (a) Insurance plans offered to enrollees who volunteer
to participate in the demonstration shall encompass all standard
Medi-Cal benefits.
   (b) The amount of the annual deductible shall be at least 100
percent and no more than 110 percent of the amount of the
contribution to the HOA.
   (c) The number of individuals enrolled in any managed care
organization that participate in this demonstration project shall not
be either of the following:
   (1) In excess of 5 percent of the total number of individuals
enrolled in the organization.
   (2) Significantly disproportionate to the proportion of similar
enrollees in other participating managed care organizations.
   (d) The state shall provide an adjustment in the per capita
payments to a participating managed care organization to account for
participation in the HOA. This shall take into account the difference
in the likely use of health care services between managed care
enrollees who participate in the HOA and managed care enrollees who
do not participate in the HOA.
   14091.56.  (a) The department may consider each participating
enrollee's health to determine the state's contribution into an
enrollee's HOA.
   (b) Funds in an individual's HOA may be used for the purchase of
medical services and private health care coverage authorized by the
department or offered by the individual's employer.
   (c) Charitable organizations may also contribute to an individual'
s HOA.
   (d) After the individual has satisfied the annual deductible,
alternative benefits for an eligible individual shall consist of at
least the benefits that would otherwise be provided to the
individual, including cost sharing relating to those benefits, if the
individual was not enrolled in the demonstration project.
   (e) After one year of participation in the program, an individual
may use HOA funds for job training or tuition expenses.
   (f) Any remaining funds in the individual's HOA shall carry over
into subsequent years, provided that the individual is enrolled in an
approved plan.
   (g) If an individual disenrolls from the program, all of the
following shall occur:
   (1) The state shall cease all contributions.
   (2) The HOA administrator shall remit 50 percent of the account to
the General Fund.
   (3) The remaining funds shall be used by the individual within
three years to purchase health insurance coverage or on any other
qualifying expenses, which may include job training or tuition
expenses.
   14091.57.  (a) The following individuals shall not be enrolled in
the demonstration project during the first five years after it is
approved:
   (1) Individuals who are 65 years of age or older.
   (2) Individuals who are disabled, regardless of whether or not
their eligibility for medical assistance under this title is based on
that disability.
   (3) Individuals who are eligible for medical assistance under this
title only because they are, or were, within the previous 60 days,
pregnant.
   (4) Individuals who have been eligible for medical assistance for
a continuous period of less than three months.
   (b) The following individuals within a category of assistance
described in Section 1937(a)(2)(B) of the federal Social Security Act
(42 U.S.C. Sec. 13960-7(a)(2)(B)) shall not be enrolled in the
demonstration project:
   (1) The individual is a pregnant woman who is required to be
covered under the state plan under Section 1902(a)(10)(A)(i) of the
federal Social Security Act (42 U.S.C. Sec. 1396a(a)(10)(A)(i)).
   (2) The individual qualifies for medical assistance under the
state plan on the basis of being blind or disabled, or being treated
as being blind or disabled, without regard to whether the individual
is eligible for supplemental security income benefits under Title XVI
of the federal Social Security Act (42 U.S.C. Sec. 1381 et seq.) on
the basis of being blind or disabled and including an individual who
is eligible for medical assistance on the basis of Section 1902(e)(3)
of the federal Social Security Act (42 U.S.C. Sec. 1396a(e)(3)).
   (3) The individual is entitled to Medicare benefits under any part
of Title XVIII of the federal Social Security Act (42 U.S.C. Sec.
1395 et seq.).
   (4) The individual is terminally ill and is receiving Medicare
benefits for hospice care.
   (5) The individual is an inpatient in a health facility, and is
required, as a condition of receiving services in that facility under
the state plan, to spend for costs of medical care all but a minimal
amount of the individual's income required for personal needs.
   (6) The individual is medically frail or otherwise an individual
with special medical needs as defined in Section 438.50(d) of Title
42 of the Code of Federal Regulations.
   (7) The individual qualifies based on medical condition for
medical assistance for long-term care services described in Section
1917(c)(I)(C) of the federal Social Security Act (42 U.S.C. Sec.
1396p(c)(I)(C)).
   (8) The individual is an individual with respect to whom aid or
assistance is made available under Part B (commencing with Section
450) of Title IV of the federal Social Security Act (42 U.S.C. Sec.
