BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2470|
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THIRD READING
Bill No: AB 2470
Author: De La Torre (D)
Amended: 8/17/10 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 5-0, 6/23/10
AYES: Alquist, Cedillo, Leno, Pavley, Romero
NO VOTE RECORDED: Strickland, Aanestad, Cox, Negrete
McLeod
SENATE JUDICIARY COMMITTEE : 3-1, 6/29/10
AYES: Corbett, Hancock, Leno
NOES: Harman
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/12/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Walters, Wyland
ASSEMBLY FLOOR : 46-27, 6/2/10 - See last page for vote
SUBJECT : Individual health care coverage
SOURCE : California Medical Association
DIGEST : This bill requires the Department of Managed
Care and the California Department of Insurance to review
and enrollee or policyholders complaint that a contract or
policy ahs been or will be improperly canceled, rescinded,
or not renewed, within seven days when a review has been
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requested and provides for a hearing by an insurer or
health plan.
ANALYSIS :
Existing federal law
1. Requires each health insurance issuer that offers health
insurance coverage in the individual or group market to
accept every employer and individual that applies for
such coverage. This requirement is known as "guaranteed
issue" and it takes effect January 1, 2014. Patient
Protection and Affordable Care Act (PPACA) allows a
health insurance issuer to restrict enrollment in
coverage to open or special enrollment periods.
Additionally, a health insurance issuer must establish
special enrollment periods for qualifying events. The
federal Secretary of the Department of Health and Human
Services (DHHS) must promulgate regulations regarding
enrollment periods and qualifying events.
2. Prohibits, under PPACA, 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 or practice that constitutes fraud, or
makes an intentional misrepresentation of material fact,
as prohibited by the terms of the plan or coverage.
PPACA 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 six months following the
date of enactment of PPACA (six months after March 23,
2010).
Existing state law
1. Prohibits a health plan and health insurer from
rescinding a contract or policy for any reason after 24
months following the issuance of an individual contract
or policy. After 24 months, health plans and insurers
are prohibited from canceling a contract or policy,
limiting any of the provisions of a contract/policy, or
raising premiums on a contract/policy specifically due
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to any omissions, misrepresentations, or inaccuracies in
the application form, whether willful or not.
2. Prohibits health plans and insurers from engaging in the
practice of postclaims underwriting. Defines
"postclaims underwriting" as the rescinding, canceling,
or limiting of a plan contract/insurance policy due to
the plan or insurer's failure to complete medical
underwriting and resolve all reasonable questions
arising from written information submitted on or with an
application before issuing the plan contract or policy.
For health plans, but not health insurers, existing law
states this provision does not limit a health plan's
remedies upon a showing of willful misrepresentation.
3. Prohibits compensation of a person or entity employed
by, or contracted with, a health plan or health insurer
from being based on, or related in any way, to the
number of contracts that the person or entity has caused
or recommended to be rescinded, canceled, or limited, or
the resulting cost savings to the health plan or health
insurer.
4. Prohibits a health plan and health insurer from setting
performance goals or quotas, or providing compensation
to any person or entity employed by, or contracted with,
the health plan or health insurer, based on the number
of persons whose coverage is rescinded or any financial
savings to the health plan/insurer associated with
rescission of coverage.
5. Prohibits an enrollment or a subscription in a health
plan from being canceled or not renewed except for the
following:
A. Failure to pay the charge for such coverage if
the subscriber has been duly notified and billed
for the charge and at least 15 days has elapsed
since the date of notification.
B. Fraud or deception in the use of the services or
facilities of the plan or knowingly permitting such
fraud or deception by another.
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C. Such other good cause as is agreed upon in the
contract between the plan and a group or the
subscriber.
6. `Requires individual health insurance to be guaranteed
renewable, except for the following reasons:
A. For nonpayment of the required premiums or
contributions by the individual in accordance with
the terms of the health insurance coverage or the
timeliness of the payments.
B. For fraud or intentional misrepresentation of
material fact under the terms of the coverage by
the individual.
C. Movement of the individual outside the service
area, but only if coverage is terminated uniformly
without regard to any health status-related factor
of covered individuals.
D. If the insurer ceases to provide or arrange for
the provision of health care services for new
individual health benefit plans in this state,
subject to specified conditions.
Existing law prohibits a plan or insurer from engaging in
post claims underwriting, as defined, and from rescinding
an individual contract or policy for any reason, or
canceling the contract or policy due to misrepresentation,
as specified, after 24-months following issuance of the
contract or policy.
