Legislative Update

2008 To Be A Busy Healthcare Reform Year in California
by Alan Katz

With the demise of comprehensive healthcare reform and the arrival of a horrendous budget deficit, California lawmakers are busy looking for ways to fix what they perceive to be the state’s broken healthcare system on the cheap. After all, the concerns are still there: too many uninsured, ever increasing healthcare costs, and bad behavior by carriers. Since lawmakers can’t spend all their time haggling over budget cuts, healthcare reform will be an important part of this legislative session. The issue will no longer be front and center, but it’s still on stage.

Several healthcare reform bills were passed before the legislative deadline. They focus on specific aspects of healthcare. Indeed, several are repackaged nuggets from Governor Arnold Schwarzenegger’s and Assembly Speaker Fabian Nunez’s comprehensive healthcare reform package, Assembly Bill x1-1.

One issue the legislature will, no doubt, act upon this year deal with how carriers cancel the coverage of customers who failed to honestly or completely complete their original applications. The customer and health providers are often left with substantial financial exposure because these rescissions are retroactive to the original date of coverage. This cries out for legislative attention. State regulators have fined carriers millions of dollars for the practice. Consumers are terrified that the coverage they’ve been paying for won’t be there when they need it most. Everyone realizes that there should be a balance between protecting those who make innocent errors in their applications and not rewarding those who game the system. If there is to be an imbalance, most lawmakers would understandably rather err on the side of protecting their constituents rather than insurance company profits.
AB 1945, by Assemblyman Hector De La Torre, would require state regulators to sign off on such rescissions before they take effect. AB 1150 by Assemblyman Ted Lieu aims to prevent carriers from setting targets for canceling policies or awarding bonuses to their employees based on the number of policies they rescind. It’s unclear whether state regulators want or can handle the responsibilities imposed on them by AB 1945. The bill may simply be impractical. AB 1150, on the other hand, is likely to pass without much controversy.

One of the key features of ABX1-1 was its requirement that carriers spend 85% of the premiums they receive on medical care. According to the San Jose Mercury News, this Medical Loss Ratio requirement is reappearing in legislation sponsored by Senate Health Committee Chair Shiela Kuehl. I haven’t been able to find the legislative language advocated by Senator Kuehl. The compromise approach contained in ABX1-1 was widely supported, including by many carriers. It’s unclear whether the new legislation will simply accept that language, in which case it is highly likely to pass, or veer off into new, more controversial directions.
Senate President Pro Tem To-Be Darrell Steinberg is pushing another element of ABX1-1. His bill, SB 1522, would require the Department of Managed Healthcare and Department of Insurance to establish five categories of individual plans. Carriers participating in that market would be required to offer at least one health plan in each of those categories. As currently drafted, it appears insurers could offer additional plans, too. This flexibility would preserve consumer choice and allow carriers to continue to innovate new plan designs. If, however, this flexibility is diminished, the results could be harsh for California consumers.

These are just some of the bills introduced prior to the legislature’s submission deadline. Keep in mind, however, that any bill can be amended in virtually any way, so the filing deadline doesn’t have a lot of teeth. The number of bills seeking to reform the healthcare system is likely to increase before the weeding out process begins. This could be a good thing. It would be nice to see, for example, more focus on controlling healthcare costs, which is the real root of problems in the healthcare system.
In any event, 2008 is going to be a busy year for healthcare reform advocates. It won’t make as many headlines as 2007’s efforts, but that doesn’t mean this year won’t be even more significant than last year.