650 et seq.) to children in foster care, and individuals with respect
to whom adoption or foster care assistance is made available under
Part E (commencing with Section 470) of Title IV of the federal
Social Security Act (42 U.S.C. Sec. 670 et seq.), without regard to
age.
   (9) The individual qualifies for medical assistance on the basis
of eligibility to receive assistance under a state plan funded under
Part A (commencing with Section 401) of Title IV of the federal
Social Security Act (42 U.S.C. Sec. 601 et seq.), as in effect on or
after August 26, 1996.
   (10) The individual is a woman who is receiving medical assistance
by virtue of the application of Section 1902(a)(10)(ii)(XVIII) of
the federal Social Security Act (42 U.S.C. 1396a(a)(10)(ii)(XVIII)),
and Section 1902(aa) of the federal Social Security Act (42 U.S.C.
Sec. 1396a(aa)).
   (11) The individual qualifies for medical assistance on the basis
of Section 1902(a)(10)(A)(ii)(XII) of the federal Social Security Act
(42 U.S.C. Sec.                                               1396a
(a)(10)(A)(ii)(XII)) or is not a qualified alien (as defined in the
Personal Responsibility and Work Opportunity Reconciliation Act of
1996) and receives care and services necessary for the treatment of
an emergency medical condition in accordance with Section 1903(v) of
the federal Social Security Act (42 U.S.C. Sec. 1396b(v)).
   14091.58.  The department shall coordinate administration of HOAs
through the use of a third-party administrator and may implement
appropriate policies and procedures for implementation of this
demonstration project consistent with federal laws, regulations, and
other guidance.
   14091.59.  The department shall annually report to the Governor
and the Legislature on the results of this demonstration project.
   SEC. 56.   SEC. 62.   Section 14132.104
is added to the Welfare and Institutions Code, to read:
   14132.104.  (a) On or before January 1, 2011, the department shall
provide or arrange for the provision of an electronic personal
health record (PHR) and an electronic personal benefits record (PBR)
for beneficiaries under the Medi-Cal program. The records shall be
provided for the purpose of providing beneficiaries with information
to assist them in understanding their coverage benefits and managing
their health care.
   (b) The PBR shall provide access to real-time, patient-specific
information regarding eligibility for covered benefits, cost-sharing
requirements, and claims history. That access can be provided through
the use of an Internet-based system. Inclusion of this data shall be
at the option of the beneficiary.
   (c) The PHR shall incorporate personal health information,
including, but not limited to, medical history, laboratory results,
prescription history, and other personal health information
authorized or provided by the beneficiary. The PHR shall not be
provided through the use of an Internet-based system. Inclusion of
this additional data shall be at the option of the beneficiary.
   (d) Systems, software, or devices that pertain to the PBR and PHR
shall adhere to accepted national standards for interoperability,
privacy, and data exchange, or shall be certified by a nationally
recognized certification body.
   (e) The PBR and PHR shall comply with applicable state and federal
confidentiality and data security requirements.
   SEC. 57.   SEC. 63.   Section 14132.105
is added to the Welfare and Institutions Code, to read:
   14132.105.  (a) (1) The department may establish a Healthy Action
Incentives and Rewards Program to be provided as a covered benefit
under the Medi-Cal program.
   (2) The benefits described in this section shall only be provided
under the terms and conditions determined by the department.
   (b) For purposes of this section, the Healthy Action Incentives
and Rewards Program may include, but need not be limited to, all of
the following:
   (1) Health risk appraisals that collect information from eligible
beneficiaries to assess overall health status and identify risk
factors, including, but not limited to, smoking and smokeless tobacco
use, alcohol abuse, drug use, nutrition, and physical activity
practices.
   (2) A followup appointment with a licensed health care
professional acting within his or her scope of practice to review the
results of the health risk appraisal and discuss any recommended
actions.
   (3) Incentives or rewards or both for eligible beneficiaries to
become more engaged in their health care and to make appropriate
choices that support good health, including obtaining health risk
appraisals, screening services, immunizations, or participating in
healthy lifestyle programs or practices. These programs or practices
may include, but need not be limited to, smoking cessation, physical
activity, or nutrition. Incentives may include, but need not be
limited to, nonmedical pharmacy products or services not otherwise
covered under this chapter, gym memberships, and weight management
programs.
   (c) The department shall seek and obtain federal financial
participation and secure all federal approvals, including all
required state plan amendments or waivers, necessary to implement and
fund the services authorized under this section.
   (d) This section shall be implemented only if and to the extent
that federal financial participation is available and has been
obtained.
