BILL ANALYSIS
AB 2470
Page 1
ASSEMBLY THIRD READING
AB 2470 (De La Torre)
As Introduced February 19, 2010
Majority vote
HEALTH 13-5 APPROPRIATIONS 12-5
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|Ayes:|Monning, Ammiano, Carter, |Ayes:|Fuentes, Ammiano, |
| | | |Bradford, |
| |De La Torre, De Leon, | |Charles Calderon, Coto, |
| |Eng, Hayashi, Hernandez, | |Davis, Monning, Ruskin, |
| |Jones, Bonnie Lowenthal, | |Skinner, Solorio, |
| |Nava, V. Manuel Perez, | |Torlakson, Torrico |
| |Salas | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Conway, Emmerson, Gaines, |Nays:|Conway, Harkey, Miller, |
| |Smyth, Audra Strickland | |Nielsen, Norby |
| | | | |
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SUMMARY : Imposes specific requirements and standards on health
care service plans licensed by the Department of Managed Health
Care (DMHC) and health insurers subject to regulation by the
California Department of Insurance (CDI) (collectively carriers)
related to the application forms, medical underwriting, and
notice and disclosure of rights and responsibilities for
individual, non-group health plan contracts, and health
insurance policies. Specifically, this bill :
Underwriting Provisions
1)Requires DMHC and CDI to jointly establish, by regulation,
standard information and health history questions that
carriers must use in individual health care coverage
application forms, as specified, including a pool of approved
questions for use in applications, and prohibits applications
from containing any other questions except for the approved
questions.
2)Requires carriers to complete medical underwriting prior to
issuing a health plan contract or health insurance policy, and
establishes the elements of a reasonable investigation of the
applicant's health history information, as specified.
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3)Requires carriers to adopt and implement written medical
underwriting policies and procedures, to be filed with the
respective regulator on or before January 1, 2012, to ensure
that the carrier meets specified requirements relating to
application review.
4)Requires carriers to send a copy of a written application with
a copy of the contract or policy to an individual within 10
days after coverage is issued and to include a specified
notice.
Rescission Provisions
5)Prohibits, after an individual contract or policy is issued,
its cancellation or rescission except under specified
circumstances. Permits, notwithstanding the prohibition
against rescission, coverage to be canceled or not renewed for
failure to pay premiums.
6)Authorizes carriers to conduct a "postcontract insurance
investigation," if the carrier obtains information that a
covered person may have intentionally misrepresented or
intentionally omitted information on the application, and
requires carriers to send a specified notice within five days
to the covered person that the investigation may lead to
rescission or cancellation of the covered person's coverage.
Establishes specific timelines and notice requirements related
to the investigation.
7)Requires carriers to continue to authorize and provide all
medically necessary services until the effective date of a
cancellation or rescission, and establishes the effective date
of cancellation or any rescission as no earlier than the date
of certified notice to the covered person that the independent
review organization established in this bill has made a
determination upholding the decision to cancel or rescind.
Independent Review Provisions
8)Establishes within DMHC and CDI, commencing January 1, 2012,
an independent review process (IRP) for decisions to cancel or
rescind individual health plan contracts or insurance policies
and requires that all carrier decisions to cancel or rescind
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be reviewed in the IRP, unless the covered person opts-out of
the process.
9)Establishes the rules for operation of the IRP, requires DMHC
and CDI to contract or otherwise arrange for one or more
independent not-for-profit organizations to conduct IRPs, and
sets the standards for selection of the review organizations.
10)Requires DMHC and CDI to immediately adopt the IRP
determination, promptly issue a written decision to the
parties that is binding on the carrier and, after removing the
names of the parties, as specified, make available to the
public IRP decisions, as specified.
11)Prohibits carriers from engaging in conduct to prolong the
IRP, subject to a specific administrative penalty of $5,000
for each day the IRP is prolonged or an IRP decision is not
implemented, as specified.
12)Imposes a per-case assessment on carriers to support the
costs of the IRP, but exempts carriers that do not cancel or
rescind contracts from the fees and assessments established.
13)Requires, on and after January 1, 2011, carriers to report
the number of individual contracts and policies issued and
where the carrier initiated a cancellation or rescission, and
requires DMHC and CDI to annually post the information on
their Web sites, as specified.
Other Provisions
14)Requires that revenues from administrative penalties imposed
on carriers for prolonging an IRP of a rescission, or for
failure to timely implement a decision, be deposited into the
Major Risk Medical Insurance Fund, to be used, upon
appropriation to the Legislature, for the Major Risk Medical
Insurance Program (MRMIP).
15)Exempts specialized dental health plans from the provisions
of this bill.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
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1)One-time fee-supported special fund costs in the range of $2
million to DMHC and CDI, combined, to establish regulations,
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 : According to the author, current law prohibits plans
and insurers from post claims underwriting, which includes
rescinding, canceling, or limiting a plan contract due to the
plan's failure to complete medical underwriting and resolve all
reasonable questions arising from the application. It is well
publicized that health plans and insurers have paid large
bonuses to their employees for rescission of policies, practiced
illegal rescission, and putting patients in harms way by
rescinding their health coverage when they need it most. The
author states this bill protects consumers from having their
health insurance coverage canceled or rescinded when they need
care by maintaining their current coverage while allowing
regulators to independently analyze and adjudicate on any
rescission, cancellation, or limitation of a policy.
"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
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
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the plan owed by the enrollee.
In 2007, DMHC concluded non-routine investigations of the five
largest plans regulated by the Knox-Keene Health Care Service
Plan Act of 1975 (Knox-Keene) related to rescissions of health
coverage. In 2008, DMHC reached agreements with Anthem Blue
Cross, Blue Shield, Health Net, Kaiser, and PacifiCare requiring
them to offer health care coverage to former members whose
policies they rescinded or cancelled over a four year period,
regardless of the former member's health condition. The
settlement also resulted in fines ranging from $50,000 to $10
million, with additional fines to be levied if the plans failed
to properly implement corrective action plans approved by DMHC.
