BILL ANALYSIS
AB 2540
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2540 (De La Torre)
As Amended July 15, 2010
Majority vote
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|ASSEMBLY: |76-0 |(May 13, 2010) |SENATE: |26-8 |(August 24, |
| | | | | |2010) |
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Original Committee Reference: HEALTH
SUMMARY : Includes "engaging in postclaims underwriting," as
defined, in existing law which declares specified trade
practices as unfair methods of competition and unfair and
deceptive acts or practices in the business of insurance (unfair
and deceptive acts statute).
The Senate amendments :
1)Require penalties in excess of $118 assessed under the unfair
and deceptive acts statute to be deposited in the Major Risk
Medical Insurance Fund to be used, upon appropriation by the
Legislature, for the California Major Risk Medical Insurance
Program.
2)Specify that an insurer that has been assessed a civil penalty
under the unfair and deceptive acts statute for engaging in
postclaims underwriting is not subject to the monetary penalty
permitted under other existing law which prohibits postclaims
underwriting.
3)Make other technical, clarifying changes.
EXISTING LAW :
1)Defines specified practices as unfair methods of competition
and unfair and deceptive acts or practices in the business of
insurance and prohibits any person from engaging in any trade
practice which is defined as, or determined to be, an unfair
method of competition or an unfair or deceptive act or
practice in the business of insurance.
2)Makes a person who engages in any unfair method of competition
or any unfair or deceptive act or practice in 1) above liable
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to the state for a civil penalty of up to $5,000 for each act,
or, if the act or practice was willful, a civil penalty of up
to $10,000 for each act. Gives the Insurance Commissioner the
discretion to establish what constitutes an act, however, when
the issuance, amendment, or servicing of a policy or
endorsement is inadvertent; all of those acts are considered a
single act.
3)Prohibits insurers from engaging in the practice of postclaims
underwriting. Defines "postclaims underwriting" as the
rescinding, canceling, or limiting of a policy or certificate
due to the 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 policy or certificate.
4)Requires any person willfully violating the above to pay fine
of up $118 for each violation, recovered by civil action.
Permits The California Department of Insurance (CDI) to also
suspend or revoke the license of an insurer or agent for any
such willful violation.
AS PASSED BY THE ASSEMBLY , this bill added postclaims
underwriting to the definition of unfair methods of competition
in the business of health insurance.
FISCAL EFFECT : According to the Senate Appropriations Committee
pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : 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. 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; 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
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services paid for by the plan owed by the enrollee.
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. As part of 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, consumers
whose coverage was rescinded 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.
On March 23, 2010, President Obama signed the Patient Protection
and Affordable Care Act; P. L. 111-148, as amended by the Health
Care and Education Reconciliation Act of 2010; P. L. 111-152.
Among other provisions, the new law makes statutory changes
affecting the regulation of and payment for certain types of
private health insurance. The new law contains a prohibition
against rescission. Effective September 2010, health plans and
insurance companies providing group or individual market
coverage are prohibited from rescinding coverage once an
enrollee is covered under a plan, except in the case of an
individual who has performed an act or practice that constitutes
fraud or makes an intentional misrepresentation of material
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fact.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097
FN: 0005626