BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 730
                                                                  Page  1

          Date of Hearing:   May 13, 2009  

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Kevin De Leon, Chair

                 AB 730 (De La Torre) - As Amended:  April 29, 2009  

          Policy Committee:                              Health Vote:12-3
                       Judiciary                              9-1 

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill increases the maximum civil penalty for health  
          insurance post-claims underwriting from $118 per violation to  
          $5,000 per violation for insurers regulated by the California  
          Department of Insurance (CDI). 

           FISCAL EFFECT  

          Minor absorbable workload to CDI to continue oversight of health  
          insurers in the individual insurance market. 

           COMMENTS  

            1) Rationale  . This bill is sponsored by CDI to align civil  
             penalties levied against health insurers more closely with  
             those imposed by the Department of Managed Health Care  
             (DMHC), which regulates health plans. In recent cases related  
             to rescission, or the retroactive cancellation of a health  
             policy, CDI fined a large insurer $429 per member or $1  
             million total for 2,300 canceled policies. In contrast, DMHC  
             fined the same insurer $10 million for canceling 1,800 member  
             contracts. The DMHC fine was equal to $5,000 per member  
             cancellation. This bill increases proportionality of fines  
             between code sections governing health plans and health  
             insurers. 

            2)Post-Claims Underwriting and Rescission  . The practice of  
             waiting for a major health care claim to be submitted for  
             payment, then investigating a patient's medical history, and  
             canceling or rescinding the policy retroactively is known as  
             post-claims underwriting. Post-claims underwriting means  








                                                                  AB 730
                                                                  Page  2

             health plans and insurers are using the underwriting process  
             after the fact, instead of before coverage is offered.  
             Rescission involves a determination by the plan or insurer  
             that, as a result of application errors or omissions, the  
             contract between plan and enrollee never existed, and  
             therefore any health care services the enrollee received are  
             not covered by the health plan or insurer and are to be paid  
             by the enrollee. When a health plan rescinds a policy, this  
             affects not only the enrollee but also medical providers who  
             rendered services.  

           Analysis Prepared by  :    Mary Ader / APPR. / (916) 319-2081