BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2540
                                                                  Page  1

          Date of Hearing:   May 5, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                 AB 2540 (De La Torre) - As Amended:  April 8, 2010 

          Policy Committee:                              HealthVote:16-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill adds postclaims underwriting to the definition of  
          unfair methods of competition in the business of health  
          insurance. Post claims underwriting refers to the practice of  
          health insurers waiting for health claims to be submitted and  
          then canceling insurance coverage retroactively. 

           FISCAL EFFECT  

          1)This bill, by adding postclaims underwriting to unfair  
            competition codes, creates insurer exposure to fines of up to  
            $5,000 and up to $10,000 (willful violation) for each  
            infraction. These fines are to be levied by the California  
            Department of Insurance. Under current law, these infractions  
            incur a penalty of up to $118 for each violation of postclaims  
            underwriting.

          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. Therefore,  
            although this bill increases penalties, it seems insurer  
            infractions in this area are likely to lessen substantially. 

           COMMENTS  

          1)Rationale  . This bill increases the fine authority of the  
            California Department of Insurance (CDI) for the insurer  
            practice of post claims underwriting. According to the author,  
            this bill increases conformity for the imposition of these  
            penalties between health plans and insurers. Under current law  
            the Department of Managed Health Care (DMHC) already has the  
            authority to fine plans for up to $10,000 per infraction. 
           
           2)Post-Claims Underwriting and Rescission  . The practice of  






                                                                  AB 2540
                                                                  Page  2

            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. 
           
           3)Related Legislation  . AB 2470 (De La Torre), pending on the  
            Suspense File of this committee, establishes requirements for  
            health plans licensed by the DMHC and health insurers subject  
            to regulation by CDI, related to rescission.

           Analysis Prepared by  :    Mary Ader / APPR. / (916) 319-2081