The settlements require the plans to offer health care coverage
to former members whose policies they rescinded or cancelled
over the past four years, regardless of the former member's
health condition, and to reimburse the affected consumers for
out-of-pocket costs incurred after the policies were rescinded.
Arbitration was available if the consumer wanted to pursue other
damages. A neutral arbitrator was available to determine if the
rescission was wrongful and award damages. According to DMHC,
by the end of February 2009, of the 3,400 enrollees who were
identified as having coverage rescinded and required to be
reinstated under the settlements, all had been offered coverage.
Of those offered reinstatement, 170 had re-started coverage
(5%) and 300 (9%) have requested reimbursement under the terms
of the settlement. DMHC has approved the health plan corrective
action plans related to rescission policies and practices going
forward. Those changes however, are still in the process of
being implemented by the health plans, and will be reviewed by
DMHC.
In late 2008 and early 2009, CDI reached agreements with Anthem
Blue Cross, Blue Shield, and Health Net related to the insurers'
rescission of health insurance products subject to CDI's
jurisdiction. As part of the CDI settlements, insurers agreed
to offer coverage to consumers whose individual, family, or
short-term health policies were previously terminated without
subjecting them to medical underwriting or exclusions for
pre-existing conditions, and to pay or reimburse any medical
expenses that would have been covered under the rescinded
policies from the effective date of the rescinded policy to the
date of confirmed delivery of the Notice of settlement, if those
costs had not already been covered by another source. The CDI
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agreements do not allow the insurers to use the validity of the
rescission as a defense to any claim for reimbursement of
medical expenses. In the CDI settlements, insurers agreed to an
expedited independent arbitration process to resolve any
reimbursement disputes regarding coverage issues and/or the
amount of reimbursable expenses and to refer determinations
about medical necessity to an Independent Medical Review
Organization, at the cost of insurers. As part of the
settlements with CDI, insurers also agreed to make changes to
the application forms, underwriting process, agent and broker
training, notification to consumers and providers of an
investigation regarding information in the application, the
rescission appeals process, and internal audits and oversight of
its claims handling. Insurers also agreed to establish an
independent third party review process for rescissions going
forward and to review at least one source of information other
than the application in the pre-enrollment underwriting process
prior to issuing the policy.
Under the agreements with both DMHC and CDI, rescinded patients
can accept new coverage without forfeiting any legal rights but
must execute a release of any and all rescission-related claims
against plans or insurers in order to receive reimbursement for
out-of-pocket medical expenses.
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
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willful misrepresentation.
AB 1945 (De La Torre) of 2008 and AB 2 (De La Torre) of 2009
were substantially similar to this bill, and were both vetoed by
Governor Schwarzenegger, who stated in part:
I have repeatedly indicated I would support a bill that
provides strong statutory protections for consumers
against inappropriate rescissions by health plans.
However, this bill continues to have a provision that
benefits trial lawyers rather than consumers. I remain
comfortable sending this bill back for a second time
without my signature because of the strong consumer
protections the Department of Managed Health Care and
Department of Insurance have successfully implemented
over the past two years. The number of rescissions
industry-wide has decreased significantly since 2005.
Millions of dollars have been assessed against health
plans and insurers; corrective action plans have been
received and approved; revised consumer disclosures have
been reviewed for literacy, consistency and compliance
with the settlement agreements; and lastly, the two
departments are working together to ensure that all
health plans meet the same standards of fairness and full
disclosure. The market has changed and it is because of
my Administration's strong action in this area.
The California Medical Association (CMA), the sponsor of this
bill, writes that recent settlements and enforcement actions are
insufficient because they take place after the damage is done;
after the patient has already lost coverage and has had to file
costly, lengthy lawsuits or lodge complaints through a
bureaucratic regulatory process. The CMA additionally states
that these actions do nothing to prevent illegal rescissions
from happening in the future, and that this bill protects
patients before their coverage is illegally rescinded. The
California Society of Anesthesiologists states that even with
the action of DMHC and CDI, only 300 of the 6,000 cancelled
policyholders benefited from the settlement agreements and it is
time to finally close the loopholes that enable some managed
care firms to continue this egregious practice. The California
Psychiatric Association states that rescission of a patient's
health insurance is a traumatic event with far reaching
consequences to not only the patient's health but the fiscal
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health of the entire family and that this bill establish
protections against that.
The California Chamber of Commerce writes that this bill could
drive up the cost of health care premiums and increase the
number of uninsured by establishing litigation as the only
meaningful approach to resolving coverage rescission disputes.
Health Net writes that this bill will increase litigation in
California without providing consumers the certainty that health
plans and insurers will only rescind policies and contracts for
good reasons, creating incentives for applicants to misrepresent
their medical conditions. Anthem Blue Cross writes that this
bill creates an ambiguous standard for medical underwriting,
will make rescissions virtually impossible (resulting in
insurers denying more applications for coverage), and will lead
to increased litigation. The Association of California Life and
Health Insurance Companies states that it has been willing to
sit down with the Administration, regulators, and interested
stakeholders to develop changes to the rescission process to add
more transparency while protecting those currently paying
premiums in the individual market, but unfortunately this bill
is not the solutions as it will make it more difficult for
consumers seeking coverage in the individual market. The
California Association of Health Plans writes that they also
have expressed a willingness to discuss ways of providing
additional consumer protections in the individual market
including establishing an independent review process for
rescission cases but state that as currently written will
increase litigation, increase premiums, and decrease coverage.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097
FN: 0004597