BILL ANALYSIS
AB 2
Page 1
GOVERNOR'S VETO
AB 2 (De La Torre)
As Amended August 17, 2009
2/3 vote
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|ASSEMBLY: |45-26|(June 3, 2009) |SENATE: |24-13|(September 8, |
| | | | | |2009) |
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|ASSEMBLY: |49-26|(September 10, | | | |
| | |2009) | | | |
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Original Committee Reference: HEALTH
SUMMARY : Imposes specific requirements and standards on health
care service plans licensed by the Department of Managed Health
Care (DMHC) and health insurers subject to regulation by the
California Department of Insurance (CDI), (collectively
carriers) related to the application forms, medical
underwriting, and notice and disclosure of rights and
responsibilities for individual, non-group health plan
contracts, and health insurance policies, including the
establishment of an independent external review system related
to carrier decisions to cancel or rescind an individual's health
care coverage. Specifically, this bill :
1)Requires DMHC and CDI to jointly establish, by regulation,
standard information and health history questions that
carriers must use in individual health care coverage
application forms, as specified, including a pool of approved
questions for use in applications, and prohibits applications
from containing any other questions except for the approved
questions.
2)Requires carriers to complete medical underwriting prior to
issuing a health plan contract or health insurance policy, and
establishes the elements of a reasonable investigation of the
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applicant's health history information, as specified.
3)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, to ensure that the carrier meets specified
requirements relating to application review.
4)Requires carriers to send a copy of a written application to
an individual within ten days after coverage is issued and to
include a specified notice.
5)Prohibits, after an individual contract or policy is issued,
the cancellation or rescission of the contract or policy
unless all of the following apply:
a) There was a material misrepresentation or material
omission in the application prior to the issuance of the
contract or policy that would have prevented the contract
from being entered into;
b) The carrier completed medical underwriting as specified
prior to issuing the coverage;
c) The carrier demonstrates that the applicant
intentionally misrepresented or intentionally omitted
information on the application prior to the issuance of
coverage, with the purpose of misrepresenting his or her
health history; in order to obtain health care coverage;
d) The application form was approved by DMHC or CDI; and,
e) The carrier complied with the requirement to send the
complete application to the applicant along with the
written notice as required under 4) above.
6)Specifies that, notwithstanding the prohibition against
rescission in this bill, coverage may be canceled or not
renewed for failure to pay the premium as provided in existing
law.
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7)Authorizes carriers to conduct a "postcontract investigation,"
if the carrier obtains information that a covered person may
have intentionally misrepresented or intentionally omitted
information on the application, and requires carriers to send
a specified notice within five days to the covered person that
the investigation may lead to rescission or cancellation of
the covered person's coverage. Establishes specific timelines
and notice requirements related to the investigation.
8)Requires carriers to continue to authorize and provide all
medically necessary services until the effective date of a
cancellation or rescission, and establishes the effective date
of cancellation or any rescission as no earlier than the date
of certified notice to the covered person that the independent
review organization established in this bill has made a
determination upholding the decision to cancel or rescind.
9)Establishes, commencing January 1, 2011, within DMHC and CDI
an independent review process (IRP) for decisions to cancel or
rescind individual health plan contracts or individual health
insurance policies and requires that all carrier decisions to
cancel or rescind be reviewed in the IRP, unless the covered
person opts-out of the process.
10)Establishes the rules for operation of the IRP, requires DMHC
and CDI to contract or otherwise arrange for one or more
independent not-for-profit organizations to conduct IRPs, and
sets the standards for selection of the review organizations,
including conflict of interest standards.
11)Requires DMHC and CDI to immediately adopt the IRP
determination and promptly issue a written decision to the
parties that is binding on the carrier and after removing the
names of the parties, as specified, make available to the
public IRP decisions adopted by DMHC and CDI, at cost, and
after considering applicable laws governing disclosure of
public records, confidentiality, and persons privacy.
12)Prohibits carriers from engaging in conduct to prolong the
IRP, subject to a specific administrative penalty of $5,000
for each day the IRP is prolonged or an IRP decision is not
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implemented, as specified.
13)Imposes a per case assessment on carriers to support the
costs of the IRP, but exempts carriers that do not cancel or
rescind contracts from the fees and assessments established.
14)Requires, on and after January 1, 2010, carriers to report
the number of individual contracts and policies issued and the
number where the carrier initiated a cancellation or
rescission, and requires DMHC and CDI to annually post the
information on the respective department Internet Web sites,
as specified.
The Senate amendments :
1)Require that revenues from administrative penalties imposed on
carriers for prolonging an independent review of a rescission,
or for failure to timely implement an independent review
decision, be deposited into the Major Risk Medical Insurance
Fund, to be used, upon appropriation to the Legislature, for
the Major Risk Medical Insurance Program.
2)Exempt specialized dental health plans from the provisions of
this bill.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version passed by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, special fund costs for CDI and DMHC 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
this bill would be approximately $100,000 annually for CDI and
$1 million to $3.4 million in start-up costs and $135,000
ongoing for DMHC.
GOVERNOR'S VETO MESSAGE :
I have repeatedly indicated I would support a bill
that provides strong statutory protections for
consumers against inappropriate rescissions by health
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plans. However, this bill continues to have a
provision that benefits trial lawyers rather than
consumers. I remain comfortable sending this bill
back for a second time without my signature because of
the strong consumer protections the Department of
Managed Health Care and Department of Insurance have
successfully implemented over the past two years. The
number of rescissions industry-wide has decreased
significantly since 2005. Millions of dollars have
been assessed against health plans and insurers;
corrective action plans have been received and
approved; revised consumer disclosures have been
reviewed for literacy, consistency and compliance with
the settlement agreements; and lastly, the two
departments are working together to ensure that all
health plans meet the same standards of fairness and
full disclosure. The market has changed and it is
because of my Administration's strong action in this
area.
The precedent-setting 4th District Court of Appeals
decision in Hailey v. Blue Shield relied heavily on
the Department of Managed Health Care's amicus brief.
The court's reliance on this brief speaks to the
strong work of the Department and the balance required
when enacting consumer protections and ensuring access
to the individual health plan market. I have no
interest in overturning that appellate decision and
the definitive interpretation of the post-claims
underwriting statute.
In addition, I have signed targeted measures that
prohibit plans from financially incentivizing their
employees to rescind or cancel policies; require plans
to offer coverage to families when the individual on
the contract has been rescinded or cancelled; and most
recently, I have signed Assembly Bill 108 that will
prohibit a health plan from rescinding or canceling a
contract after 24 months.
I would request that the Legislature send me a bill
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that codifies the Hailey decision, as I have asked for
since 2008. When that occurs, I will be happy to sign
that bill.
Analysis Prepared by: Marjorie Swartz / HEALTH / (916)
319-2097
FN: 0003415