BILL ANALYSIS
AB 55
Page 1
Date of Hearing: May 12, 1999
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
AB 55 (Migden) - As Amended: 4/27/99
Policy Committee: Health;
JudiciaryVote:9-5; 10-4
Urgency: No State Mandated Local
Program:YesReimbursable: No
SUMMARY
This bill establishes an independent review process for health
plan enrollees in the event they are denied care and are
unsatisfied with the result of the plan's internal grievance
process. The bill also holds health plans liable for patient
harm resulting from the failure to exercise ordinary care,
thereby allowing private firm employees to bring legal actions
against plans. Among its provisions, the bill:
1)Requires health plans to complete internal appeals within 30
days generally, or within 72 hours in cases where the
enrollee's health is at risk.
2)Authorizes enrollees to seek independent review from an
outside organization selected by the Department of
Corporations (DOC) for all denials.
3)Requires the independent review entity to complete its
decision within 30 days, and directs the plan to promptly
implement the review organization's recommendation.
4)States that health plans have a duty to exercise ordinary care
in providing medically necessary health care services and
shall be liable for all harm resulting from the failure to
exercise ordinary care in making decisions to approve or deny
treatment.
FISCAL EFFECT
Significant costs to the DOC to implement the independent review
process, probably in the range of $6.5 million to $13 million
AB 55
Page 2
annually, depending on the number of reviews. These costs would
be fully offset by fees paid by health plans.
In addition, the bill's liability and independent review
provisions most likely will cause health plan costs to increase.
As a purchaser of health care, a portion of these costs
potentially would be borne by the state through higher premiums
paid on behalf of Medi-Cal beneficiaries and state employees.
The extent of these costs would be determined in contract
negotiations with individual health plans.
COMMENTS
1)Purpose of the Bill . The author states that the purpose of
this bill is to grant access to independent review for any
final health plan decision to deny, reduce or terminate
benefits, and to hold plans legally accountable for their
actions. The author notes the Governor's Managed Care
Improvement Task Force recommended an independent review
process by a unanimous vote. Independent review legislation
has been recently enacted in 22 states, and is required under
the federal Medicare program.
The bill also makes HMOs liable in court for care unreasonably
or wrongfully delayed or denied. The author argues this
provision reaffirms the basic democratic principle of
unquestioned access to all three branches of government --
including the court system. The author argues that while it
is suggested the right to take HMOs to court will be costly,
in no other case is economic cost or inconvenience sufficient
cause to summarily deny individuals access to judicial review.
2)ERISA Preemption . Federal law, the Employee Retirement Income
Security Act (ERISA), regulates employee benefit plans,
including health plans. ERISA has been interpreted to
generally bar state common law claims for compensatory and
punitive damages against an employer-provided health plan for
alleged improper handling of benefit decisions, including
improper denial of treatment under the plan.
An estimated 75 to 80 percent of all health insurance
enrollees are covered by ERISA plans and are therefore subject
to this preemption. These enrollees' only remedy is the
recovery of contract damages. The other 20 to 25 percent of
the enrollee population, those covered by a public employee or
AB 55
Page 3
government sponsored (e.g. Medi-Cal) plan and those who bought
individual policies, are free to pursue tort damages for the
improper provision of benefits or "failure to treat."
3)Related legislation . Several bills introduced this session
require, through varying means, health plans to establish an
independent medical review system. These bills include AB
1621 (Thomson) pending in this Committee, SB 189 (Schiff) and
SB 254 (Speier). SB 21 (Figueroa) would establish liability
for health plans.
Last session, several bills, including AB 1667 (Migden), SB
1504 (Rosenthal) and SB 1653 (Johnston), attempted to
establish independent medical review systems. All the bills
failed passage due to controversies surrounding the linkage of
independent review to the right to sue HMOs. In addition,
two measures addressing health plan liability, AB 2436
(Figueroa) and SB 977 (Peace), also failed passage.
4)Cost of an Independent Review Process . A study by the Lewin
Group, based on data from independent review programs in
Florida and for the federal Medicare program, concluded the
system adds four to eight cents per member per month to health
plan costs. Accordingly, the review process established by
the bill can be expected to result in costs of less than $1
per member per year.
5)Opposition . The liability provisions of this bill are
strongly opposed by business groups and health plans. The
California Association of Health Plans argues that the bill
will increase premiums paid by employers and their employees,
leaving more Californians uninsured. The association notes a
reputable study suggests a one percent cost increase in health
insurance coverage could cause as many as 40,000 Californians
to lose their insurance. Health plans argue premium costs in
Texas, where a similar statute was enacted last year, have
increased substantially.
Opponents also contend that creating a duty of care creates a
malpractice cause of action against health plans but notes the
bill fails to include health plans within "MICRA" protections.
Opponents argue MICRA caps should apply if health plans will
be held liable for the very same actions that providers take.
Analysis Prepared by : Bill Wehrle / APPR. / (916) 319-2081
AB 55
Page 4