Senate Hearing to Probe Regulation of Health Care Industry

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A powerful Senate Democrat said a private meeting Wednesday between health insurers and state regulators appears to be part of the Schwarzenegger administration’s "pattern of taking a very casual attitude about (administrative) rule-making."

Sen. Sheila Kuehl, D-Santa Monica, chairwoman of the Senate Health Committee, will lead a meeting of the Senate Health Committee on Thursday to probe the administration’s regulation of health insurers. Consumer advocates and doctors raised concerns this week that regulators may delay crafting rules on the hot-button issue of rescissions – arbitrarily canceling patients’ coverage – and instead turn the issue over to the Legislature.

"The administration has not made a decision on which route it will take," said Schwarzenegger spokeswoman Sabrina Lockhart. "The governor has been clear that he’s outraged that patients live in fear of losing their health care coverage, and we are trying to determine the best route to take."

On Wednesday, the Department of Managed Health Care summoned representatives from the state’s five largest health insurance providers to Sacramento to tell them it filed a brief with the State Supreme Court in a case against Blue Shield that could fundamentally change the world of policing the health insurance industry.

The state regulators reportedly explained to health insurers the department’s view of how the recent appellate court decision in the case of Hailey v. California Physicians Service (dba Blue Shield of California) has changed the world of health insurance regulation. Late Wednesday the state Supreme Court said it would not hear Blue Shield’s appeal in the case. The Hailey case involved a patient whose health coverage was rescinded after he was permanently disabled in a car accident.

Kuehl said what was troubling about the meeting was the appearance that the department was in essence negotiating with health plans about new regulatory rules in the wake of the Hailey decision.

"I’m never sure whether behind-the-scenes negotiation between a regulatory agency and the regulated is ever a good idea. The Legislature prefers a lot of sunshine in the regulatory process. And there are rules about how you make rules. So, if they’re proposing to tell the plans, ‘these will now be the rules,’ it sounds like rule-making but not in the usual or acceptable way."

Department spokeswoman Lynne Randolph said the meeting was simply "part of our ongoing investigation into the five largest health plans. The focus of the meetings is to conclude these investigations quickly and provide consumers with immediate relief from health plan rescission policies."

Kuehl disagreed, saying, "With litigation still pending, this is almost like a settlement conference and should be under the purview of the court if this is going to happen.
"An amicus sitting down with the appellant outside of the influence of the affected parties, the consumers, is also problematic when this case is pending and the Supreme Court will be essentially deciding this issue," she said.

"The administration does take rule-making seriously," Lockhart said. "We meet with all stakeholders for input throughout the rule-making process."

Jerry Flanagan of Consumer Watchdog says his concern is that the department’s embrace of the Hailey decision may serve as an excuse for the department not to proceed with new rescission regulations. And, he says, that amounts to a softening of the department’s position on rescission.

"They’re turning the battleship around and heading home," Flanagan said. "The department argued very strongly for a very strict standard on rescission in the original Hailey case. Now they’re using it as a fig leaf to hide behind an Orange County appellate court, and back down from issuing new regulations."

In an earlier amicus brief in the Hailey case, DMHC argued that insurance rescissions should only be allowed if there was "willful misrepresentation" of a patient’s medical history. The appeals court ruled that health plans could also terminate coverage if they make "reasonable efforts to ensure it has all the necessary information to accurately assess the risk before issuing the contract."

Just what that means is unclear and will likely have to be resolved through legislation or through regulations from the administration.

But Randolph reaffirmed the department’s position Wednesday. Even though the department does not want the Supreme Court to hear the Hailey case, the department’s view is that rescission is only acceptable when a patient has intentionally misled an insurer while filling out a health insurance application. "The department’s position on rescission has not changed," she said.

Rescission is just one of the items on the agenda in Kuehl’s committee Thursday, but it is arguably the most politically charged.

Rescission cases have grabbed headlines across the country, and recent rulings in California have fined health plans millions of dollars for illegally removing customers’ health insurance after the customers file costly insurance claims.

Attorney Bill Shernoff, who has represented a number of patients who have had their health care rescinded in claims against the insurance industry, had words of praise for the department.

"So far, they seem to have really done a pretty good job of sinking their teeth into this problem and trying to resolve it. They have fined several carriers and continue to investigate."

But Shernoff shared some concerns raised by Kuehl and others about the department’s rule-making process.

"I am concerned about getting together with the health plans on these external review plans," he said.

Shernoff, whose firm also filed an amicus brief on behalf of plaintiffs in the Hailey case, said the appeals court decision was a victory for consumers.

"I think it was a good decision for consumers and policy holders," he said. "It requires health plans to do their investigation on eligibility up front and not after a claim comes in, which is the real vice in the whole rescission process. Now, they do their investigation after someone is seriously ill. It’s after the horse has left the barn."

Shernoff said health plans should be given a window to review a patient’s initial application for insurance coverage. "It should be done within the first 60 days," he said.

That concept is reflected in a bill by Assemblywoman Mary Hayashi, D-Castro Valley. Hayashi’s AB2549 would prohibit the rescinding of any policy after six months. The one exception would be if a patient willfully misrepresented their health history.

Another bill by Assemblyman Hector De La Torre, D-South Gate, would require insurance providers to obtain approval from department regulators before an insurance policy can be rescinded for any reason.

Health plans oppose the De La Torre approach but have talked about introducing some kind of "third party review" of rescission cases.

Shernoff dismissed the possibility of an industry-backed review process. "The health plans "are not going to police themselves," he said. "Whatever they come up with is going to be something they can live with."

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