BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2007-2008 Regular Session
AB 1324 A
Assemblymember De La Torre B
As Amended July 5, 2007
Hearing Date: July 10, 2007 1
Health & Safety Code; Insurance Code 3
ADM 2
4
SUBJECT
Health Care Coverage: Rescinded Coverage
DESCRIPTION
This bill would clarify that an HMO or health insurer that
authorizes a specific type of treatment by a provider shall
not rescind or modify this authorization after the provider
renders the health care service in good faith and pursuant
to the authorization for any reason, including, but not
limited to, the plan's subsequent rescission, cancellation,
or modification of the enrollee's or subscriber's contract
or the plan's subsequent determination that it did not make
an accurate determination of the enrollee's or subscriber's
eligibility.
This bill would also provide that the Legislature finds and
declares that the bill's provisions do not constitute a
change in, but are declaratory of, existing law, and that
the bill's provisions are not intended to affect any
litigation pending at the time of the bill's effective
date.
(This analysis reflects author's amendments to be offered
in committee.)
BACKGROUND
Under current law, an HMO or disability insurer that
authorizes a specific type of treatment by a health care
provider may not rescind or modify this authorization after
(more)
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the provider renders the health care service in good faith
and pursuant to the authorization. (Health & Safety Code
Section 1371.8; Insurance Code Section 796.04.) The
sponsor of this bill, the California Medical Association
(CMA), asserts that, despite existing law, both health care
providers and patients are increasingly faced with unpaid
medical bills for services that were preauthorized by an
HMO or health insurer. CMA and a recent series of articles
in the Los Angeles Times point to numerous "unscrupulous"
claims handling practices by HMOs and insurers that result
in the health care provider not being reimbursed for
authorized health care services and/or the patient being
targeted for payment of preauthorized medical services.
This bill is intended to rectify this problem both for
health care providers and patients.
CHANGES TO EXISTING LAW
Existing law provides for regulation of health care
services plans, as defined, by the Department of Managed
Health Care (DMHC) under the Knox-Keene Health Care Service
Plan Act of 1975, and for regulation of disability insurers
who sell health insurance by the California Department of
Insurance (CDI) under the Insurance Code. (Health & Safety
(H&S) Code Section 1340 et seq.; Insurance Code (IC)
Section 769.01 et seq.)
Existing law provides that a health care service plan that
authorizes a specific type of treatment by a provider shall
not rescind or modify this authorization after the provider
renders the health care service in good faith and pursuant
to the authorization. (H&S Section 1371.8.)
Existing law provides that a disability insurer that
provides coverage for hospital, medical, or surgical
expenses and a nonprofit hospital service plan that
authorizes a specific type of treatment for services
covered under a policyholder's contract or plan by a
provider shall not rescind or modify this authorization
after the provider renders the health care service in good
faith and pursuant to authorization. (IC Section 796.04.)
Existing law provides that no health care service plan or
disability insurer shall engage in the practice of
postclaims underwriting. Existing law defines "postclaims
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underwriting" to mean the rescinding, canceling, or
limiting of a plan contract or insurance policy due to the
plan's or 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 plan contract. (H&S Code
Section 1389.3; IC Section 10384.)
Existing law requires applications for health plan
contracts and health insurance policies conform to
specified standards for underwriting, including clear and
unambiguous questions when health-related questions are
used to ascertain the health condition or history of an
applicant. (H&S Section 1389.1; IC Section 10291.5.)
This bill would provide that a health care service plan or
health insurer that authorizes a specific type of treatment
by a provider shall not rescind or modify this
authorization after the provider renders the health care
service in good faith and pursuant to the authorization for
any reason, including, but not limited to, the plan's
subsequent rescission, cancellation, or modification of the
enrollee's or subscriber's contract or the plan's
subsequent determination that it did not make an accurate
determination of the enrollee's or subscriber's
eligibility.
This bill would provide that the Legislature finds and
declares that this bill's provisions do not constitute a
change in, but are declaratory of, existing law, and that
the bill's provisions are not intended to affect any
litigation pending at the time of the bill's effective
date.
COMMENT
1. Stated need for the bill
The sponsor, CMA, writes:
"The health insurance industry has engaged in a practice
of retroactively refusing to cover their policyholders'
medical treatment after the treatment has been provided
pursuant to the insurers' authorization. They have
adopted various tactics to do so, all of which violate
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existing law. In some instances, HMOs and insurers dump
policyholders by finding reasons to cancel or rescind a
person's coverage without sufficient cause. This
practice is often referred to as "retroactive
cancellation of policies" or "post-claims underwriting."
Generally, under such a scheme, an insurer justifies its
refusal to pay for the services by adopting the following
"gotcha" reasoning: even though we authorized treatment
the patient was never "eligible" for treatment because
his/her coverage was rescinded.
