BILL ANALYSIS                                                                                                                                                                                                    



                                                          AB 78
                                                          Page  1

Date of Hearing:   May 12, 1999

              ASSEMBLY COMMITTEE ON APPROPRIATIONS 
                    Carole Migden, Chairwoman

         AB 78 (Gallegos) - As Amended: April 15, 1999 

Policy Committee:                              HealthVote:9 - 4

Urgency:     No                   State Mandated Local  
Program:YesReimbursable:          No

  SUMMARY  

This bill transfers responsibility for the regulation of health  
plans from the Department of Corporations (DOC) to an  
unspecified regulatory entity effective March 1, 2000, and for  
health insurers currently regulated by the Department of  
Insurance (DOI), effective July 1, 2002.

The bill establishes several functions for the regulatory  
entity, including a patient advocate division to represent the  
interests of patients.  The bill also establishes an Advisory  
Committee on Managed Care consisting of 29 specified members.
 
 FISCAL EFFECT  

Appropriates $3 million from the State Corporations Fund to  
cover one-time costs and, presumably, some amount of first-year  
operating costs.  Annual costs would depend on the scope of  
additional regulatory and consumer assistance activities assumed  
by the Board.

  COMMENTS  

  1)Purpose of the Bill  .  According to the author, longstanding  
  criticism regarding the adequacy of current state oversight of  
  health plans argues for transferring regulatory authority from  
  the DOC to a new entity dedicated to consumer protection and  
  quality of care.  The author also believes it is inefficient  
  and confusing for consumers to have two different departments  
  (DOC and DOI) regulating the various forms of health  
  insurance.  Accordingly, the bill proposes to combine  
  regulation of all forms of health insurance under one  
  regulatory entity.  The author has chosen to leave the  








                                                          AB 78
                                                          Page  2

  regulatory entity unspecified in deference to the governor's  
  anticipated proposals regarding managed care oversight.  

  2)Background  .  In 1998, the Managed Health Care Improvement Task  
  Force issued a report recommending the establishment of a new  
  state entity for regulation of managed health care.  The Task  
  Force called for an initial transfer of health plan regulation  
  from DOC to the new regulator, to be followed by the phased-in  
  transfer of regulation of other health insurers.  This bill  
  implements those recommendations.  In addition, the state  
  auditor issued a report in late April concluding that, despite  
  receiving a $6.5 million budget increase in 1997 to enhance  
  its regulation of health plans, DOC has shown only limited  
  improvement in its efforts to protect health plan enrollees  
  from inadequate medical care.

  3)Opposition  .  The California Association of Health Plans  
  opposed the initial version of this bill that established a  
  board to regulate managed care.  The association argues a new  
  regulator should be housed in an agency familiar with health  
  coverage.  The insurance commissioner objects to the provision  
  of this bill that would transfer the regulation of health  
  insurers from DOI to the new regulator effective July 1, 2002.

  4)Prior Legislation  .  This bill is similar to SB 406 (Rosenthal)  
  from the 1997-98 legislative session, which would have  
  established a new Board of Managed Care.  In his veto message  
  of that measure, the governor indicated his opposition to  
  transferring health plan regulation to a board.

  Analysis Prepared by  :    William Wehrle / APPR. / (916) 319-2081