BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2540 (De La Torre)
Hearing Date: 8/2/2010 Amended: 7/15/2010
Consultant: Katie Johnson Policy Vote: Health 6-0
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BILL SUMMARY: AB 2540 would increase the maximum civil penalty
for health insurance post-claims underwriting from $118 per
violation to $5,000 per violation. The bill would also increase
that amount to $10,000 for each act of post-claims underwriting
that the insurer knew was unlawful.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Penalties revenue unknown, potentially
hundredsSpecial/*
of thousands of dollars General
*The first $118 of each penalty would go to the General Fund;
the balance would go to the Major Risk Medical Insurance Fund.
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STAFF COMMENTS:
Existing law prohibits health care service plans and health
insurers from engaging in "post-claims underwriting," which is
defined as rescinding, canceling, or limiting a plan contract
due to a plan or insurer's failure to complete medical
underwriting and to resolve all reasonable questions arising
from written information submitted on or with an application
before issuing the plan contract or insurance policy.
Existing law authorizes the California Department of Insurance
(CDI) to impose civil penalties of up to $118 for each violation
of the standard provisions of insurance policies, including
incidences of post-claims underwriting, which would be deposited
in the General Fund. Existing law establishes general civil
penalties of up to $2,500 per violation for any person who
violates any provision of the Knox-Keene Health Care Service
Plan Act of 1975, including a fine of up to $10,000, upon
conviction for willful violations.
This bill would increase the civil penalty on a health insurer
for each act of post-claims underwriting from $118 to a maximum
of $5,000, and up to $10,000 for each act or violation where the
health insurer knew, or had reason to know, that the act was
unlawful. To the extent that insurers practice post-claims
underwriting and CDI collects penalties, there would be unknown,
increased revenue for the Major Risk Medical Insurance Fund.
Additionally, the General Fund would be held harmless; this bill
would require that the first $118 of any penalties collected
pursuant to these provisions would be deposited in the state's
General Fund, as under current law, and that the balance of the
penalties
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AB 2540 (De La Torre)
would be deposited in the Major Risk Medical Insurance Fund to
support the Major Risk Medical Insurance Program (MRMIP), a
program that provides health care coverage for otherwise
uninsurable Californians.
Costs to CDI to continue to assess penalties for post-claims
underwriting in accordance with these provisions would be minor
and absorbable.
This bill is nearly identical in intent to AB 730 (De La Torre,
2009), which the Governor vetoed, saying, "This bill attempts to
align enforcement provisions between the Department of Managed
Health Care and the California Department of Insurance.
However, it does not create this much-needed consistency, but
instead continues to subject regulated entities to differing
standards?I cannot support provisions that further limit revenue
to the General Fund and decrease the state's ability to direct
resources to its highest priorities."