"Recent Los Angeles Times investigations have revealed
these egregious practices. In those reports, it was
discovered that insurers have business units dedicated
solely to finding ways to avoid paying for medical
services by looking for opportunities to rescind an
enrollee's coverage. Once rescinded, the insurance
company operates as though the enrollee never had health
coverage--meaning that the enrollee is required to pay
the insurer for any health services that the insurer
previously paid for and the provider is directed by the
insurer to collect from the patients. One such case is
the case of Selah Shaeffer, who was diagnosed, at age 4,
with a potentially fatal tumor.
"When the Shaeffer's applied for coverage, Selah was
healthy and had not been seen by a physician for months.
After submitting the application, they noticed a bump on
Selah's chin, but had been told by a doctor that it was
not serious. Two months later, weeks after the Blue
Cross policy had taken effect, they took a biopsy of the
lump and found out it was cancerous. After a few weeks
Selah underwent more than 7 hours of surgery and it was
found that the tumor had invaded much of the left side of
her mouth and jaw. Surgeons removed chunks of her jaw,
mouth, and throat wall in an effort to prevent
recurrence. Blue Cross retroactively cancelled Selah's
coverage, claiming her parents failed to disclose the
bump on her chin and ultimately denied payment of the
surgery that had been authorized in advance. The
Shaeffer's face more than $60,000 in medical bills.
"Another common practice that some insurers adopt in
order to avoid paying for health care services previously
authorized is to assert that, while the insurer
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authorized the specific treatment, the patient was "not
eligible," and therefore the plan should not have to pay
for a service that it specifically authorized. The
stated reasons for "ineligibility" vary. In one
instance, an HMO retroactively rescinded the
authorization after the service had been provided by
asserting that the patient owed the HMO money for a
medical treatment performed by another physician, and
that until that money was paid, the physician that
received the prior authorization would not be paid.
"Some insurers have a policy and practice of
retroactively terminating coverage for employees due to a
change in employment status after the treatment by a
physician has been authorized and performed. In such
cases, even though the patient and doctor followed the
rules by seeking prior-authorization, the insurers refuse
to pay for the medical services. Another tactic by some
insurers is to simply assert it made a mistake as to the
patients' coverage.
"Existing law provides that a health plan or a health
insurer that authorizes a specific type of treatment by a
provider shall not rescind or modify the authorization
after the treatment has been provided in good faith and
pursuant to the authorization. HMOs and insurers are
violating this law. They are rescinding or modifying
authorizations for health care services after a provider
renders the service. This practice leaves many consumers
stuck with paying medical bills for services they thought
were authorized and makes authorizations meaningless. Not
only do patients and providers suffer when valid claims
go unpaid, but public resources are strained when
rescinded patients are pushed onto the rolls of the
uninsured.
"Thus, CMA is sponsoring AB 1324 to make the requirements
of existing law crystal clear and to stop a health
insurance industry practice that the Legislature thought
it stopped over a decade ago. AB 1324 would:
Protect consumers and providers by confirming that the
existing statute prohibits attempts by a health care
service plan or health care insurer to rescind or modify
an enrollee's, subscriber's, or policyholder's plan
contract, policy, or certificate after the service has
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been authorized and provided in good faith.
Reaffirm that an insurer and HMO cannot rescind an
'authorization' after the service has been provided by
asserting that the enrollee or insured was not eligible;
thereby ensuring that once treatment is authorized by the
HMO it has no incentive to "save" money by canceling or
rescinding the enrollee's coverage. "
2. Opponents' arguments and CMA's responses
a. Opponents argue that existing law allows them to
retroactively rescind treatment authorizations, even
post-treatment, because the patient was not "eligible"
due to various reasons including non-payment of
premiums, fraud, and out-of-coverage treatment by the
provider; and therefore, AB 1324 would not be a
restatement of existing law.
They also assert that AB 1324 would override the
terms of their contracts with both providers and
enrollees and open health plans to retroactive
lawsuits that will reduce their ability to ensure that
medical care is medically necessary, and would thereby
increase health care costs. The California
Association of Health Plans writes, in particular:
"AB 1324 would hamper our ability to conduct
reviews of medical necessity as outlined in our
contracts with providers by broadening the definition
of providers providing care in 'good faith.' When a
provider conducts medical services in a manner that
violates rules around medical necessity we have a
right to alter/refuse payment as outlined in the
contract. If the provider disputes the action,
providers can, and do, avail themselves of the
remedies under the contract and in law, including a
plan dispute resolution process. This bill will
override these provisions in our contracts and force
us to pay providers for care regardless of the terms
of our contract."
