BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2110
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AUTHOR: De La Torre
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AMENDED: May 12, 2010
HEARING DATE: June 30, 2010
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CONSULTANT:
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Chan-Sawin/jl
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SUBJECT
Health care coverage: premium payments: grace periods
SUMMARY
Requires health insurance policies and health care service
contracts, issued, amended, or renewed on or after January
1, 2011, to provide a grace period of 50 days for the
payment of each premium falling due after the first
premium, during which the policy continues in force. Makes
enrollees and insureds, if they fail to pay the premium
owed during the grace period, liable for any medical costs
incurred during the grace period, except as specified.
CHANGES TO EXISTING LAW
Existing law:
Provides for the regulation of health plans and insurers by
the Department of Managed Health Care (DMHC) and the
California Department of Insurance (CDI), respectively.
Requires existing insurance policies regulated by CDI to
include a provision setting forth a grace period for making
premium payments, in specified formats. Requires the grace
period to be no less than seven days for weekly premium
policies, no less than ten days for monthly premium
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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policies, and no less than thirty-one days for all other
policies.
Prohibits the Insurance Commissioner from approving a
policy for issuance or delivery, and authorizes the
Commissioner to withdraw approval for a policy, if it fails
to meet these requirements.
This bill:
Requires individual health insurance policies and
individual health plan contracts, issued, amended, or
renewed on or after January 1, 2011, to provide a grace
period of 50 days for the payment of each premium falling
due after the first premium, during which the policy
continues in force.
Makes enrollees and insureds, if they fail to pay the
premium owed during the grace period, liable for any
medical costs incurred during the grace period, except as
specified.
Requires health plans and insurers, upon issuance,
amendment, or renewal of an individual contract or policy,
to provide a notice to the enrollee or insured of the grace
period, as specified.
Prohibits this bill from limiting the right of health plans
and insurers to recover unpaid premiums from an enrollee or
insured consistent with state and federal law.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, no direct fiscal impact to DMHC and CDI to
continue oversight of premium payment grace periods.
BACKGROUND AND DISCUSSION
While the California Insurance Code requires a grace period
before an insurance policy is cancelled, the author
believes it currently is not adequate to reflect these
challenging economic times. To illustrate this point, the
author points to earlier in the year, when Blue Shield
reduced their grace period for non-payment from 43 days to
just 28 days. This change came as jobless rates soared
above 12 percent in the state and Blue Shield and Anthem
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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Blue Cross agreed to pay a total of $13 million in fines,
after canceling the policies of more than 2,000
Californians after they became ill. Consumers were
informed of the changing grace period policy with less than
one month notice.
According to the author, once canceled, consumers had to
re-enroll in their plan or policy, putting them at risk of
having to purchase the same policy at a higher rate or
being denied coverage altogether. AB 2110 will change the
current sub-standard grace period so that consumers have an
adequate opportunity to make payments and keep their
coverage. In addition, this bill provides additional
consumer protections by requiring health plans and insurers
to notify consumers of this grace period policy.
The author asserts current grace periods are all over the
map and that some insurers are further restricting grace
periods. The author argues that this bill will ensure that
health plans and policies in the individual market provide
a reasonable grace period for payment of premiums in these
tough economic times, by placing into law a consistent
threshold of 50 days. The author also asserts that AB 2110
also ensures that if a policy is canceled for non-payment,
the consumer who fails to pay the premium during that
period is responsible for incurred medical costs.
Blue Shield's changes in grace period policy
On December 16, 2009, an article appeared in the Los
Angeles Times regarding Blue Shield's change in its grace
period policy for products in the individual market.
According to the article, Blue Shield sent a letter to
their policyholders notifying them that, effective January
1, 2010, coverage could be immediately dropped if a payment
is missed. If dropped, customers could reapply for
coverage, but could be declined based upon the customer's
medical condition. The article also reported that by Blue
Shield reducing their grace period from 43 days to 28 days,
Blue Shield was taking "a key benefit" away. According to
a Blue Shield spokesman who was quoted in the article, the
change was meant to "make everything uniform," but that the
grace period policy was not changing. In comparison, the
article cited Kaiser Permanente's policy of offering a
50-day grace period before a policy is canceled. According
to Kaiser, which has no position on this bill, if a member
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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has been terminated more than 3 times in a 12-month period
for non-payment of premiums, the member must wait 12 months
to reapply and must undergo a medical screening. Anthem
Blue Cross has publicly stated that it will not offer any
more than the state mandated grace period.
NAIC standard grace period
The National Association of Insurance Commissioners (NAIC),
which provides a forum for the development of uniform
policy when appropriate, has adopted model law provisions
related to grace periods. The Uniform Individual Accident
and Sickness Policy Provision Law includes the following
grace period language: "A grace period of [insert a number
not less than 7 for weekly premium policies, 10 for monthly
premium policies and 31 for all other policies] days will
be granted for the payment of each premium falling due
after the first premium, during which grace period the
policy shall continue in force."
The grace period language in NAIC's Group Health Insurance
Standards Model Act states: "A provision that the
policyholder is entitled to a grace period of [insert a
number not less than 7 for weekly premium policies, 10 for
monthly premium policies and 31 for all other policies]
days for the payment of any premium due except the first.
During the grace period the policy shall continue in force,
unless the policyholder has given the insurer written
notice of discontinuance in advance of the date of
discontinuance and in accordance with the terms of the
policy. The policy may provide that the policyholder shall
be liable to the insurer for the payment of a pro rata
premium for the time the policy was in force during the
grace period."
