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California Gets 10 New Consumer-Oriented Insurance Laws

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Health insurers and HMOs will have to put a larger share of the money they collect from consumers into medical care under a new medical loss ratio (MLR) law that goes into effect Jan. 1, one of 10 new California Department of Insurance (CDI) bills signed by the governor recently.

The MLR law, SB 51, reinforces what is required in the Patient Protection and Affordable Care Act, mandating that $0.85 of every premium dollar paid for group health insurance and $0.80 of every premium dollar paid for small group and individual health insurance goes toward actual medical costs, leaving the remainder to cover other costs, such as agent commissions.

SB 51 enables the insurance commissioner and the Department of Managed Health Care to enforce these new requirements in California. Currently, Insurance Commissioner Dave Jones is enforcing the MLR requirements in the individual market as the result of an emergency regulation he issued on Jan. 3, 2011. SB 51 provides a permanent and additional basis to enforce these new requirements.

Gov. Jerry Brown signed all 10 new insurance bills, nine of which were sponsored by Insurance Commissioner Jones. A tenth bill, mandating coverage for autism, was supported by the CDI. California often leads the way on consumer protection measures.

“Protecting consumers is at the heart of everything we do at the California Department of Insurance,” Commissioner Jones stated.

The nine other bills, with all except the workers comp bill, S 684 and the autism coverage bill, going into effect at the start of the year, are:

1. AB 315, or “Surplus Lines Insurance Marketplace Reform,” pertains to the surplus lines insurance marketplace and the state’s surplus lines tax collection activities and conforms state law to mandatory changes mandated in the Nonadmitted and Reinsurance Reform Act provisions of the Dodd-Frank Act to avoid federal pre-emption.

2. AB 624, or the “California Organized Investment Network (COIN) Program Community Reinvestment Extension Act,” extends the sunset date to January 1, 2015 on the COIN Tax Credit Program. “While California continues to pull itself out of the recession, programs like COIN are vital to facilitating that momentum by providing new capital for small businesses throughout the state, spurring growth in our neighborhoods, and, most importantly, creating more badly needed jobs for Californians,” the CDI noted.

3. AB 689, or “Landmark Annuity Suitability Reform,” addresses the need to sell annuity customers a product appropriate for their needs. Californians are spending $20.7 billion on annuities in 2010 alone, so this new law will requires insurers, agents and brokers to verify that an annuity purchase, exchange, or replacement is appropriate for the consumer based on an evaluation of his or her age, income, financial objectives, and other important factors. The bill also authorizes the Insurance Commissioner to revoke an insurance agent’s license, impose fines, and restore money lost to the consumer when suitability standards are violated.

4. AB 793, or “Prohibition of Insurance Product Cross-Selling with Reverse Mortgage Lenders,” limits insurance agents’ and brokers’ ability to “cross-sell” reverse equity mortgages and annuities. “The growth of the reverse mortgage business has been accompanied by aggressive marketing and predatory abuse, especially when reverse mortgages are marketed along with insurance products or financial investment vehicles,” the CDI stated.

5. AB 1416, or “Insurance Code Reforms,” makes several necessary changes to various insurance code sections regarding agent licensing, training, and previously enacted legislation. It also permits the Insurance Commissioner to remove a life agent’s authority to transact variable life insurance contracts upon learning that the agent is no longer registered to transact securities with the SEC or FINRA.

6. SB 599 on “Retained-Asset Account Consumer Choice and Disclosure Reform” (requires life insurers to obtain a beneficiary’s written declaration as to how he or she wants to receive their benefit payment. This issue first came to the attention of Commissioner Jones when military families complained that they had not been asked for permission before the life insurance benefits of loved ones who died in military service were put into a RAA by life insurers. This new law is part of a two-bill package with newly enacted SB 713, a companion RAA-disclosure bill.

7. SB 621 protects consumers of life, health, and disability insurance from “discretionary clauses” in their insurance policies, which give the insurer the sole discretion to decide if a beneficiary has become disabled, even if the consumer has a doctor certify that they are disabled. Discretionary clauses have been increasingly relied upon by insurers to reject legitimate claims for disability insurance when a consumer becomes disabled,” the department stated. See:

8. SB 684 a protects California’s businesses by preventing workers’ compensation insurers from unilaterally forcing California businesses to other states like New York or Delaware to resolve disputes, without the California business’s consent. It protects California businesses by requiring that there be disclosure up front at the time a quote is provided as to where the insurer proposes to resolve disputes and by making explicit that California businesses can decline to agree to being forced to arbitrate or otherwise resolve disputes in other states than California. SB 684 applies to workers’ compensation policies issued or renewed on or after July 1, 2012.

9. SB 946, or “Autism Coverage,” requires insurance companies and health care service plans to provide coverage of behavioral therapy for autism as a medical benefit. The legislation received strong support from the CDI and Commissioner Jones, but was not sponsored by his office.

A number of states already require health insurers to provide autism coverage of some kind. According to the Centers for Disease Control and Prevention, a total of 33 states and the District of Columbia have laws related to autism and insurance coverage. At least 26 states—Arizona, Arkansas, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Pennsylvania, South Carolina, Texas, Vermont, Virginia, West Virginia and Wisconsin—specifically require insurers to provide coverage for the treatment of autism. Other states may require limited coverage for autism under mental health coverage or other laws, while CDC estimates that 1 in 110 children have an autism spectrum disorder. Health plans worry that costs will increase with such coverage as much as 3%, as autism coverage and diagnoses grow.

The measure takes effect on July 1, 2012, or earlier, as specified, “in a manner that is consistent with existing state mental health parity law,” the CDI stated.

“Our legislative priority for the next session of the legislature that begins in January is AB 52, which the department sponsors, giving the commissioner the authority to regulate health insurance rate increases and reject excessive rate increases,” the department spokeswoman said. Right now, the department has the authority to do this with homeowners, auto and property and casualty lines, and has had it since 1984, and would liek to apply it to health, as well.

Look for AB 52 on the state Senate floor in January.