(June 3, 2009) — California Insurance Commissioner Steven Poizner today released proposed regulations (Title 10, California Code of Regulations, §2274.70 et seq.) regarding standards for health history questionnaires in health insurance applications, pre-issuance medical underwriting and rescission of health insurance policies (the "Proposed Regulations"). These regulations by the California Department of Insurance are the latest step in the years-long dispute with California health insurers and health plans by the California Department of Insurance, the Department of Managed Health Care and private litigants in connection with health insurers' policies and practices when the insurer or plan discovers a medical condition after the issuance of the policy that would have caused it to decline to cover the risk if it had been aware of the condition at the time of enrollment.

The Proposed Regulations are intended to apply to all health insurance policies as defined in Section 106(b) of the California Insurance Code that include both individual and group health insurance policies. They would apply only to policies where the insurer applies medical underwriting guidelines and guarantee issue rules do not apply. They would not apply to managed care plans, which are regulated by the Department of Managed Health Care.

The Department's stated goals for the proposed regulations are to:

  • Encourage insurers to use Personal Health Records rather than health history questionnaires for medical underwriting
  • Set standards for health history questionnaires used for medical underwriting
  • Set forth requirements for the medical underwriting process
  • Set forth requirements for conduct of a post-issuance rescission investigation after the insurer has received notice of a claim

The material provisions of the Proposed Regulations are summarized below.

Standards for Health History Questions on Application for Health Coverage

The Proposed Regulations require that inquiries into an applicant's health history must hold the applicant to a reasonable layperson standard. Whenever possible, information from a Personal Health Record must be relied on during medical underwriting in addition to, or, if sufficient, instead of health history questionnaires. A Personal Health Record is defined by the Proposed Regulations as a dynamic set of personal health history information derived from a private secure data base maintained by a health insurer or health plan and that contains medical claims and other information. A Personal Health Record is distinct from an electronic medical record which is primarily intended for use by medical professionals. A Personal Health Record is designed primarily for use by the insured.

All questions designed to ascertain the health condition or history of an applicant must be limited to eliciting only medical information that is reasonable and necessary for medical underwriting. Additionally, questions on an application for health insurance coverage must (i) be clear, specific, unambiguous and written to be understood by a reasonable layperson, (ii) clearly state the period of time covered by the question, (iii) be phrased to elicit information and diagnoses, treatments, and recent consultations with health care providers known to the applicant, and (iv) provide each applicant with the opportunity to indicate whether he or she is unsure of the answer, does not know how to respond to a question, does not understand the question, or does not remember the information requested.

To avoid unclear, ambiguous and abstruse questions which may be likely to mislead, an application for health insurance shall not, among other things, (i) include compound questions, (ii) include questions that are unlimited in time and scope and must be limited to periods required by sound actuarially underwriting standards used by the insurer, (iii) include questions that require the applicant to evaluate or understand the significance or cause of physical symptoms, (iv) require the applicant to speculate about the significance of the symptoms, conditions or disorders, (v) ask the applicant to make an overall appraisal of the applicant's overall health, or (vi) include any questions which solicits or are reasonably calculated to solicit information regarding HIV test results. Insurers are required to use either a separate health history questionnaire for each individual applicant or a questionnaire in which each question calls for a separate, identifiable response from each applicant.

Standards for Avoiding Prohibited Post Claims Underwriting

In order to complete medical underwriting prior to issuance of the policy, the insurer must obtain the necessary information to evaluate eligibility for coverage. This process must include, among other things, (i) obtaining the applicant's Personal Health Record, if available, (ii) obtaining health history information from external verifiable sources other than the information provided by the applicant on the health history questionnaire, (iii) obtaining and evaluating commercially available medical information and underwriting information for each applicant, (iv) reviewing and evaluating each applicant's health status and health history using Personal Health Record data and/or self reported information, (v) checking reasonably available health history information obtained from all sources for accuracy, completeness and consistency, and (vi) verifying that the information submitted by an applicant is accurate and complete, including when applicable, checking with any assisting agent.

In order to resolve all reasonable questions arising from written information submitted on or with the application prior to issuing the policy, the insurer must obtain and use any necessary additional information external to the health insurance application to resolve inconsistencies or conflicts in the application. This includes evaluating any material information obtained from or through an assisting agent and conducting reasonable and appropriate follow-up of any inadequate, unclear, incomplete, doubtful or otherwise questionable or inconsistent material information on the application prior to issuing the policy. Unless the insurer has complied with the requirements of the Proposed Regulations, the insurer is prohibited from rescinding, canceling, limiting a policy or certificate, or increasing the rate charged subsequent to receiving a request for authorization of service or verification of benefits, notice of a claim, a claim or a request for a change in coverage, or any other communication that puts the insurer on notice of a claim.

