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The patients with individual health care coverage plans represent a significant part of California’s overall patient population. The gaps in the current legislation allow insurance carriers to make wrongful rescissions of the patients’ insurance contracts without providing sufficient justification for their decisions. Assembly Bill 2 (AB 2) which was introduced by De La Torre was aimed at restricting the power of the insurance companies for rescinding the individually purchased health care plans but was vetoed by the governor because of its ineffectiveness.
Overview of the health problem
Though the majority of Americans receive health insurance plans from their employers, individually purchased health plans are an important source of health care coverage for a substantial group of Americans. The categories of the population which cannot be involved in the group insurance plans include early retirees, self-employed people, workers of the organizations which do not offer health insurance to their employees. For example, in 2002, about 6 million Americans purchased private non-group plans (Shi & Singh, 2008, p. 203). As opposed to group insurance plans, the individually purchased health care insurance allows determining eligibility and proper pricing of the coverage in every single case, taking into account the current individual’s health condition. For this reason, high-risk individuals are often deprived of an opportunity to receive a privately purchased health care plan. The option of developing an individual health care coverage plan for every single patient can cut both ends and can be recognized as an advantage or disadvantage depending upon the situational context.
The Knox-Keene Health Care Service Plan Act of 1975 is the current law that regulates the issues of rescinding the privately purchased health care plans. Under this legislative act, the non-renewal of the individual health care coverage plan can be justified only by the specified circumstances, including nonpayment, fraud, or intentional misrepresentation of health or material facts. Bill AB 2 which was introduced by Assembly member De La Torre in California was aimed at protecting the patients with individual health care coverage by developing standardized review procedures and a legal framework for defining whether rescinding of particular insurance plans would be appropriate. The problem with the current regulations concerning the legal procedures for rescinding the privately purchased insurance plans and the appropriateness of the suggested improvements caused the prolonged debates of the bill which finally was vetoed by the Governor on October 11, 2009.
The severity of the health problem
The lack of access to affordable insurance plans is a severe problem for California where the percentage of the uninsured population is greater and the percentage of employer-sponsored patients is smaller than in the rest of the United States.
Considering the peculiarities of the insurance market of California, the experience of the state provides useful lessons for the federal policymakers. According to statistics data from 2008, only 54 percent of Californians obtained employer-sponsored insurance health care plans (Coffman, 2009, p. 2). As to the rest of the patient population, 10 percent of them obtained privately purchased insurance plans, while 44 percent preferred the services of commercial insurance companies (Coffman, 2009, p. 2). Within recent years, there has been a tendency towards the enrollment of the patients with employer-sponsored plans into the individual health care coverage plans.
California’s individual health insurance market is loosely regulated and cannot fulfill the demands of all the patients who need individually purchased healthcare coverage plans. For example, the health insurance carriers can reject an individual health care plan for a patient because of the state of health and belonging to a high-risk group. Another problem is the waiting periods which are justified by the insurance carriers with the preexisting conditions of the patients. The existing laws do not presuppose any restrictions on the rates or their increases. California’s insurance carriers are allowed to take into account the age, gender, and state condition of a patient while setting the premiums for individually purchased health insurance plans. The recent research comparing the premiums on individual insurance policies for 40-year old men and women in California has shown that the premiums for females were 10-39 percent higher than the premiums for the individual health care coverage for males with a similar health condition (Coffman, 2009, p. 3). The aggressive medical underwriting causes difficulties for patients who apply for individual health care coverage. In case of an individual’s health is not perfect, his/her chances to receive individual health care coverage are limited.
Within recent years, measures have been imposed for limiting the influence of age and gender parameters on the variations in the premiums for individually purchased health care coverage. For example, California’s 2007 health reform bill was aimed at introducing the principle of age bands into the procedures of defining the size of the premiums in every single case. The Bill AB 119 introduced by Jones was an attempt to limit the use of greater premiums for women than men, justifying it with the statistics data. The act under analysis is Bill AB 2 which was introduced by De La Torre was aimed at restricting the insurance carriers’ rights for non-renewal of individual health care plans by developing more specific procedures for post-claims underwriting and limiting the conditions under which the carrier can cancel a policy.
Taking into account the peculiarities of the development of California’s insurance market, the lack of regulations that would restrict individual variations and increases in the premiums for the privately purchased health care coverage plans are concerned with the majority of the state population. Effective measures need to be imposed for changing the existing state of affairs and along with making the insurance coverage affordable, paying attention to the protection of the consumers with individually purchased health care coverage plans.
Overview of the bill AB 2
Bill AB 2 which was introduced by De La Torre was aimed at protecting the consumers with privately purchased health care plans by restricting the list of the circumstances under which their plans can be rejected or not renewed by the insurance carriers.
Pointing at the main drawbacks of the existing Knox-Keene Health Care Service Plan Act of 1975, the opening part of the bill overviews the existing regulations for providing the individual health care coverage as well as canceling it, enumerating the specified circumstances which can justify non-renewal of the insurance project. In the existing law the specified circumstances are defined as “nonpayment, fraud or deception in the use of services or facilities, or for good cause as agreed upon in the contract” (Bill number AB 2, para. 2). To fill the gaps in the current legislation, the developers of the activities offered to improve the existing procedures for evaluating every individual’s health history and defining the size of the premiums for the patients who are interested in the privately purchased health care coverage plans. Bill AB 2 requires completing the medical underwriting by the insurers before issuing the health care coverage plan, describing the specific procedures before providing the health care plans, canceling them, and reporting all the cases of the individual insurance plans which have been canceled during the previous calendar year. “The bill would prohibit an insurer from canceling or rescinding an individual health care service plan contract … unless specified conditions are met with regard to whether an applicant intentionally misrepresented or intentionally omitted material information in the plan” (Bill number AB 2, para. 5).
