BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2 (De La Torre)
Hearing Date: 8/27/2009 Amended: 8/17/2009
Consultant: Katie Johnson Policy Vote: Health 6-4
Judiciary 3-2
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BILL SUMMARY: AB 2 would establish requirements on health care
service plans and health insurers related to individual health
insurance application forms, medical underwriting, and notices
and disclosures of rights and responsibilities.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
CDI regulations, $60 $100 $100 Special*
question pool maintenance
DMHC regulations, filings, $500 - $1,700 $1,000 -
$3,400$135Special**
enforcement, independent
review contract
*Insurance Fund
**Managed Care Fund
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STAFF COMMENTS: SUSPENSE FILE.
Existing law provides for the regulation of health care service
plans by the Department of Managed Health Care (DMHC) and of
health insurers by the California Department of Insurance (CDI).
Existing law prohibits health plans and insurers from engaging
in "post-claims" underwriting, defined to mean the rescinding,
canceling, or limiting of a plan contract or insurance policy
due to the plan's or insurer's failure to complete medical
underwriting and resolve all reasonable questions relative to an
application for coverage before issuing the contract or policy.
For health care service plans regulated by DMHC, the prohibition
on post-claims underwriting does not limit a plan's remedies
upon a showing of willful misrepresentation.
DMHC and CDI would need significant resources to comply with
these provisions. Costs to promulgate regulations jointly,
develop and contract for independent review services, develop
standardized application questions, receive and review
applications, and to otherwise implement and enforce these
provisions would be approximately $100,000 annually for CDI and
$1,000,000 - $3,400,000 in start-up costs and $135,000 ongoing
for DMHC. It is unknown how many cancellations and rescissions
health plans and insurers would pursue annually. In recent
years, both DMHC and CDI have taken significant regulatory
action to levy penalties on plans and insurers who engaged in
unlawful post-claims underwriting.
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AB 2 (De La Torre)
This bill would exempt health care service plan contracts for
coverage issued under Medi-Cal, the Healthy Families Program,
the Access for Infants and Mothers program, the federal Medicare
program, and dental plans.
Specifically, this bill would:
1) require DMHC and CDI to jointly establish regulations
that set standard information and health history questions
that would be used by all health plans and insurers
commencing six months after their adoption;
2) require individual health plans and insurance
applications to be reviewed and approved by DMHC and CDI
before they may be used on and after January 1, 2011;
3) require health plans and insurers to complete medical
underwriting prior to issuing a contract or policy and to
adopt and implement written medical underwriting policies
and procedures as specified;
4) require health plans and insurers to file their medical
underwriting policies and procedures with DMHC or CDI on or
before January 1, 2011;
5) allow an applicant 30 days to review his or her
application and correct any errors;
6) prohibit a health plan or insurer from rescinding an
issued individual health care contract or individual
insurance policy, as specified;
7) provide that an enrollment or individual policy may be
canceled or not renewed due failure to pay the required
charge for coverage;
8) permit the health plan or insurer to investigate any
potential omissions or alleged misrepresented material;
9) commencing January 1, 2011, establish independent review
processes in DMHC and CDI for the purpose of reviewing
proposed rescissions or cancellations of contracts or
policies;
10) a health plan or insurer must continue to
authorize and provide all medically necessary health care
services until the effective date of cancellation or
rescission;
11) require that all health plan and insurer
decisions to cancel or rescind a health plan contract or
insurance policy be reviewed by the independent review
organization unless the enrollee or insured opts out of the
independent review process;
12) require a health plan or insurer to
prominently display information concerning the right of an
enrollee or insured to an automatic independent review in
the cases where a plan or insurer has decided to pursue
cancellation or rescission of a health plan contract or
insurance policy;
13) require DMHC and CDI to expeditiously review
independent review requests and immediately notify the
enrollee or subscriber or insured or policyholder, in
writing, about the independent review process;
14) require the independent review organization to
conduct the review as specified;
15) require DMHC and CDI on or before January 1,
2011, to contract with one or more independent
organizations in the state to conduct independent reviews
of proposed health plan contract or insurance policy
cancellations and rescissions;
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AB 2 (De La Torre)
16) require the director of DMHC and the
commissioner of CDI to immediately adopt the determination
of the independent review organization and to promptly
issue a written decision to the parties involved in the
review;
17) independent review organization decisions may
be made available to the public upon request, after DMHC
and CDI have removed the names of the parties and complying
with applicable privacy laws;
18) permit DMHC and CDI to assess an
administrative penalty of not less than $5,000 on a health
plan or insurer that engages in any conduct that would
prolong the independent review process;
19) provide that DMHC penalties would be deposited
into the Managed Care Administrative Fines and Penalties
Fund and that CDI penalties would be deposited in the Major
Risk Medical Insurance Fund;
20) require DMHC and CDI to perform annual audits
of independent review cases;
21) require that the costs of the independent
review process be borne by the affected health plan or
health insurer;
22) require that on and after January 1, 2010,
every health plan and insurer would annually report to DMHC
and CDI, respectively, the total number of individual
health plan contracts and health insurance policies issued,
the total number of contracts and policies that the plan or
insurer initiated or completed a cancellation or
rescission;
23) require DMHC and CDI, on or before March 31,
2010, and annually thereafter, to publish information filed
pursuant to these provisions on their websites.
AB 1945 (De La Torre) of 2008 was similar to this bill. It was
vetoed by the Governor for the following reasons:
"Unfortunately, the provisions of this bill will only increase
costs and further restrict access for over 2 million
Californians that currently obtain coverage in the individual
market. My administration proposed comprehensive legislation to
address this problem. In particular, my proposal contained
several strong consumer protections that this bill fails to
address. My proposal established a standard application to
remove any possibility of plans using different health questions
to disadvantage applicants. This bill does not contain that
protection. My proposal required agents and brokers to sign
under penalty of perjury that they had not altered an
applicant's answers. Penalties were levied if they engaged in
this unscrupulous behavior. This bill does not contain that
protection. My proposal clearly outlined the rules that plans
and insurers had to follow when considering whether to offer a
contract to an applicant. This bill does not contain that
protection. My proposal didn't allow plans to rescind or cancel
if a doctor failed to inform a patient of a medical condition.
This bill does not contain that protection. My proposal
contained a two-year lookback protection that prevented plans
from rescinding or cancelling after two years. This bill does
not contain that protection. My proposal protected family
members and required coverage to be continued without additional
underwriting or increase in premiums. This bill does not
contain that protection. This bill was written by the attorneys
that stand to benefit from its provisions. In rushing to
protect a right to litigate, the proponents failed to consider
the real consumer protections that are needed."