BILL ANALYSIS
AB 108
Page 1
ASSEMBLY THIRD READING
AB 108 (Hayashi)
As Amended March 24, 2009
Majority vote
HEALTH 13-6 APPROPRIATIONS 11-5
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|Ayes:|Jones, Ammiano, Block, |Ayes:|De Leon, Ammiano, Charles |
| |Carter, De La Torre, | |Calderon, Davis, Fuentes, |
| |De Leon, Hall, Hayashi, | |Hall, John A. Perez, |
| |Hernandez, Bonnie | |Price, Skinner, Solorio, |
| |Lowenthal, Nava, V. | |Torlakson |
| |Manuel Perez, Salas | | |
| | | | |
|-----+--------------------------+-----+---------------------------|
|Nays:|Fletcher, Adams, Conway, |Nays:|Nielsen, Duvall, Harkey, |
| |Emmerson, Gaines, Audra | |Miller, Audra Strickland |
| |Strickland | | |
| | | | |
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SUMMARY : Prohibits health plans and health insurers, after 18
months from the issuance of an individual health plan contract
or health insurance policy, from rescinding the individual
coverage for any reason, and prohibits canceling, limiting, or
raising premiums in a contract or policy due to any omissions,
misrepresentations, or inaccuracies in the application form,
whether willful or not.
EXISTING LAW :
1)Provides for regulation of health plans by Department of
Managed Health Care (DMHC) under the Knox-Keene Health Care
Service Plan Act of 1975 (Knox-Keene) and for regulation of
health insurers by the California Department of Insurance
(CDI) under the Insurance Code.
2)Prohibits health plans and health insurers from engaging in
"post-claims underwriting," defined as rescinding, canceling,
or limiting of a plan contract due to a plan or insurer's
failure to complete medical underwriting and resolve all
reasonable questions arising from written information
submitted on or with an application before issuing the plan
contract or policy. For health plans regulated by DMHC,
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provides that the prohibition against post-claims underwriting
does not limit a plan's remedies upon a showing of willful
misrepresentation.
3)Prohibits a health plan or health insurer from rescinding or
modifying an authorization for services after the service is
rendered, for any reason, including but not limited to, the
health plan or health insurer's subsequent rescission,
cancellation, or modification of the enrollee or insured's
contract or policy, or the health plan or health insurer's
subsequent determination that the carrier did not make an
accurate determination of the enrollee or subscriber's
eligibility.
4)Requires applications for health plan contracts and health
insurance policies to conform to certain standards for
underwriting, including clear and unambiguous questions, when
health-related questions are used to ascertain an applicant's
health, and requires questions relating to the health
condition or health history of the applicant to be based on
medical information reasonable and necessary for medical
underwriting purposes.
5)Prohibits health insurers but not health plans from voiding
(rescinding) a policy or denying a claim based on
misstatements in the application after two years, except for
fraudulent misrepresentations, sometimes referred to as an
incontestability clause for insurance purposes.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, absorbable workload to DMHC and CDI to continue
oversight of the individual insurance market, including
enforcement related to this bill and other rescission-related
issues.
COMMENTS : "Rescission" is the process whereby insurers cancel
health coverage on the basis of alleged missing or incomplete
information on the part of the insured person at the time of
application. Rescission involves a determination by the plan
that the contract between the plan and the enrollee never
existed because of a misrepresentation by the enrollee at the
time of application, and that; therefore, any health care
services the enrollee received during the entire time of the
contract are to be paid for by the enrollee. Rescission is what
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is known as an equitable remedy, where the remedy is meant to
put the parties back to their original status, with premiums
refunded to the enrollee, and any health services paid for by
the plan owed by the enrollee.
The practice of waiting for a health care claim to come in and
then canceling or rescinding the policy retroactively is known
as post-claims underwriting. Post-claims underwriting is
essentially using the underwriting process after the fact
instead of before coverage is offered. In health coverage,
because of the dual regulatory frameworks of DMHC and CDI, there
are different statutory provisions that apply to health plans
under DMHC and health insurers under CDI in this area.
Post-claims underwriting is prohibited under both Knox-Keene and
the Insurance Code and health plans under both frameworks are
required to complete medical underwriting and to have answered
all reasonable questions arising from written information
submitted on or with an application prior to issuing the
coverage. Under Knox-Keene, the statute provides that the
prohibition against post-claims does not restrict a plan's
ability to rescind coverage in cases where the patient has
engaged in willful misrepresentation. The section of law
prohibiting post-claims underwriting in the Insurance Code does
not include the same specific reference to rescissions based on
willful misrepresentation.
The California Medical Association writes in support that this
bill is an important consumer protection and provides more
stability for patients by making it harder for health insurers
to rescind coverage in order to avoid paying for health care
services. The American Federation of State, County and
Municipal Employees argues that Californians lose their health
care coverage based on decisions made by the health plan or
insurer they have applied to and that these decisions leave
those most in need of health care without it. Consumer
Attorneys of California (CAC) supports a prior version of this
bill, describing it as a step in the right direction, which CAC
states will protect consumers from unscrupulous insurers and
health plans that go through a patient's medical records to find
an excuse to rescind their health care policy. CAC points out
that rescissions based on innocent mistakes hurt patients when
they are most vulnerable and in need of health care.
Health Access California has a support if amended position,
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requesting that the timeframe allowing for rescissions be
shortened to prohibit rescission after twelve months. Health
Access argues that insurers and health plans sell coverage to
individuals and then rescind coverage later when the enrollee
actually needs health care and they write that this practice
appears to affect several thousand people each year. Blue
Shield of California, on the other hand, seeks amendments
consistent with the Insurance Code provisions they argue
currently requires that a contract between an insurer and an
enrollee cannot be rescinded after two years, except in the
instance of fraud. Blue Shield further states that eighteen
months is too short a limitation and that they do not understand
why anyone who is found to commit fraud should be able to retain
their coverage after any time period.
The California Association of Health Plans (CAHP) writes in
opposition that this bill would bar rescission after eighteen
months regardless of whether the enrollee misrepresented,
omitted, or lied about an existing health condition. CAHP
states that rescission is an important tool based on basic
contract law, and ensures that if applicants misrepresent their
health status at the signing of that contract then the health
plan has the right to later rescind coverage. CAHP argues that
this bill will lead to fraud and abuse because potential
enrollees will understand that they can falsify applications for
coverage and, if they can avoid detection for 18 months, will
secure coverage for a major medical condition. The Association
of California Life and Health Insurance Companies and CAHP argue
that while only one tenth of 1% of individual policies are
rescinded, because only 5% of beneficiaries account for more
than half of health care expenditures, it takes only a few
people misrepresenting themselves to increase the premiums for
everyone. The California Association of Health Underwriters
(CAHU) states that applicants have incentives to omit
information or lie on applications in order to get insurance
coverage. CAHU has found that applicants who want coverage will
bend the truth, have short periods of amnesia and omit facts,
lie, or genuinely cannot remember. In these cases of
misrepresentation, if the information had been disclosed there
would have been no contract for coverage issued. CAHU writes
that since this bill would remove the fraudulent provision of
current law and reduce the time frame that a health plan has to
uncover the fraud; this bill would create a moral hazard and
expose those who were forthcoming on their applications to
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higher premiums to cover the costs of those who were not.
AB 2549 (Hayashi) of 2008 would have prohibited health plans and
health insurers from rescinding a health plan contract or health
insurance policy after six months from the time the contract is
effective for any reason. In its initial form, AB 2549
restricted rescissions and cancellations to a six-month period.
AB 2549 was held under submission on the Senate Appropriations
Suspense file.
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097
FN: 0000426