   SEC. 58.   SEC. 64.   Section 14133 of
the Welfare and Institutions Code is amended to read:
   14133.  Utilization controls that may be applied to the services
set forth in Section 14132 which are subject to utilization controls
shall be limited to:
   (a) Prior authorization, which is approval by a department
consultant, of a specified service in advance of the rendering of
that service based upon a determination that the service is covered
under Medi-Cal.
   (b) Postservice prepayment audit, which is review for program
coverage after service was rendered but before payment is made.
Payment may be withheld or reduced if the service rendered was not a
covered benefit. Nothing in this subdivision shall supersede the
claims processing deadlines provided by Section 14104.3.
   (c) Postservice postpayment audit, which is review for program
coverage after service was rendered and the claim paid. The
department may take appropriate steps to recover payments made if
subsequent investigation uncovers evidence that the claim should not
have been paid.
   (d) Limitation on number of services, which means certain services
may be restricted as to number within a specified time frame.
   (e) Review of services pursuant to Professional Standards Review
Organization agreements entered into in accordance with Section
14104.
   SEC. 59.   SEC. 65.   Section 14164.5 is
added to the Welfare and Institutions Code, to read:
   14164.5.  Before making any adjustment to Medi-Cal reimbursement
rates, the State Department of Health Care Services shall consider
the extent to which Medi-Cal beneficiaries have the ability to access
physician services by geography and specialty and shall also request
data from the Office of Statewide Health Planning and Development to
allow the department to determine the extent of Medi-Cal physician
shortages, if any, by geography and specialty.
   SEC. 60.   SEC. 66.   Division 23
(commencing with Section 23000) is added to the Welfare and
Institutions Code, to read:

      DIVISION 23.  PAYMENT OF HOSPITALS AND HEALTH CARE PROVIDERS
PROVIDING SERVICES TO UNINSURED PERSONS


   23000.  (a) For purposes of this division, the following
definitions shall apply:
   (1) "Claimant" means a hospital or health care provider that has
filed a claim with the department for unpaid health care services
pursuant to this division.
   (2) "Debtor" means an individual who received health care services
from claimant, has not paid for those services, and was not covered
by a health insurance policy or plan and was not eligible to receive
health care benefits under a government program at the time he or she
received services from the claimant.
   (3) "Department" means the State Department of Health Care
Services.
   (4) "Director" means the Director of Health Care Services.
   (5) "Health care provider" means any person licensed or certified
pursuant to Division 2 (commencing with Section 500) of the Business
and Professions Code, or licensed pursuant to the Osteopathic
Initiative Act or the Chiropractic Initiative Act, or certified
pursuant to Chapter 2.5 (commencing with Section 1440) of Division 2
of the Health and Safety Code, and any clinic, health dispensary, or
health facility licensed pursuant to Division 2 (commencing with
Section 1200) of the Health and Safety Code.
   (b) A hospital or health care provider may file a claim with the
department to be reimbursed for health care services it has provided
if both of the following conditions have been met:
   (1) The health care services were provided to an individual who,
at the time he or she received health care services from the
claimant, was not covered by a health insurance policy or plan and
was not eligible to receive health care benefits under a government
program.
   (2) The individual who received the health care services has not
paid the hospital or health care provider for those services.
   (c) Both of the following conditions shall apply to a claim filed
pursuant to subdivision (b):
   (1) The claim is filed 90 days or more after the health care
services were provided to the debtor.
   (2) The claimant includes the following information in the claim:
   (A) The identity of the debtor.
   (B) The amount owed to the claimant for health care services
provided.
   (d) Upon receiving the claim, the director shall determine whether
the claim is meritorious on its face. If the director determines the
claim is meritorious on its face, he or she shall certify the debt
to the Franchise Tax Board and the California Lottery Commission to
have the debt satisfied with any tax refund or lottery prize money
owed to the debtor.
   (e) When a claim is certified to the Franchise Tax Board and the
California Lottery Commission, the certification shall include the
following:
   (1) Identity of the debtor.
   (2) Amount of money owed to the claimant.
   (f) If the director certifies the debt, the debt shall constitute
a debt owed to the department.
   (g) Upon receiving a certification of debt pursuant to this
section, the Franchise Tax Board and the California Lottery
Commission shall, respectively, determine if the debtor is owed a tax
refund or lottery prize money. If the debtor is owed a tax refund or
lottery prize money, the Franchise Tax Board or the California
Lottery Commission, as appropriate, shall notify the debtor by
certified mail of the following:
   (1) The amount of money owed to the claimant for health care
services.
