BILL ANALYSIS
AB 2470
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Date of Hearing: April 14, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2470 (De La Torre) - As Introduced: February 19, 2010
Policy Committee: Health Vote:13-5
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes requirements for health plans licensed by
the Department of Managed Health Care (DMHC) and health insurers
(carriers) subject to regulation by the California Department of
Insurance (CDI), related to rescission, or the retroactive
cancellation of health coverage. Specifically, this bill:
1)Requires DMHC and CDI to establish regulations for standard
information and health history questions for use in individual
health care coverage application forms. Requires carriers to
adopt and implement written medical underwriting policies and
procedures, and to file the policies and procedures with the
respective regulator for use after January 1, 2012.
2)Requires carriers to complete medical underwriting prior to
issuing an insurance policy. After an individual policy is
issued, prohibits the cancellation or rescission of the
contract or policy unless specified conditions are met with
respect to an applicant intentionally misrepresenting or
omitting information.
3)Requires DMHC and CDI to establish an independent review
process (IRP) by January 1, 2012, to review health plan and
insurer decisions to cancel or rescind individual health plan
contracts. Requires all decisions to cancel or rescind be
reviewed in the IRP, unless the policy holder opts-out of the
process.
FISCAL EFFECT
1)One-time fee-supported special fund costs in the range of $2
million to DMHC and CDI, combined, to establish regulations,
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confer on standardized forms, and establish an IRP process for
cancellation decisions. Annual fee-supported special fund
costs of $300,000, combined.
2)The recently enacted federal Patient Protection and Affordable
Care Act (P.L. 111-148) prohibits rescissions across the
health care market, effective in six months and contains
similar language to this bill regarding the intentional
misrepresentation of health data by an applicant. Therefore,
this bill simply conforms those features of state law to the
new federal law. Other features of this bill are not contained
in federal reform. The other provisions of the bill are those
requiring substantial CDI and DMHC workload.
COMMENTS
1)Rationale . This bill is sponsored by the California Medical
Association (CMA) to increase regulatory authority over
rescissions. According to the author, the standardization and
increased oversight established by this bill will improve
underwriting and reduce rescissions in the individual health
insurance market. While most Californians receive health
coverage via employer plans or public program coverage, 2.6
million individuals buy coverage in the individual market,
which has fewer consumer protections and can result in
rescissions, or the retroactive cancellation of health
coverage. Between 500 and 1,500 health policies have been
rescinded in recent years.
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
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
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the enrollee but also medical providers who rendered services.
3)Concerns . Health plans and insurers oppose this bill due to
concern about the intentional misrepresentation standard
established by this bill. It appears the recently enacted
federal health reform establishes the same standard
established in this bill. Therefore carrier opposition to this
provision of the bill may recede. Carriers also have other
concerns about this bill regarding case law, costs, and
coverage restriction.
4)Related Legislation . AB 2 (De La Torre) in 2009 and AB 1945
(De La Torre) in 2008 were similar to this bill. Each bill was
vetoed due to concerns that the legislation was not necessary
because both CDI and DMHC have taken strong regulatory actions
in the area of rescission and that other bills have been
enacted that address related issues.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081