As “The Year of Health Care Reform” heads into Year Two, the fate of the omnibus health insurance expansion remains unknown. But while the focus has been on Speaker Fabian Núñez’s AB1X, the most significant health care bill of 2007 may have been the effort to curb what consumer advocates see as the worst industry abuses. In 2008, the next step may be to change how private insurers are regulated.
The most significant piece of health care legislation Gov. Arnold Schwarzenegger actually signed in 2007 may turn out to be one that passed largely unnoticed. AB1324 by Hector De La Torre, D-South Gate, takes aim at one of the most controversial insurer practices: rescinding coverage after a customer has been paying premiums for months or years.
The bill bars insurers from rescinding coverage on visits and procedures they had already authorized. AB1324 also states that carriers cannot rescind coverage if the insurer itself “did not make an accurate eligibility determination” — essentially, a patient cannot be held responsible for an insurer’s mistake. The bill went into effect on Jan. 1.
“I think we are going to see more legislation and efforts to reign in egregious insurer practices,” said Dr. Bryan Liang, executive director of the Institute for Health Law Studies at the University of California at San Diego. “AB1324 took the first step.”
Such cancellations are particularly controversial because they often leave patients very ill and unable to obtain new health insurance. In many cases, patients and health advocates have argued that they did not knowingly lie on their applications, that the health problems cited were so minor as to not be worth mentioning, or even that the insurers themselves intentionally added the fraudulent information.
De La Torre is hardly the only one targeting the practice. On Dec. 13, Insurance Commissioner Steve Poizner levied a $12.6 million fine against Blue Shield for rescission violations and “irresponsible claims processing.” This came after an investigation launched by his predecessor, John Garamendi, found 1,200 violations in 2004 and 2005. In announcing the fine, Poizner laid out a warning to other insurers, stating, “We will target this behavior on an industry-wide basis and continue to take appropriate action as needed.”
Meanwhile, a major court decision delivered the day before Christmas could also have the effect of limited rescissions. An Orange County patient named Steve Hailey beat Blue Shield in 4th District Court of Appeal in Santa Ana. The panel of judges found that insurers are responsible for checking the accuracy of patients’ applications and medical histories before they run up large bills, and that they most show “willful misrepresentation” by the patient. Numerous other court cases over insurer rescissions are pending.
Hailey’s care from a car accident cost around a half million dollars. With large insurers rescinding hundreds of policies each year in the state, insurers have been spending big on lobbying against bills that target their bottom lines. Health Net spent $600,000 on state lobbying in the first nine months of 2007. Blue Shield spent more than $400,000, while Blue Cross reported $2.1 million. All three opposed AB1324 and most of the Democratic proposals to overhaul the state’s health insurance system.
Meanwhile, there are several impediments to the large-scale reform laid out in AB1X. Voters must approve the $14.4 billion plan, along with an increase in the state cigarette tax to $1.75 a pack to help pay for it, because Legislative Republicans have said they will hold up any funding mechanism that amounts to a tax increase. Senate President Pro Tem Don Perata, D-Oakland, labeled the plan “DOA.” The bill could also face opposition from the left in the Senate. Sen. Sheila Kuehl, D-Los Angeles, has long been an outspoken voice on health care reform; she authored SB840, which calls for a European-style single-payer system.
“We’re hopeful the Senate will pass a comprehensive reform bill and we’ll be able to get a ballot measure,” said Tom Epstein, vice president of public affairs for Blue Shield of California.
However, there seems to be wider consensus around addressing particular practices within the existing system. AB1324 received support from numerous Republicans on its way to garnering 31 votes in the Senate and 73 in the Assembly.
Liang said he wasn’t aware of any incremental legislation pending that would be as significant as AB1324. But some could be coming, particularly if larger-scale reform appears stalled. Representatives of both agencies that regulate health insurers have made statements in recent months calling for streamlining the patchwork of rules governing insurers. Currently, the Department of Managed Care covers HMOs, while the Department of Insurance covers most other providers.
“The focus has been on health insurance mandates, which are still possible,” Liang said. “However, given Perata’s statements, the alternative will be smaller, more discrete reforms like AB1324. January will be a critical month — whether we will move into comprehensive reform or settle for piecemeal efforts and new legislation.”