The CMA responds:
"AB 1324 reaffirms existing law, which prohibits the
rescission of treatment authorizations after the
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service has been rendered in good faith and pursuant
to the authorization. Some insurers and HMOs are
attempting to circumvent the law by disclaiming that
its authorization does not guarantee eligibility. The
health insurance industry has adopted various tactics
to do so, all of which violate existing law. AB 1324
would simply reaffirm that insurers and HMOs cannot
avoid current law by subsequently rescinding,
canceling, or modifying a patient's coverage or by
subsequently determining that it did not provide an
accurate determination as to whether or not the
enrollee was eligible. This is consistent and
declaratory of existing law because:
Current statutes on their face are clear and
contain no exceptions, including the claimed
exceptions insurers seek to read into the law.
(See, e.g., H&S Code Section 1371.8.)
The legislative history of existing law (H&S
Section 1371.8 and IC Section 796.04) evidences that
the Legislature intended to ensure that the promises
of insurance would be fulfilled by making unlawful
retroactive rescissions of treatment authorizations.
California courts have consistently held that
insurers are liable under California common law for
services they authorize, i.e., they are estopped
from refusing to pay the provider. (See, e.g. Scott
v. Federal See Scott v. Federal Life Ins. Co. (1962)
200 Cal.App.2d 384; Sheppard v. Morgan Keegan & Co.,
(1990) 218 Cal.App.3d 61; Cedars Sinai Medical
Center v. Mid-West National Life Insurance Company
of Tennessee (C.D. Cal. 2000) 118 F. Supp. 2d 1002.)
Public policy requires HMOs and insurers, not
physicians, bear the risk of insurer's and HMO's
"mistakes" in underwriting, authorizing treatment,
or verifying authorization. By enacting current
law, the Legislature has determined: (1) The burden
is properly placed upon the health plan to conduct
complete medical underwriting and to resolved all
questions pertaining to a health insurance
application before approving the application; and
(2) The risk is properly placed upon the health plan
to pay providers for services it authorizes. Courts
throughout the country recognize that requiring HMO
payment after verification of eligibility is an
important public protection.
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The fact that HMOs and insurers may make
mistakes in authorization should not be relevant.
For example, there may be a lag between the
happening of events which disqualify the employee,
and the reporting of that event by the employer to
the plan. At issue is not the fact that legitimate
mistakes were made. The issue is: who bears the
risk when such mistakes are made? The law,
legislative history, and public policy
considerations are clear: the HMO or insurer bears
the risk.
"Only the insurance company is in a position to
negotiate with the employer or other payor regarding
such things as late communications pertaining to
eligibility coverage. Insurance companies have the
ability to negotiate with payors regarding these
issues; physicians do not. Furthermore, in
circumstances where it is ultimately concluded that
the insurance company is not responsible for payment,
the insurance company is in a better position than the
physician to seek reimbursement from the appropriate
entity."
b. Opponents argue that it is unnecessary to include
the legislative finding and declaration that the
bill's provisions are declarative of existing law, and
that this provision might unfairly disadvantage
litigation.
The sponsor, CMA, writes that there are three cases
that it is involved in:
(1) Hailey v. Blue Shield of CA (Orange County
Superior Court, Case No. 03CC01789); (2) Coast Plaza
Doctors Hospital, et al. v. Wellpoint, Inc., et al.
(Los Angeles County Superior Court, Case No. BC
360235); and (3) Horton, et al. v. Wellpoint, Inc.
(Los Angeles County Superior Court, Case No. BC
341823.) In each of these cases the HMO or insurer is
attempting to avoid payment for pre-authorized
treatment for various reasons, including that, despite
the pre-authorization and existing law, by
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retroactively questioning eligibility.
The CMA writes in response to opponent's argument:
"It is necessary to specify that [the bill] is a
restatement of existing law in order to safeguard the
rights of those persons the statute is intended to
protect: patients and health care providers. Even
when the Legislature reconfirms or "clarifies" the
obvious, it must be specific that it is a restatement
of existing law. It is not uncommon for bills that
amend existing statutes to include such language.
(See, e.g., AB 1400 (Laird, Chapter 420, Statutes of
2005) (civil rights legislation declarative of
existing law); AB 587 (Firebaugh, Chapter 587,
Statutes of 2001) (definition of actual damages
declarative of existing law).)
"A maxim of statutory construction is that where a
court construes a statute after it is amended by the
Legislature, the court presumes that the Legislature
does not indulge in idle acts. (People v. Sierra
(1995) 37 Cal.App.4th 1690, 1696.) Thus, if the
restatement of existing law provision were deleted, as
the opponents suggest, a court may reason that the
statute was amended because existing law does not
provide the protections set forth in the amendments.
Therefore, the bill must provide that the legislative
intent is to confirm and restate existing law.