Documentation Requirements and Examination by Commissioner

In order to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with the application, the insurer must document (i) the insurer's completion of medical underwriting, (ii) the insurer's identification and resolution of all reasonable questions arising from the information submitted on or with the application for health insurance coverage, (iii) the insurer's attempts to verify the accuracy and completeness of the application, (iv) all communications relating to the processes described in the Proposed Regulations, including communications to and from the insured, and (v) all communications with the agent assisting the applicant regarding any aspect of the application, the submission of the application, or any supplemental information to the insurer, or the underwriting of the policy based on information in the application.

Agent Attestation and Notification Requirements

Any agent assisting the applicant in submitting an application for health insurance must notify the insurer that the agent provided assistance. An application includes an application for health insurance submitted electronically using an internet web site provided by the insurer or any other internet web site, such as the agent's web site, which is intended to be used for submission of health insurance applications to insurers. For purposes of this requirement, assisting an applicant in submitting an application for health insurance includes providing information or advice or answering the application's questions about (i) any aspect of the application or its submission, (ii) the medical underwriting of the application, and (iii) the health insurance sought by the applicant or entering information directly into or onto the application.

If an agent assists the applicant in submitting an application to the insurer, pursuant to Insurance Code section 10119.3, the agent must attest on the written application that to the best of his or her knowledge, the information on the application is complete and accurate, that he or she explained to the applicant, in easy to understand language, the risk to the applicant of providing inaccurate information and that the applicant understood the explanation. Insurers may not complete medical underwriting and issue a health insurance policy without receiving an agent attestation as required by Insurance Code section 10119.3 unless the insurer is processing the application without the involvement of the agent.

When an insurer receives an electronically submitted application for health insurance through an agent's web site, the insurer is required to provide promptly to the agent a copy of the application and notification of receipt. When an agent is notified either by the insurer or by the agent's web site that an application for health insurance has been submitted electronically to the insurer through the agent's web site, the agent must promptly deliver to the insurer a notification stating whether or not the agent provided assistance to the applicant. If the agent did not assist the applicant in submitting the application prior to receipt of the application by the insurer but provides assistance to the applicant thereafter and prior to the issuance of the policy, the agent is required to provide the attestation required by Insurance Code section 10119.3.

Return of Completed Application for Health Insurance at Time of Policy Transmission

At the time of issuance and delivery of the policy, the insurer shall return to the insured a complete copy of the application for health coverage attached to the policy with an express instruction to the applicant to review the copy of the application. Applicants must be asked to contact the insurer immediately if there are any discrepancies on the application compared to the information submitted by the applicant or if a response to a health history question does not reflect a correct or complete answer based on the applicant's knowledge of the facts sought and appreciation of the significance of the question.

The insurer may not use information on the application for health insurance coverage to assert material misrepresentation or omission as the basis for rescission or cancellation of the policy unless the application was attached to the policy at the time it was delivered to the insured. For purposes of Insurance Code section 10381.5, the phrase "attached to or endorsed on the policy" means that a complete copy of the applicant's application for health insurance coverage was included in the same mailing, or other delivery mechanism used, at the same time that the health insurance policy was delivered.

Post Contract Issuance Rescission or Cancellation Investigations

If an insurer receives medical or health history information about an insured after issuance of the policy to the insured and such information reasonably raises a question of whether the insured misrepresented or omitted material information prior to the issuance of the policy, any review or investigation conducted by the insurer must commence immediately but in no event later than fifteen (15) calendar days after receipt of the information. The dates relevant to the conduct of the investigation and any decisions regarding the investigation must be clearly documented in the insurer's claim file.

Immediately, but in no event later than seven (7) days after an insurer's decision to commence an investigation or review regarding a possible material misrepresentation or omission in connection with an application for health insurance coverage, the insurer must send a written notice to the insured that it is conducting an investigation of the possible misrepresentation or omission. The notice to the insured must clearly describe, in lay terms, the reason for the investigation and the substantive information on which the investigation is based. The insurer is also required to include with the notice copies of any applicable documents, such as claims, medical records, or any other information in the insurer's possession at the time of the notice that is included in the insurer's review and investigation, except that the insurer is not required to provide documents otherwise protected by law.

The insurer's investigation of the suspected material misrepresentation or omission must be completed promptly, but in no event later than ninety (90) calendar days after delivery of the notice of the investigation to the insured, unless the insurer can demonstrate good cause for the delay. The insurer is also required to send a written notice of the status of its investigation to the insured every thirty (30) days providing the insured with detailed information and an opportunity to provide further information to the insurer regarding its investigation.

Immediately, but in no event later than seven (7) calendar days after concluding its investigation, the insurer must send a written notice to the insured, and the notice must include detailed findings and the insurer's final determination regarding the insured's health insurance coverage. The notice of determination must indicate that if the insured believes the decision is incorrect and wishes to dispute it, he or she may have the matter reviewed by the Department of Insurance. The insurer shall not require the rescinded former insured to file an appeal with the insurer prior to seeking assistance from the Department of Insurance.

Administrative Approval Process of Proposed Regulations

The notice of the regulations will be officially published by the California Office of Administrative Law on Friday, June 5, 2009. Interested parties will have until July 20, 2009, to provide written comments to the Proposed Regulations. A public hearing has been scheduled for July 20, 2009 in San Francisco.