This bill makes that 24-month limit apply to all health
care service plan contracts and health insurance policies
and consolidates various cancellation and nonrenewal
provisions. The bill also prohibits a plan or insurer from
rescinding an individual health care service plan contract
or individual health insurance policy or limiting any of
the provisions of the contract or policy, once an enrollee
or insured is covered under the contract or policy unless
the plan or insurer can demonstrate that the enrollee or
insured has performed an act or practice constituting fraud
or made an intentional misrepresentation of material fact
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as prohibited by the terms of the contract or policy. The
bill requires a plan or insurer to send a notice to the
enrollee or subscriber or policyholder or insured at least
30 days prior to the effective date of the rescission
containing specified information. The bill modifies the
cancellation and nonrenewal appeal rights that apply to
health care service plans and would make those appeal
rights apply to health insurers and rescissions, as
specified. The bill makes other related changes.
Background
Approximately two to two-and-a-half million Californians
purchase individual health insurance, representing
approximately seven percent of Californians. When
individuals and families apply for individual health
coverage, they fill out an application that asks detailed
questions about their current health status, current
medication use and past health history. Health plans use
this information to determine whether to offer the
individual/family coverage, and how much they will pay in
premiums.
"Rescission" is the process whereby insurers retroactively
cancel health coverage on the basis of alleged inaccurate,
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 any health care services the enrollee
received during the entire time of the contract are to be
paid for by the enrollee. An individual whose coverage has
been rescinded is left without insurance, and is also
liable for any previously paid health care claims.
Rescission is different from cancellation, in that
rescission terminates coverage retroactively while
cancellation terminates coverage prospectively.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee analysis:
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
CDI regulations, annual $300 $600
$600Special*
review of hearing requests
DMHC regulations, $250 $500 $500
Special**
review of hearing requests
*Insurance Fund
**Managed Care Fund
ARGUMENTS IN SUPPORT : The California Medical Association
(CMA) writes, as the sponsor of this measure, that this
bill will provide an independent review of any decisions by
health insurers to cancel or rescind coverage for sick
patients - a vital safeguard to ensure the federal ban on
rescission is followed. CMA states rescission is the
unscrupulous practice in the individual market where health
plans and insurers dump patients off their insurance,
usually after claims arise. With this egregious practice
now prohibited at the federal level, it is important for
California to implement a robust enforcement mechanism, to
police health insurers and ensure strong and independent
implementation. CMA states this bill will ensure that
health plans and insurers do not act as "judge and jury,"
whenever they want to rescind or cancel a policy for
misrepresentation, and this bill protects innocent patients
before their coverage is illegally rescinded. CMA states
these are patients who have done nothing wrong and should
not suddenly have "the rug pulled out from under them" and
be left without health insurance.
ARGUMENTS IN OPPOSITION : Health plans and insurers write
in opposition that this bill would require them to change
their underwriting processes in 2012 and again in 2014 in
response to federal health care reform. The California
Association of Health Plans (CAHP) writes that the
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independent third party process for review of rescissions
could be shortened, and CAHP seeks to have the provisions
of this bill dealing with cancellations deleted from the
bill. The Civil Justice Association of California writes
in opposition that having the independent review
organization determine whether a health plan enrollee
"intentionally misrepresented" material information makes
the review process impotent and moot, because an
administrative body that reviews only documents and does
not take testimony and ask questions is incapable of
determining the state of mind of the person whose
application it is reviewing and will result in rescission
approval decisions ending up in court.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Carter, Chesbro,
Coto, Davis, De La Torre, De Leon, Eng, Evans, Feuer,
Fong, Fuentes, Furutani, Hall, Hayashi, Hernandez, Hill,
Huffman, Jones, Bonnie Lowenthal, Ma, Mendoza, Monning,
Nava, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Skinner, Solorio, Swanson, Torlakson, Torres,
Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Blakeslee, Conway,
Cook, DeVore, Emmerson, Fletcher, Fuller, Gaines,
Garrick, Gilmore, Hagman, Harkey, Huber, Jeffries,
Knight, Logue, Miller, Nestande, Niello, Nielsen, Norby,
Silva, Smyth, Villines
NO VOTE RECORDED: Tom Berryhill, Charles Calderon,
Galgiani, Lieu, Audra Strickland, Tran, Vacancy
CTW:do 8/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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