BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           108 (Hayashi)
          
          Hearing Date:  8/27/2009        Amended: 7/23/2009
          Consultant: Katie Johnson       Policy Vote: Health 7-3
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 108 would prohibit health care service plans  
          and health insurers from rescinding plan contracts or insurance  
          policies for any reason after 24 months following their  
          issuance.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11      2011-12     Fund
                                                                  
          DMHC enforcement         $600       $1,100   $1,000Special*

          Increased MRMIP                 unknown, potential cost  
          pressures in the Special**
          eligibility              hundreds of thousands to millions of  
          dollars

          *Managed Care Fund
          **Major Risk Medical Insurance Fund, which consists of  
          Proposition 99 funds, Managed Care Administrative Fines and  
          Penalties Fund monies
          _________________________________________________________________ 
          ____

          STAFF COMMENTS:  SUSPENSE FILE.

          Existing law provides for the regulation of health care service  
          plans and health insurers by the Department of Managed Health  
          Care (DMHC) and the California Department of Insurance (CDI),  
          respectively.

          After 24 months from the issuance of an individual health care  
          service plan contract or an individual health insurance policy,  
          this bill would prohibit health plans and insurers from  
          rescinding a plan contract or insurance policy for any reason.  
          Additionally, this bill would prohibit the canceling, limiting,  
          or raising premiums of plan contract or insurance policy due to  










          any omissions, misrepresentations, or inaccuracies on the  
          application form, whether willful or not.

          Any increase in administrative or enforcement costs to CDI would  
          be minor and absorbable. Preliminary analysis indicates that the  
          costs to DMHC would be at least $1.2 million initially and  
          approximately $1 million ongoing to use actuaries to inspect the  
          insurance products for compliance with these provisions. In  
          addition to monitoring whether or not a health plan cancels or  
          limits a policy, which is relatively straightforward, the  
          enforcement costs increase when DMHC would need to inspect a  
          health plan's accounting for increases in premiums.

          To the extent that this bill strengthens health plans and  
          insurers' underwriting practices and increases the population of  
          uninsured people, there would be pressure put on the Major Risk  
          Medical Insurance Program (MRMIP). MRMIP provides health  
          insurance to 
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          AB 108 (Hayashi)

          individuals who cannot secure adequate coverage on the  
          individual market. It is funded by Proposition 99 tobacco tax  
          revenue, a portion of the fines and penalties deposited in the  
          Managed Care Administrative Fines and Penalties Fund, and  
          enrollee premiums. 

          MRMIP currently caps its enrollment at 7,100 people and  
          maintains a waiting list. It is unknown how many people would be  
          uninsurable as a result of this bill and due to increased  
          underwriting by health plans and insurers. 

          This bill is substantially similar to AB 2549 (Hayashi) of 2008,  
          which would have prohibited health plans and health insurers  
          from rescinding a health plan contract or an insurance policy  
          after 18 months from the time of its issuance. AB 2549 was held  
          in the Senate Appropriations Committee.