BILL ANALYSIS
AB 2
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Date of Hearing: May 13, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 2 (De La Torre) - As Amended: April 20, 2009
Policy Committee: Health Vote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes requirements for health plans licensed by
the Department of Managed Health Care (DMHC) and health insurers
(carriers) subject to regulation by the California Department of
Insurance (CDI), related to individual health insurance
application forms, medical underwriting, and notice and
disclosure of rights and responsibilities. Specifically, this
bill:
1)Requires DMHC and CDI to establish regulations and standard
information and health history questions that carriers must
use in individual health care coverage application forms.
Requires carriers to adopt and implement written medical
underwriting policies and procedures, and to file the policies
and procedures with the respective regulator on or before
January 1, 2011.
2)After an individual contract or policy is issued, prohibits
the cancellation or rescission of the contract or policy
unless specified conditions are met. Authorizes carriers to
conduct an investigation if the carrier obtains information
that a covered person may have intentionally misrepresented or
intentionally omitted application information.
3)Requires DMHC and CDI to establish an independent review
process (IRP) by January 1, 2011, to review health plan and
insurer decisions to cancel or rescind individual health plan
contracts. Requires all decisions to cancel or rescind be
reviewed in the IRP, unless the policy holder opts-out of the
process.
FISCAL EFFECT
AB 2
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1)One-time fee-supported special fund costs of $400,000 to DMHC
and CDI, combined, to establish regulations, confer on
standardized forms, and establish an IRP process for
cancellation decisions. Annual fee-supported special fund
costs of $200,000, combined. Between 500 and 1,500 health
policies have been rescinded in recent years.
2)One-time fee-supported special fund cost of $200,000 to DMHC
to CDI, combined, to develop and implement a standard
application form and health history questions.
COMMENTS
1)Rationale . This bill sponsored by the California Medical
Association (CMA) to increase regulatory authority over
rescissions. According to the author, the standardization and
increased oversight established by this bill will improve
underwriting and reduce rescissions in the individual health
insurance market. While most Californians receive health
coverage via employer plans or public program coverage, 2.6
million individuals buy coverage in the individual market,
which has fewer consumer protections and results in
rescissions, or the retroactive cancellation of health
coverage.
2)Post-Claims Underwriting and Rescission . The practice of
waiting for a major health care claim to be submitted for
payment, then investigating a patient's medical history, and
canceling or rescinding the policy retroactively is known as
post-claims underwriting. Post-claims underwriting means
health plans and insurers are using the underwriting process
after the fact, instead of before coverage is offered.
Rescission involves a determination by the plan or insurer
that, as a result of application errors or omissions, the
contract between plan and enrollee never existed, and
therefore any health care services the enrollee received are
not covered by the health plan or insurer and are to be paid
by the enrollee. When a health plan rescinds a policy, this
affects not only the enrollee but also medical providers who
rendered services.
Both DMHC and CDI have taken significant regulatory actions in
the past couple of years to levy penalties against health
plans and insurers related to policy cancellations. In
AB 2
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addition to recent regulatory action in the area of
rescission, a significant court case was not taken up by the
California Supreme Court in 2008, Hailey v. California
Physician's Service, 2007, Cal. App. 4th , allowing the Court
of Appeals decision to stand. The court held that health plans
are precluded from rescinding a health contract for a material
misrepresentation or omission unless the plan can demonstrate
the misrepresentation was willful or the plan made reasonable
efforts to ensure an application for coverage was correct.
3)Concerns . Health plans and insurers oppose this bill and are
concerned about the intentional standard established by this
bill with respect to individual insurance applications.
4)Related Legislation . AB 1945 (De La Torre), was similar to
this bill and was vetoed due to concerns about increased
litigation and costs.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081