Arguments in support
Health Access writes that there have been reports of
predatory behavior, in which insurers are slow to give
premium notices to consumers, then cancel the policy for
late payment and offer to provide new coverage only if the
consumer passes medical underwriting. Health Access states
that, while the recently enacted federal health reform will
require guaranteed issue of health insurance in 2014, there
is nothing to prevent insurers from providing consumers
unreasonably short notice of overdue premiums and using
this as an excuse to drop sick customers and keep healthy
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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ones in the meantime.
The California Labor Federation writes that, in the current
economic downturn, families are struggling to make ends
meet and pay for basic necessities. The California Labor
Federation states that the extra days that this bill
provides will give families the time to scrape together
payments to keep their insurance that protects them from
additional hardship in the case of an accident or sickness.
A number of patient advocacy organizations, including AARP
and Consumers Union, write in support, stating that, in
this period of economic uncertainty, people sometimes need
extra time to be able to make payments and keep coverage.
Various provider groups, such as the California Medical
Association and the California Chiropractic Association,
states that this bill will add some flexibility to the
current grace period so that consumers have an adequate
opportunity to make payments and keep coverage.
Arguments in opposition
The Association of California Life and Health Insurance
Companies (ACLHIC) states that, under this bill, costs will
rise for consumers in California because the health insurer
will be forced to absorb the additional costs, or providers
will look for ways to recover the unpaid payments. ACLHIC
asserts that by increasing the grace period to 50 days, the
frequency of unpaid care will increase, and therefore
result in a cost shift to providers or the consumers.
America's Health Insurance Plans (AHIP) writes that the
grace periods currently required by California law are in
line with national standards of consumer protection,
including NAIC model laws, which were carefully calculated
not only to ensure that policyholders are able to continue
receiving care, but to protect them from the pitfalls of
falling behind on premium payments. AHIP further states
that, while it may seem helpful to extend grace periods,
there are unfortunately often circumstances when an
individual is unable to become current on their premium
payments after entering the grace period. AHIP states
that, for these individuals, it is even less likely that
they will be able to repay past premiums while "catching
up" to pay current premiums.
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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Health Net opposes AB 2110, arguing that, by extending the
grace period to 50 days, the bill will lead to health plans
and insurers absorbing the additional cost of uncompensated
care, the cost of which will be made up in the form of
higher premiums paid by other insureds and enrollees.
Contrary to the author's statements, Health Net believes
that the bill does not make an enrollee or insured, who
ultimately fails to pay their premium, liable for their
medical expenses incurred during the grace period, as this
provision does not apply when the medical service is
authorized by the plan or insurer. This does not provide
any meaningful protection for health plans or insurers,
since health plans and insurers continue to authorize
treatment during the grace period; to do otherwise would
not be in the best interest of Californians covered in the
individual market.
The California Association of Health Plans asserts that
this bill would increase health costs for all consumers, as
the cost of care provided during the extended grace period
must be taken into account by the plan. The California
Association of Health Underwriters also points out that the
current standard for all but a few products is 31 days, and
that 50 days is arbitrary.
The California Chamber of Commerce opposes this bill,
stating that it could further exacerbate California's
budget crisis by increasing health insurance costs at a
time that this state is still struggling through an
economic crisis, evidenced by one of the highest
unemployment rates in the nation.
Related bills
AB 2 (De La Torre) of 2009 among other things, would have
required an insurance policy, if it does not already do so,
to contain a provision for a grace period as specified for
the payment of each premium falling due after the first
premium, during which the policy shall continue in force.
Requires that the grace period be no less than 7 days for
policies providing for weekly payment of premium, no less
than 10 days for policies providing for monthly payment of
premium, and no less than 31 days for all other policies.
Vetoed by the Governor.
STAFF ANALYSIS OF ASSEMBLY BILL 2110 (De La Torre) Page
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AB 2470 (De La Torre) of 2010 as introduced, contained a
provision substantively similar to that in AB 2 (De La
Torre) of 2009. This provision was subsequently amended
out in later versions of the bill. Set for hearing on June
29, 2010 in Senate Judiciary Committee.
Prior legislation
AB 1945 (De La Torre) of 2007 was substantively similar to
AB 2 (De La Torre) of 2009 and AB 2470 (De La Torre) of
2009. Vetoed by the Governor.
AB 1324 (De La Torre), Chapter 702, Statutes of 2007,
prohibits a health plan or insurer from rescinding or
modifying an authorization for services after the service
is rendered, for any reason, including but not limited to,
the plan's subsequent rescission, cancellation or
modification of the enrollee or insured's contract or the
plan or insurer's subsequent determination that the plan or
insurer did not make an accurate determination of the
enrollee or subscriber's eligibility.
SB 1832 (Bergeson), Chapter 614, Statutes of 1994, among
other things, prohibits health plans and insurers that
authorize a specific type of treatment by a provider from
rescinding or modifying the authorization after the
provider renders the service in good faith and pursuant to
the authorization.
PRIOR ACTIONS
Assembly Health 13-6
Assembly Appropriations:11-5
Assembly Floor: 47-27
POSITIONS
Support: Health Access (sponsor)
AARP
America Federation of State, County and Municipal
Employees
California Chiropractic Association
California Labor Federation
California Medical Association
Consumers Union
JERICHO
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Planned Parenthood of California (PPAC)
Planned Parenthood Mar Monte
Planned Parenthood: Shasta-Diablo
Oppose: America's Health Insurance Plans
Association of California Life & Health Insurance
Companies
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
Health Net
Irvine Chamber of Commerce
Sacramento Metropolitan Chamber of Commerce
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