BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2|
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THIRD READING
Bill No: AB 2
Author: De La Torre (D)
Amended: 8/17/09 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 6-4, 7/8/09
AYES: Alquist, Cedillo, DeSaulnier, Leno, Pavley, Wolk
NOES: Strickland, Cox, Maldonado, Negrete McLeod
NO VOTE RECORDED: Aanestad
SENATE JUDICIARY COMMITTEE : 3-2, 7/14/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/27/09
AYES: Kehoe, Corbett, Hancock, Leno, Oropeza, Wolk, Yee
NOES: Cox, Denham, Runner, Walters
NO VOTE RECORDED: Price, Wyland
ASSEMBLY FLOOR : 45-26, 6/3/09 - See last page for vote
SUBJECT : Health coverage
SOURCE : California Medical Association
DIGEST : This bill establishes 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.
CONTINUED
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ANALYSIS : 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 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.
This bill exempts 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:
1. Requires 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. Requires 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. Requires 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. Requires health plans and insurers to file their medical
underwriting policies and procedures with DMHC or CDI on
or before January 1, 2011.
5. Allows an applicant 30 days to review his/her
application and correct any errors.
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6. Prohibits a health plan or insurer from rescinding an
issued individual health care contract or individual
insurance policy, as specified.
7. Provides that an enrollment or individual policy may be
canceled or not renewed due failure to pay the required
charge for coverage.
8. Permits the health plan or insurer to investigate any
potential omissions or alleged misrepresented material.
9. Commencing January 1, 2011, establishes independent
review processes in DMHC and CDI for the purpose of
reviewing proposed rescissions or cancellations of
contracts or policies.
10.Provides that 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.Requires 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.Requires 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.Requires 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.Requires the independent review organization to conduct
the review, as specified.
15.Requires DMHC and CDI on or before January 1, 2011, to
contract with one or more independent organizations in
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the state to conduct independent reviews of proposed
health plan contract or insurance policy cancellations
and rescissions.
16.Requires 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.Provides that 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.Permits 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.Provides 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.Requires DMHC and CDI to perform annual audits of
independent review cases.
21.Requires that the costs of the independent review
process be borne by the affected health plan or health
insurer.
22.Requires 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.Requires DMHC and CDI, on or before March 31, 2010, and
annually thereafter, to publish information filed
pursuant to these provisions on their websites.
Prior legislation . AB 1945 (De La Torre), 2007-08 Session,
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was similar to this bill. The bill 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
canceling 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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/31/09)
California Medical Association (source)
American Cancer Society
American Federation of State, County and Municipal
Employees
California Academy of Family Physicians
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California Academy of Physician Assistants
California Alliance for Retired Americans
California Chiropractic Association
California Communities United Institute
California Nurses Association/National Nurses Organizing
Committee
California School Employees Association
California Society of Anesthesiologists
California Teachers Association
Congress of California Seniors
Consumer Attorneys of California
Consumer Watchdog
Health Access California
Latino Coalition for a Healthy California
Office of the Los Angeles City Attorney
OPPOSITION : (Verified 8/31/09)
Association of California Life and Health Insurance
Companies
Anthem Blue Cross (unless amended)
Blue Shield
California Association of Dental Plans (unless amended)
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
Civil Justice Association of California
Health Net
ARGUMENTS IN SUPPORT : The California Medical Association
(CMA), the bill's sponsor, states that the time has come
for an external review process to stop insurance plans from
acting as "judge and jury" when they rescind coverage. CMA
states that this bill provides protection for patients by
allowing regulators to independently review potential
rescissions and improves the process at the front end by
requiring carriers to develop applications using only a
pool of approved questions. Consumer Watchdog (CW) writes
that rescission of a health coverage policy following an
illness has a particularly harsh impact on the patient. CW
states that a rescinded policy is cancelled as of the day
it was sold, leaving patients in deep medical debt,
uninsured and virtually uninsurable, while facing ongoing
health care costs. CW believes that patients left without
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health coverage suffer great personal hardship or
bankruptcy and must often rely on overstretched public
health programs for ongoing medical treatment. CW states
that the bill merely reiterates what consumer advocates and
regulators have long said is the legal standard for health
plan rescission: patients cannot be retroactively
cancelled unless they lied about a health condition by
intentionally omitting or intentionally misrepresenting
health information when applying for coverage. CW believes
that this bill will end "gotcha" cancellations against
innocent patients who never knew of, or failed to
understand the significance of, a past medical problem.
Health Access California writes that, while a small number
of consumers are affected by the problem of post-claims
underwriting, it is a real one. They support this bill, in
part, because it includes a standardized questionnaire that
all health insurers and health plans must use for
underwriting of individual insurance. Health Access states
that current law allows each health insurer or health plan
to decide what to ask about and how to ask it, and that the
resulting forms are confusing, sometimes misleading and are
often not in plain language, and are often not translated
in the language spoken by limited-English speakers. Health
Access also believes that the standard for rescission under
the bill provides consumers greater protection from
rescission than the standard in existing law. The
California Nurses Association writes that it requests the
Legislature to send this bill back to the Governor in hopes
that he will keep a promise to protect Californians from
unlawful rescissions. Consumer Attorneys of California
write in support that this is a historic bill that will
help stop carriers from rescinding contracts based on the
innocent mistakes consumers make.
ARGUMENTS IN OPPOSITION : Health plans, business groups
and health underwriters oppose this bill and state that the
bill creates a near impossible burden-of-proof to
demonstrate and may force insurers to decline more
applicants. The California Association of Health Plans
(CAHP) states that rescission is an important tool based on
contract law that ensures that, if applicants misrepresent
their health status at the signing of the contract for
coverage, the health plan has recourse to rescind their
coverage due to a "lack of the meeting of the minds," which
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is a requirement for a contract. CAHP believes that, by
creating an intentional standard for every rescission case,
this bill will overturn the Hailey decision, and result in
increased litigation. CAHP also believes that, by
requiring an intentional standard, the bill will create a
disincentive for plans and insurers to enroll customers,
since the legal standard for rescinding coverage has been
raised, and will have devastating effects on the individual
market. CAHP and other groups point out that only
one-tenth of one percent of individual policies are
rescinded, yet it only takes a few people misrepresenting
their health status to increase costs for everyone, as just
five percent of beneficiaries account for more than half of
health care costs. In addition to the objections stated
above, Health Net expresses concern that the willful
standard in this bill will take effect prior to the process
for having new applications approved by the regulators.
Anthem Blue Cross states that the bill creates a standard
for underwriting that has no clear endpoint.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Blumenfield, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
Coto, Davis, De La Torre, De Leon, Eng, Evans, Feuer,
Fong, Fuentes, Furutani, Hayashi, Hernandez, Hill,
Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, John A. Perez, V. Manuel Perez,
Portantino, Price, Ruskin, Salas, Saldana, Skinner,
Swanson, Torlakson, Torres, Torrico, Bass
NOES: Adams, Anderson, Tom Berryhill, Blakeslee, Conway,
DeVore, Duvall, Fletcher, Fuller, Gaines, Garrick,
Gilmore, Hagman, Harkey, Huber, Jeffries, Knight, Logue,
Miller, Niello, Nielsen, Silva, Smyth, Audra Strickland,
Tran, Villines
NO VOTE RECORDED: Bill Berryhill, Block, Cook, Emmerson,
Galgiani, Hall, Nestande, Solorio, Yamada
DLW:mw 9/1/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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