Proposed California Legislation Seeks to Ban Some Health Care Policy Cancellations

The California Senate may soon take up three bills aimed at preventing insurers from canceling health care policies for individual policy holders who file major medical claims – legislation that could impact approximately nine percent of insured Californians, or 2.6 million individual policy holders.

The General Assembly passed the bills, mostly along party lines, said Chris Parman, staffer for Assembly member Mary Hayashi, who is leading the reform effort. The bills also have been approved by the Senate Health Committee and sent to the House Appropriations Committee, he said. A Senate hearing is scheduled for August 4.

Parsons said the bills come in the wake of lawsuits filed against some insurers, including WellPoint, for canceling health coverage polices and denying or delaying benefits that left thousands of Californians with unpaid medical bills (“LA Sues Insurer for Canceling Health Care Coverage,” April 22).

Hayashi’s office said the lawsuits and recent regulatory action by the state’s Department of Managed Care highlighted a problem with insurers rescinding coverage on the grounds that the enrollee deliberately gave false information on their application. In many of these cases, the rescissions occurred years after the application was accepted and immediately followed a claim for high-cost treatment or surgery.

“This sudden cancellation of coverage left many patients without the treatment they needed or with expensive medical bills that they now owed their health care provider,” Hayashi said in a press release. “Compounding the problem is the difficulty in proving that an enrollee did not willfully provide false information on the application, and that mistakes were unintentional.”

Hayashi’s office said AB 2549 gives health plans and insurers 18 months from the date of coverage to complete underwriting and approve or disapprove an application for insurance.  After that, they cannot rescind the policy for any reason. AB 1150, sponsored by Assembly member Ted Lieu, will prohibit insurers from rewarding agents and employees for rescinding policies. And AB 2569, sponsored by Assembly member Kevin de León, will prohibit health plans and insurers from revoking coverage for all family members if one person’s coverage is revoked.  It also requires agents and brokers to assist applicants in filling out applications completely and accurately.

The California Medical Association supports the bills and is on record saying, "When health plans and insurers engage in post-claims underwriting, they undermine the basic obligation they have to their enrollees and insured and leave them stranded when they need insurance the most."

The Association of California Life and Health Insurance Companies and California Association of Health Plans oppose the bills.