BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2470 (De La Torre)
Hearing Date: 8/12/2010 Amended: 6/16/2010
Consultant: Katie Johnson Policy Vote: Health 5-0 Judic.
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BILL SUMMARY: AB 2470, an urgency measure, would prohibit a
health care service plan or a health insurer from rescinding or
canceling a contract or a policy unless there was a material
misrepresentation by the enrollee or policyholder. The bill
would also establish an independent review process (IRP) for the
review of decisions to cancel or rescind individual contracts or
policies for misrepresentation within the Department of Managed
Health Care (DMHC) and the California Department of Insurance
(CDI).
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
CDI regulations, annual $300 $600 $600 Special*
review of hearing requests
DMHC regulations, $250 $500 $500 Special**
review of hearing requests
*Insurance Fund
**Managed Care Fund
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
DMHC and CDI would need significant resources to comply with
these provisions. Costs to promulgate regulations, develop and
contract for independent review services, receive and review
underwriting policies and procedures, and to otherwise implement
and enforce these provisions would be approximately $600,000 in
FY 2010-2011 for CDI and $1.1 million annually thereafter, and
approximately $500,000 - $1,700,000 million in FY 2010-2011 and
$1,000,000 - $3,400,000 annually thereafter for DMHC.
Departmental impacts would depend on the number of cancellations
and rescissions health plans and insurers would pursue annually,
but since this bill would require that each cancellation or
rescission be subject to IRP, costs could be significant. In
recent years, both DMHC and CDI have taken significant
regulatory action to levy penalties on plans and insurers who
engaged in unlawful post-claims underwriting.
Existing federal law prohibits, under the recently enacted
Patient Protection Affordable Care Act (ACA), health plans and
health insurers offering group or individual coverage from
rescinding a plan or coverage once the enrollee is covered under
a plan or coverage, except when an individual has performed an
act that constitutes fraud, or makes an intentional
misrepresentation of material fact. It also prohibits coverage
from
being cancelled, except with prior notice to the enrollee, and
only as permitted under specified provisions of federal law.
These provisions take effect September 23, 2010.
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AB 2470 (De La Torre)
While this bill would align some of its provisions with the ACA,
other provisions, such as the IRP requirements, would exceed
federal law. Costs attributed to this bill would increase if
federal law were to be amended or repealed at some later date,
by enacting these related provisions, there would be cost
pressure on the Managed Care Fund and the Insurance Fund for
DMHC and CDI to continue to enforce and to pay for them.
This bill would prohibit a plan or insurer from rescinding or
canceling a contract or a policy unless there was a material
misrepresentation by the enrollee or policyholder, as specified.
Commencing March 31, 2011, this bill would establish an IRP
within DMHC and CDI, for which they would contract with one or
more independent review organizations (IROs) in the state. The
IRP would review all decisions made by a plan or insurer to
cancel or rescind individual health plan contracts and health
insurance policies because of misrepresentation unless an
enrollee or subscriber opts out of the process. IRO decisions
would be final and binding. This bill would establish a $5,000
per day penalty in the event plans and insurers act to prolong
the IRP unnecessarily. This bill would require a health plan or
insurer guilty of rescission to pay the costs of IRO reviews
through an assessment. This bill would require plans and
insurers to file their underwriting policies and procedures with
DMHC and CDI on or before March 31, 2011, and annually
thereafter.
This bill would exempt health care service plan contracts for
coverage issued under Medi-Cal, the Healthy Families Program,
the Access for Infants and Mothers program, the federal Medicare
program, and dental plans. There would be no effect on plans
that contract with the California Public Employees Retirement
System (CalPERS) because this bill only applies to insurance
products sold in the individual market.
This bill is similar in content to AB 1925 (De La Torre, 2008)
and AB 2 (De La Torre, 2009), which were both vetoed by the
Governor. In his AB 2 veto message, he said, "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?I would
request that the Legislature send me a bill that codifies the
Hailey decision, as I have asked for since 2008." This bill
does not codify the Hailey decision.
The author's proposed amendments would 1) delete all and recast
the provisions of the bill, 2) require DMHC and CDI to review an
enrollee or policyholder's complaint that a contract or policy
has been or will be improperly canceled, rescinded, or not
renewed, within 7 days when a review has been requested and
would provide for a hearing by the insurer or health plan, 3)
require a plan or insurer planning to rescind a contract or
policy to send a notice to the affected enrollee or policyholder
at least 30 days prior to the effective date of the rescission.
Since these amendments would no longer require DMHC and CDI to
contract with independent medical review organizations, the
costs would be substantially less-approximately $500,000 -
$600,000 annually for each department to the extent that health
plans and insurers would actually rescind.
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AB 2470 (De La Torre)
Additionally, the federal Patient Protection and Affordable Care
Act (ACA) prohibits rescission commencing September 23, 2010.
Thus, to the extent that this bill conforms to federal law,
costs related to it would be due to federal law and no to this
bill unless federal law were to change in the future.