SACRAMENTO, CA – In response to a continuing pattern and practice by the insurance industry of unfairly cancelling health policies, Assemblymember Hector De La Torre (D-South Gate) today introduced AB 1945 to require health insurance companies to get prior approval from state regulators before cancelling or rescinding policies. 

“The insurance industry has made billions by unfairly canceling health policies when people need coverage most, with little to no oversight prior to canceling the policies,” said De La Torre.  “Consumers, who have already made payments to HMOs, are being dumped by the insurance company when the time comes for them to receive coverage.  At some point, someone must stand up and say ‘Enough!’ This bill will protect the rights of insured Californians against the unfair practices of insurance companies.”

The Los Angeles Times recently revealed that Blue Cross has been asking doctors to share confidential patient information with the insurance company, so that Blue Cross could cancel policies.  After outcry from the California Medical Association, Governor Arnold Schwarzenegger, and Senator Hillary Clinton, Blue Cross reversed course and agreed to stop sending the letters. 

“This bill puts an end to the days where insurance companies served as judge and jury over their policyholders, and ensures public oversight over the cancellation practices of insurance companies, said Richard Frankenstein, M.D., President of the California Medical Association, which is sponsoring the bill.  “Insured Californians will no longer have to live in fear that their coverage will be stripped from them by a greedy insurance company at a moment’s notice, just when they need it most.”

Background:

Health Maintenance Organizations (HMOs) have engaged in a practice of dumping policyholders after a claim has been submitted.  This egregious practice often occurs after expensive medical treatment has been deemed necessary—when patients need coverage the most.  This practice is often referred to as “retroactive cancellation of policies” or “postclaims underwriting”.  In some instances, HMOs and Insurers find reason to cancel a person’s coverage without sufficient cause.  Many times the cancellation occurs after years of the consumer paying premiums to an insurance company.

These practices have run counter to existing law, which requires HMOs to show intentional misrepresentation before canceling insurance coverage.  AB 1945 places the burden on HMOs and insurers to prove fraud PRIOR to rescinding coverage, by requiring HMOs to prove to state regulators that an enrollee falsified or misrepresented information about their medical history before canceling any policy.

“Fines imposed haven’t been effective in changing these practices,” said De La Torre.  “Although, Blue Cross was fined $1 million last year, it was just the price of doing business for a company making billions in profits.  Their actions are simply  unconscionable.”  

AB 1945, is an extension of AB 1324, signed by Governor Schwarzenegger in October, 2007.  Although, AB 1324 ensures continuity of care and lessens the incentive for HMOs and insurers to engage in retroactive rescissions and cancellations, AB 1945 aims at closing the remaining loopholes and preventing HMO’s from skirting the law.