Bill AB 2 explores the issues of standardization of the patients’ application forms and the procedures of reviewing every single health history before issuing the individually purchased health care coverage. According to bill AB 2, the standard application forms include only “questions designed to ascertain the health history of the applicant and shall be based on the medical information that is reasonable and necessary for medical underwriting purposes” (Bill number AB 2, para. 12). For example, an HIV test cannot be included in the application forms as obligatory information.
The expected outcomes of the implementation of the bill AB 2
The primary goals of the developers of the bill AB 2 included the development of the standardized application forms and procedures for providing and canceling the individually purchased health care coverage plans. The intention of the developers of the bill was not only to make the privately purchased health care plans more affordable but also to protect the rights of the consumers by regulating their relations with the insurance carriers and restricting the circumstances under which the latter can rescind the individually purchased insurance contracts.
The fact that the practices of wrongful rescissions have been rather frequent among Californian insurance carriers as well as the necessity of reformation of the current legislation has been recognized by the political parties and Arnold Schwarzenegger as the governor of the state. Acknowledging the necessity of reformation in the sphere of the Californian insurance industry, the political leaders, physicians, and medical organizations have united their efforts for developing effective measures and improving the existing state of affairs. The expected outcomes of AB 2 include the standardization of the application and cancellation procedures to reduce the scope of variations in the premises and minimize the risks of wrongful rescissions. Focusing on the protection of the rights of the health care consumers and putting an end to the unfair rescissions of the insurance carriers, the developers of the bill attempted to impose measures for restricting the opportunities of the insurance companies for the cancellation of the health care coverage contracts. The promoters of the bill expect that its enactment would make the individually purchased insurance plans more affordable and reliable.
The enactment of AB 2 affects the financial interests of the insurance carriers by limiting their opportunities for the unlawful rescissions of the contracts. During the hearing of the cases of the three insurance companies, it was cleared out that the coverage of more than 20, 000 has been canceled depriving them of $ 300 million of payment without the lawful justification of these decisions (De La Torre 2009). Focusing on the financial profits and ignoring the universal values, some of the insurance companies offered bonuses to employees who managed to rescind insurance contracts. Struggling for their financial interests, the insurance companies are the main opponents to the bill AB 2 who tried to lobby the enactment of the bill.
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Despite the governor’s acknowledgment of the importance of reformation of the insurance industry, he vetoed the enactment of AB 2, explaining it with the ineffectiveness of the suggested reforms.
Problems with the enactment of the bill
Taking into account the fact that the protection of the patients’ rights is concerned with the reformation of the whole insurance industry, the enactment of AB 2 is associated with particular difficulties.
The insurance companies as the major interest group tried to protect their profits by lobbying the bill. During the last day of the legislative session, the army of lobbyists consisting mainly of representatives of the insurance companies organized demonstrations in Sacramento, expressing their protest against several legislative bills and AB 2 was one of the major points of their petition (De La Torre 2009). Still, these lobbyists’ actions did not have any impact on the governor’s decision to veto the bill because, after the hearing of the cases of the insurance companies, their attempts were associated only with their wish to preserve the opportunities of wrongful rescissions as one of their important sources of income.
Another problem with the enactment of the bill was preconditioned with the governor’s criticism of the formulations and the effectiveness of the measures which were suggested by the developers of the legislative bill.
Recommendations regarding AB 2
The recommendations for enhancing the effectiveness of the measures offered by AB 2 include more detailed formulations of measures that need to be imposed for restraining the insurance carriers’ opportunities for making wrongful rescissions and gaining financial profits at the cost of the health care consumers’ interests.
Justifying his veto of the bill, the governor mentioned the lack of effectiveness of the offered measures as the main argument which prevented him from signing and approving the bill. “I would support a bill that provides strong statutory protections for consumers against inappropriate rescissions by health plans” (Governor’s veto, p.5). Explaining his decision to veto the bill with the lack and ineffectiveness of the legislative act itself, the governor did not point at the ways for possible improvement of the document, not specifying the major gaps which need to be improved in further projects of the bill.
While formulating the measures which need to be imposed for improving the existing situation in California’s insurance industry, the legislators need to take into consideration the rest of the bodies which participate in the process of handling the conflicts in the sphere of individual health care coverage legislation, such as the Department of Managed Health Care and Department of Insurance for complimenting their efforts instead of criticizing them or denying their importance.
The bill AB 2 was vetoed by the governor who had recognized it as ineffective. Though the fact that the measures need to be imposed for improving the existing situation in the sphere of California’s insurance industry, AB 2 requires further improvements of formulations and a more detailed description of regulations and standards to be used in the application forms and procedures before rescinding the individually purchased health care coverage plans.
Bill number AB 2. Individual health care coverage. Web.
Coffman, J. (2009). Reforming the private insurance market: Lessons from California for national health reform. Web.
De La Torre, H. (September 2009). Governor Schwarzenegger: Do the right thing, sign Assembly Bill 2. The Huffington Post.
Governor’s veto. Aroundthecapitol. Web.
Shi, L. & Singh, D. (2008). Delivering health care in America: A systems approach. Sudbury, MA: Jones and Bartlett Publishers.