BILL ANALYSIS
SENATE COMMITTEE ON INSURANCE
Senator Jackie Speier, Chair
AB 78 (Gallegos) Hearing Date: July 7,
As Amended: June 2, 1999
Fiscal: Yes
Urgency: No
Assembly Health: 4/20/99 (9-4)
Assembly Floor: 6/4/99 (52-28)
SUMMARY
Would establish a new Department of Managed Health Care
(DMHC) and transfer the regulation of health care service
plans (plans) from the Department of Corporations (DOC) to
the new department, and later transfer the regulation of
disability insurers (insurers) from the Department of
Insurance (DOI) to the new department.
DIGEST
Existing law
1. Charges DOC, within the Business, Transportation and
Housing Agency, with regulating plans, and charges DOI
with the responsibility for regulating insurers.
This bill
1. Would establish DMHC, effective March 1, 2000, in a new
agency, the California Managed Health Care Services
Agency, and effective July 1, 2000, transfer the
responsibility for regulating plans from DOC to DMHC.
Calls for the transfer of DOC personnel and funds
dedicated to plan regulation to DMHC.
2. Would specify the various functions of DMHC, including
a patient advocate division.
3. Would establish an Advisory Committee on Managed Care
consisting of 29 members
4. Would transfer, effective July 1, 2002, the regulation
of disability insurers from DOI to DMHC including
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insurers that provide coverage through preferred
provider organizations and other managed care systems.
5. Would transfer DOI personnel and funds dedicated to
insurer regulation to DMHC.
6. Would require DMHC on or before May 1, 2000, to report
to the Governor and Legislature regarding the need to
expand jurisdiction over medical groups and independent
practice associations that bear significant financial
risk.
COMMENTS
1. Purpose of the bill . The author states that it is time
to transfer plan regulation out of DOC to a new
regulator 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, regulate plans and insurers,
and therefore also calls for the later transfer of
health insurance to the new regulator. In light of
recent medical practice group bankruptcies, the author
is also concerned about enhancing state authority over
medical groups and independent practice associations
that arrange for care and assume significant financial
risk. This bill calls on the new regulator to report to
the Governor and Legislature on this issue by next May.
2. Background . The Managed Health Care Improvement Task
Force issued a report last year recommending that a new
state entity for regulation of managed health care be
created. 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 care entities including insurers.
Recently, the State Auditor issued a report 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 plan enrollees from inadequate medical care.
3. Support . Supporters agree that we need a new state
system of governance of managed health care. Some
endorsed a prior version of this bill that called for a
five-member Board of Managed Health Care, and others
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have endorsed moving regulation to the Health and Human
Services Agency.
4. Concerns . The California Department of Insurance (DOI)
maintains that an appropriate and effective regulatory
framework is in effect for disability insurers and,
therefore, it would not be appropriate at this time to
move these functions into the DMHC. The DOI also
objects to the title of the DMHC. Its sole focus would
be the enforcement of the Knox-Keene Act of 1975; and
that since a disability insurer's product is distinctly
different from a managed care plan, there are problems
exclusive to the manner in which they both deliver
health care. The DOI states that there does not appear
to be a compelling reason at this time to disrupt the
current regulatory scheme for indemnity insurers. The
California Dental Association supports the concept of a
new Board of Managed Care, but would also like to see
that new entity provide for a separate division for
specialized plans such as dental plans since dental care
issues tend to be submerged or ignored. The California
Physician Groups Council (CPGC) has concerns that the
composition of the proposed Advisory Committee needs to
add an IPA representative because IPAs and medical
groups have differences in the organization and
management of care. CPGC acknowledges that the bill is
a work in progress, but is also concerned that the
clamor for direct State oversight of physician groups is
focusing on the symptom rather than the source which is
the shortcomings in plan and physician group relations,
and points out several problems which they believe need
to be addressed as fundamental issues.
5. Opposition . The California Association of Health
Plans is concerned that the creation of an appointed
board, instead of a single appointed executive, would
weaken regulation; and that the inclusion of the DOI
would erode the focus on plans and their unique
regulatory requirements. The Association of California
Life and Health Insurance Companies opposes the bill as
it would require regulation of insurers as though they
were plans, which would subject them to increased
regulatory costs, and prefers only a study be done. The
California Association of Health Underwriters believes
the board structure would reduce accountability, slow
the decision making process, defuse the ability to
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create clear direction and lead to inconsistent
regulation as appointed boards are vulnerable to extreme
and often inappropriate political influences,
fragmentation and paralysis. Pacific Life Insurance
Company states that there are several complex issues
which must be addressed: a) insurers pay a premium tax
which is significantly greater than the bank and
corporations tax paid by plans; b) insurers are required
to set aside cash reserves and a guarantee fund while
plans are not; c) claims are subject to different
standards; d) insurers are not designed to regulate
quality as plans are; e) fee structures and assessments
are very different for plans and insurers.
6. Related legislation . This bill is similar to SB 406
(Rosenthal), which called for a new Board of Managed
Care and was vetoed last year. The bill conflicts with
SB 260 (Speier) and AB 698 as both also propose
increased and more specific regulation of risk-bearing
provider groups. The bill was also similar to two bills
of the current session: SB 260 (Speier) would have
created a new state agency to handle the oversight of
DOC, DOI and Department of Health Services, and SB 420
(Figueroa) would have created the new Department of
Managed Care; neither bill was allowed to move forward
in those forms by Senate committee request.
POSITIONS
Support
AARP
American Federation of State, County and Municipal
Employees
California Coalition of Nurse Practitioners
California Psychiatric Association
California Seniors Coalition
California Teachers Association
Congress of California Seniors
Health Access California
Medical Board of California
Resources for Independent Living
Tri-Pac Patient Provider Partnership Organization
Western Center on Law and Poverty
Oppose
American Nurses Association\California
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Association of California Life and Health Insurance
Companies
California Association of Health Plans
California Association of Health Underwriters
Health Insurance Association of America
Los Angeles Employers Health Care Association
Pacific Life Insurance
Consultant: Michael Ashcraft