   (2) That the debtor's tax refund or lottery prize money shall be
reduced by the amount owed to the claimant.
   (3) The debtor's right to a fair hearing, pursuant to subdivision
(h), to object to the Franchise Tax Board's or California Lottery
Commission's actions.
   (h) The Franchise Tax Board and the California Lottery Commission
shall comply with the following when deducting money from the debtor'
s tax refund or lottery prize money:
   (1) If the tax refund or lottery prize money is more than the debt
owed to the claimant, the debtor shall receive the remaining
difference within a reasonable time after the excess amount is
determined.
   (2) Under no circumstances shall the money deducted from the tax
refund or lottery prize money exceed the sum of the amount owed to
the claimant and any administrative costs incurred by the department
and the Franchise Tax Board or California Lottery Commission in
implementing this division.
   (3) Delinquent taxes owed by the debtor shall be paid off using
the debtor's tax refund or lottery prize money before any deductions
are made from the tax refund or lottery prize money to settle the
debt owed by the debtor to the department pursuant to this division.
   (i) If the debtor disagrees with actions taken by the Franchise
Tax Board or California Lottery Commission pursuant to this division,
he or she shall have the right to receive a fair hearing from the
board or commission, as applicable.
   (j) After the Franchise Tax Board deducts money from the debtor's
tax refund or the California Lottery Commission deducts money from
the debtor's lottery prize money, the Franchise Tax Board and
California Lottery Commission shall transfer the money to the
department.
   (k) Upon receiving the money from the debtor's tax refund or
lottery prize money, or both, the department shall settle the debt
owed to the claimant. At the time of settlement, the claimant shall
be charged by the department for administrative expenses associated
with implementing this division, but under no circumstances shall the
administrative expenses exceed 20 percent of the collected amount.
   (l) The director, the Franchise Tax Board, and the California
Lottery Commission shall jointly promulgate regulations necessary to
administer the provisions of this division.
   SEC. 61.   SEC. 67.   On or before March
1, 2014, the Legislative Analyst shall report to the Legislature on
the effectiveness of the tax credits provided by Sections 17053.77
and 23677 of the Revenue and Taxation Code, as added by this act,
upon employed Californians' ability to meet deductible medical
expenses incurred under qualified health insurance plans.
   SEC. 62.   SEC. 68.   (a) The amendments
made by this act to Sections 17072, 17215, and 19184 of the Revenue
and Taxation Code incorporate, by reference, the provisions of
Section 1201 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173), which added Section
223 of the Internal Revenue Code to Part VII of Subchapter B of
Chapter 1 of Subtitle A of the Internal Revenue Code and amended
Sections 62, 106, 125, and 220 of the Internal Revenue Code, and
shall apply retroactively to taxable years beginning on or after
January 1, 2009.
   (b) The Legislature finds and declares that this act fulfills a
statewide public purpose because of the following:
   The State of California has not yet conformed its state income tax
law to the provisions of Section 1201 of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (Public Law
108-173). As a result, the taxpayers who have converted their Archer
Medical Savings Accounts into Health Savings Accounts pursuant to
Sections 220 and 223 of the Internal Revenue Code may be subject to
tax and penalties under state, but not federal, income tax laws. This
act provides necessary relief from the tax and penalties to the
taxpayers who have converted their Archer Medical Savings Accounts
into Health Savings Accounts in taxable years beginning on or after
January 1, 2009.
   (c) If, by the operation of any law or rule of law, including res
judicata, a refund or credit of any overpayment of tax resulting from
the retroactive application of the amendments made to Sections
17072, 17215, and 19184 of the Revenue and Taxation Code by this act
is prevented at any time before the close of the two-year period
beginning on the effective date of this act, that refund or credit
may nonetheless be made or allowed, provided that the claim for
refund or credit is filed before the close of that period.
   SEC. 63.   SEC. 69.   (a) The
Legislature finds and declares all of the following:
   (1) Currently, a significant percentage of Californians seek
nonemergency health care services from hospital emergency
departments.
   (2) A hospital emergency department is an expensive place to seek
primary care services.
   (3) Community-based primary care clinics offer a cost-effective,
high-quality alternative to hospital emergency departments for people
seeking access to primary care services.
   (4) Expanded primary care clinic capacity will mean that fewer
people will seek nonemergency services from hospital emergency
departments, which will allow these emergency departments to better
focus on patients with truly emergent conditions.