Otherwise, the bill would allow insurers to justify a
practice of retroactively rescinding coverage and
treatment authorizations.
"Additionally, the amendments proposed by AB 1324 are
existing law. The Department of Managed Health Care
agrees and has testified as such. (See, e.g., People
ex rel. Lungren v. Superior Court (1996) 14 Cal.4th
294, 309 (administrative construction of an enactment
by those charged with its enforcement is entitled
great weight, and courts generally will not depart
from that construction).) When this law passed in
1994, the Assembly Health Committee noted it 'is
designed to prevent the health plan from rescinding
initial authorization when new information becomes
available.' By asking that this provision be deleted,
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opponents are asking the Legislature to let them off
the hook. They are asking to be retroactively exempt
from liability for violating existing law. And, they
are effectively shifting the financial burden of
payment for authorized health care services to
patients and/or providers."
Recent amendments to AB 1324 will specify that the
amendments proposed by AB 1324 would not impact any
litigation.
c. Opponents argue that, if the bill is declaratory of
existing law, why is it needed? Instead, opponent
America's Health Insurance Plans (AHIP) contends that
AB 1324 attempts to impose new financial liabilities
on insurers in instances where the policy holder
unilaterally voids its contract with the insurer - as
in the case of non-payment of premiums - or in other
instances, such as when an employee leaves employment
after a service has been authorized but before it has
been rendered, or in the instance where, upon a proper
legal basis, a contract is void ab initio as in the
case of a legal recession.
The CMA responds:
"This bill is necessary because, unless the
Legislature acts, HMOs and the insurance industry will
continue to ignore the law, leaving patients and
providers vulnerable to abusive practices. They have
ignored the law requiring them to show intentional
misrepresentation before rescinding coverage. They
have ignored the law that provides that they cannot
rescind an authorization for treatment after the
provider renders the treatment in good faith and
pursuant to the authorization.
"Moreover, to date, none of the responsible regulators
have sought enforcement actions against insurers or
HMOs for violations of the law. Legislative action
would avoid unnecessary litigation and would signal
insurers to cease engaging in abusive practices. AB
1324 would tell insurers that are currently
circumventing the law that the Legislature meant what
it said when the original bill was passed in 1994 (SB
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1832, Bergeson, Chapter 614, Statutes of 1994) and
signed by Governor Wilson."
Proponents additionally add:
"The bill would ensure continuity of care and would
diminish the incentive for HMOs and insurers to engage
in retroactive rescissions, cancellations, and
modifications. HMOs and insurers rescind coverage to
avoid the cost of paying for enrollees' health care
and claim various legal justifications that mask their
real intent. If insurers cannot avoid paying for
health care when they rescind or otherwise cancel
coverage, they would not save money by dumping
patients. Patient and consumer groups agree, as
evidenced by the list of supporters. Patient and
consumer groups have asked the DMHC to ensure that
providers are paid once authorized."
CMA concludes in response:
"The ramifications of permitting insurers to engage in
such 'postclaims' gamesmanship not only creates bad
and unfair public policy, but also contravenes the
purpose behind health care insurance. The stability
of California's health care delivery system depends
upon physicians, other providers, and patients being
able to rely upon these authorizations. Allowing
insurers to retroactively rescind treatment
authorizations leaves patients and providers with the
false assurance that the insurer will pay for medical
treatment and creates a policy that would require
physicians to chase patients or payors for payment, or
demand payment up-front prior to providing medical
treatment. If the insurer were permitted to authorize
treatment, while concurrently retaining a right to
rescind the authorization after treatment has been
performed, the insurer accepts compensation without
running any risk."
3. Author's amendments
On page 2, line 11, delete "for the treatment"
On page 3, line 12, delete "for the treatment"
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Support: American Cancer Society, CA Division; CA Society
of
Anesthesiologists; CA Chapter of the American
College of Emergency Physicians; AARP; Adventist
Healthcare Coalition; American Lung Assoc.; CA
Alliance for Retired Americans; CA Assoc. of
Realtors; CA Hospital Assoc.; CA Prostate Cancer
Coalition Advocates; Consumer Federation of CA; The
Foundation for Taxpayer and Consumer Rights; Gray
Panthers; Health Access CA
Opposition: Health Net; Blue Cross of CA; Assoc. of CA
Life & Health Insurance Companies; America's
Health Insurance Plans; CA Assoc. of Health
Plans; Pacific Care; Blue Shield of CA
HISTORY
Source: California Medical Association
Related Pending Legislation: None Known
Prior Legislation: None Known
Prior Vote: Assembly Health Committee (Ayes 13, Noes 2)
Assembly Floor (Ayes 55, Noes 17)
Senate Health Committee (Ayes 6, Noes 3)
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