Governor Arnold Schwarzenegger signed Assembly Bill 1324 into law on October 14, 2007. Effective January 1, 2008, the bill amends Health and Safety Code section 1371.8, which applies to pre-paid health care service plans, and Insurance Code section 796.06, which governs most fullyinsured health insurance plans in California. The bill was originally a response to (i) post-claims underwriting lawsuits by consumers and providers against plans and insurers and (ii) critical press coverage concerning rescission practices of health plans and insurers.
The operative language of AB 1324 provides as follows (changes from the former law are indicated):
“A health care service plan [or health insurer] that authorizes a specific type of treatment by a provider shall not rescind or modify this authorization after the provider renders the health care service in good faith and pursuant to the authorization for any reason, including, but not limited to, the plan’s subsequent rescission, cancellation, or modification of the enrollee’s or subscriber’s contract or the plan’s subsequent determination that it did not make an accurate determination of the enrollee’s or subscriber’s eligibility. This section shall not be construed to expand or alter the benefits available to the enrollee or subscriber under a plan. The Legislature finds and declares that by adopting the amendments made to this section by Assembly Bill 1324 of the 2007-08 Regular Session it does not intend to instruct a court as to whether or not the amendments are existing law.”
Read literally, the prohibition against rescinding or modifying an authorization includes cases of patient fraud and those arising when the plan or insurer verifies a patient is eligible for coverage based on the information then available but learns later that the patient was in fact not eligible for coverage when the services were rendered.
Left unchanged from the prior law is the sentence “This section shall not be construed to expand or alter the benefits available under a plan.” AB 1324 appears to leave room for argument over several key issues:
1. If plans and insurers are required to make payment for services rendered to ineligible persons, doesn’t this expand the benefits available to the enrollee under the plan?
2. Does the revised law prevent plans and insurers from asserting that an authorization is conditioned on the eligiblity of the patient on the date of service, and that a subsequent determination by the plan or insurer that the patient was in fact not eligible at the time the service was rendered is not the same as a rescission or modification of the authorization?
3. Does AB 1324 limit the ability of a plan or insurer and a provider to agree by contract on the allocation of responsibility for collection of a claim where an enrollee or a third-party is responsible for payment? For example, it is common for providers and plans to agree that in the event of a retroactive determination of ineligibility, the provider will first seek payment from the responsible party over two billing cycles prior to demanding payment under the contract.
4. Is AB 1324 applicable to government sponsored programs, such as the Medi-Cal managed care program, where a health plan or insurer is the responsible payor?
5. Is AB 1324 preempted by federal law for Medicare Advantage plans, pursuant to the broad preemption language of 42 U.S.C. section 1395w-26(b)(3) which provides that all state laws or regulations other than state licensing laws or laws related to plan solvency are superseded?
6. Is AB 1324 preempted by ERISA, and, if so, to which products will ERISA preemption apply?
Sponsors of the bill will likely interpret the amendments included in AB 1324 such that once an authorization is given the plan or insurer cannot fail to pay for the services authorized for any reason. Plans and insurers will likely seek to limit AB 1324’s application.
On October 23, 2007, the California Department of Managed Health Care released a discussion draft of regulations concerning “postclaims underwriting” under Health and Safety Code section 1389.3 for preliminary review and comment prior to starting the formal rulemaking process. The draft regulations do not address the issues raised above.
Notwithstanding the passage of AB 1324, it appears likely that rescission issues will continue to be a hot topic of discussion and debate by plans, insurers, providers, consumers and regulators in California.