   (5) As expanded primary care clinic capacity will result in fewer
people seeking services from expensive emergency departments, it is
appropriate to redirect funds currently going to hospitals for the
care of Medi-Cal beneficiaries and the uninsured, and use these funds
to expand the capacity of existing clinics and increase the overall
number of clinics in California.
   (b) Notwithstanding any other provision of law, the Director of
Health Care Services shall provide to the Legislature, no later than
July 1, 2010, a plan to permit funds currently available to hospitals
pursuant to Article 5.2 (commencing with Section 14166) of Chapter 7
of Part 3 of Division 9 of the Welfare and Institutions Code, to be
used instead to increase access to primary care services through the
creation of new clinics and the expansion of existing clinics, as
defined in Chapter 1 (commencing with Section 1200) of Division 2 of
the Health and Safety Code.
   (c) The director shall determine the amount of funds to be
redirected annually pursuant to the plan using a methodology that
considers both anticipated and actual changes in the numbers of
patients seeking nonemergency services at clinics and hospital
emergency departments. The director may include other relevant data
in the methodology.
   (d) The plan developed pursuant to subdivision (b) shall do both
of the following:
   (1) Give priority access of the redirected funds to interested
clinics and organizations that have an explicit commitment to, and a
demonstrated record of, serving uninsured individuals and those
enrolled in public programs, such as the Medi-Cal program and the
Healthy Families Program.
   (2) Include a transition plan that minimizes disruptions in
existing patient access to health care services and to the hospitals
currently receiving the funding.
   (e) The director shall seek all necessary federal waivers in order
to implement the plan developed pursuant to subdivision (b). The
plan shall not be implemented without subsequent statutory
authorization.
   SEC. 64.   SEC. 70.   It is the intent
of the Legislature to enact legislation that would realign Medi-Cal
benefits to more closely resemble benefits offered through private
health care coverage.
   SEC. 65.   SEC. 71.   It is the intent
of the Legislature to enact legislation that would establish a pilot
project in which Medi-Cal managed care is used as a platform to
transition from a defined-benefit system, where the state pays for
services used based on a defined set of benefits, to a
defined-contribution system, where Medi-Cal enrollees would be
assigned a risk-adjusted amount to purchase private health care
coverage.
   SEC. 66.   SEC. 72.   It is the intent
of the Legislature to enact legislation that would establish a pilot
project that utilizes a self-directed "cash and counseling" model for
providing Medi-Cal services to disabled Medi-Cal enrollees. Under a
"cash and counseling" model, disabled Medi-Cal enrollees, with
assistance from family members and Medi-Cal case managers, would be
given an individual budget to manage and direct payment for their
personal care services and enable them to determine which supportive
services they want and from whom they wish to have these services
delivered.
   SEC. 67.   SEC. 73.   The Legislature
hereby finds and declares all of the following:
   (a) Federal law requires hospitals to provide health care services
to anyone who enters an emergency room, regardless of ability to pay
or immigration status.
   (b) The federal government does not provide full compensation to
cover the costs of providing this health care coverage.
   (c) The Legislature hereby memorializes the Congress and President
of the United States to enact legislation that would provide full
reimbursement for the costs of providing federally mandated health
care services to anyone, regardless of immigration status.
   SEC. 68.   SEC. 74.   It is the intent
of the Legislature to enact legislation that would relieve the
overutilization of hospital emergency rooms by allowing hospitals to
offer preventative medical services delivered through the hospital's
primary care or community-based clinic.
   SEC. 69.   SEC. 75.   It is the intent
of the Legislature to enact legislation that would impose
consequences on attorneys and litigants who do either of the
following:
   (a) File at least two lawsuits within a five-year period against
one or more health care providers if the providers are found to have
given appropriate care that did not contribute to a patient's
complications.
   (b) File a lawsuit against a health care provider that is
dismissed with prejudice.
   SEC. 70.   SEC. 76.   It is the intent
of the Legislature to enact legislation that would provide incentives
to employers who offer health insurance, flex-time work schedules,
and other benefits agreed upon by employers and employees.
   SEC. 71.   SEC. 77.   No reimbursement
is required by this act pursuant to Section 6 of Article XIII B of
the California Constitution because the only costs that may be
incurred by a local agency or school district will be incurred
because this act creates a new crime or infraction, eliminates a
crime or infraction, or changes the penalty for a crime or
infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIII B of the California Constitution.