Capitol Journal

President Barack Obama recently made big news by introducing a budget
that includes $634 billion toward universal health care programs. But
while the president’s focus is now on providing health care to the
uninsured, a small but growing number of states are turning their attention to
preventing health insurers from unfairly dropping thousands of people who
already have coverage.
That practice, known as rescission, is certainly nothing new. Insurers have
long held the option of cancelling an individual health policy if they determine
Top Story SNCJ Spotlight
Cancelled
Coverage
State Net Capitol Journal
that the applicant misrepresented their health history or current medical condition on
their application, intentionally or otherwise. Most states allow health plans up to two
years to revoke an individual policy if they find such omissions or deceptions.
Insurers claim, however, that rescissions are a relatively rare occurrence. For
instance, a 2007 survey by America’s Health Insurance Plans (AHIP), an industry
trade group representing almost 1,300 health insurance providers nationwide, found
that in 2005 its member companies voided slightly less than 2,700 of the 1.16 million
individual health policies they enacted, less than 1 percent. Those numbers were even
smaller in 2006, as AHIP members cancelled just 1,842 of the 1.2 million policies
they wrote, or .15 percent.
But that is precious little comfort to consumer advocates and state regulators,
who contend that insurers routinely issue policies without first verifying that the
information they are being given is accurate. Only when the policy holder submits
claims for expensive care does the company fully review the application, often in
search of reasons to cancel the coverage. Because a rescission is retroactive, the
consumer is left holding the bag for all of their accumulated medical costs, including
care covered under the policy even if it had already been approved and paid for by the
insurer. In some cases, the health plan will also attempt to make the doctor or hospital
reimburse the company for those paid claims.
Over the last two years, CALIFORNIA regulators have charged that such
rescissions are not solely the result of a lack of due diligence, but are rather a
calculated effort by insurers to collect premiums for the maximum amount of time
allowable before they kick policy holders off the rolls. CALIFORNIA has in fact
become ground zero for regulatory efforts against just such onerous rescission
practices, as the state Department of Managed Health Care has levied millions
of dollars in fines against some of the nation’s largest health insurance providers,
including Health Net, Kaiser Permanente, Anthem (a subsidiary of WellPoint) and
Blue Shield. In February, Health Net also agreed to pay $14 million to settle two
pending rescission lawsuits: a class action claim involving 800 cancelled policy
holders and a similar suit filed by Los Angeles City Attorney Rocky Delgadillo,
who accused the insurer of “gaming the system” to illegally void 1,600 policies.
According to trial documents, those cancellations saved Health Net more than $35
million over a several year period. Although the company denies any wrongdoing,
Health Net has agreed to pay over $40 million in fines and settlements over its
rescission practices, which included paying employee bonuses for voiding policies.
Delgadillo still has pending actions against the other companies, which also face
additional class action litigation.
Some states have also taken legislative action to stop abusive rescission
practices. In June 2007, CONNECTICUT Gov. M. Jodi Rell (R) signed SB 1214
(Public Act 07-113), which bars Constitution State health insurers from “post-claim
underwriting,” and requires all health insurance rescissions to be approved by the
State Net Capitol Journal
state insurance commissioner.
Later that year, CALIFORNIA
Gov. Arnold Schwarzenegger (R)
signed AB 1324, which requires
insurers to pay doctors and
hospitals for any pre-authorized
care they provide even if the
insurer later rescinds the patient’s
coverage.
NEW MEXICO got into the
game in March of 2008 when Gov.
Bill Richardson (D) endorsed
SB 226, a bill that requires
insurance companies to prove that
applicants deliberately lied on their
application before the policy can
be cancelled. Just months later,
Schwarzenegger signed AB 1150,
legislation that bars insurance
companies from paying employees
rescission-related bonuses like
those that Health Net was handing
out. He also signed AB 2569,
which requires insurers that revoke
a policy to offer coverage to other
individuals on that policy if they were not the reason for its cancellation. At the same
time, although Schwarzenegger repeatedly chastised insurers, calling rescissions
“outrageous” and “a deplorable practice,” he ultimately vetoed AB 1945, legislation
that would have required insurers to gain approval from state regulators before
rescinding a person’s coverage. Like the NEW MEXICO statute, that measure would
have required health plans to prove that applicants lied to obtain their coverage.
According to State Net, MARYLAND (HB 235, SB 79), ILLINOIS, (HB
3923), SOUTH DAKOTA (SB 28) and TEXAS (SB 206, SB 207, SB 303) are all
considering bills this session that address health insurers’ ability to rescind a policy
holder’s coverage. CONNECTICUT (HB 6531) and CALIFORNIA (AB 2, AB
730) also have more rescission legislation in the queue. Although the bulk of those
proposals are currently locked down in committee, SOUTH DAKOTA lawmakers
approved SB 28 on February 24, sending the bill to Gov. Mike Rounds (R), who
signed it on March 4. That measure allows health plans to rescind a policy within the
contestable period, but would require them to give the consumer a full refund of their
paid premiums.
Bird’s eye view
State correctional spending up
More than 7.3 million Americans — one out of
every 31 adults — are in prison or on probation
or parole, according to a study released this
month by the Pew Center on the States. GEORGIA
has the largest correctional population, with 77 of
every 1,000 adults under state supervision, while
NEW HAMPSHIRE has the smallest: 11 per 1,000. Managing
those populations cost the states $47 billion last year, four
times what they spent on corrections two decades ago, when
one in 77 adults was under correctional supervision.
FL
RI
MA
ME
CT
NJ
NH
VT
DE
KY MD
TX
IA
MT
AZ
WA
AK
CO
NM
ND
AL GA
SC
TN
MO
OH
VA
CA
OR
NV
UT
WY
SD
NE
HI
MN
NC
AR
LA
MS
IL
MI
IN
PA
NY
WV
OK
KS
States with largest correctional populations: States with smallest correctional populations
ID WI
Source: New York Times, Stateline,
Pew Center on the States
State Net Capitol Journal
Dick Cauchi, Health Program Director for the National Conference of State
Legislatures (NCSL), says it is still too early to tell whether other states will follow
up with similar legislation. “I hesitate to call it a trend just yet,” he says. “But it is
definitely an emerging issue.”
It is an issue, says CALIFORNIA Assemblyman Dave Jones (D), that Golden
State lawmakers are “keenly interested” in following up on this session. Jones, who
chairs the Assembly Health Committee, says “Once you have entered into a contract
with someone and taken their money, you shouldn’t then go back and try to figure
out some way to knock them off the rolls when they become sick or injured. That’s
not what health insurance is
supposed to be about.”
Jones says there are
several things lawmakers
could consider to better
ensure fair treatment
for medical consumers,
including establishing
a shorter deadline for
companies to make those decisions. “It makes sense for the health plans to have to
review the contract within a short period of time, perhaps a month or two, and decide
whether or not they will continue on,” he says. “As it is right now, the standards are
all weighted in favor of the health plans.”
J.P. Wieske, State Affairs Director for the VIRGINIA-based insurance industry
advocacy group Council for Affordable Health Insurance (CAHI), disagrees, contending
that giving insurers less time to review contracts is “totally missing the point.”
“The real issue here is about people hiding their illnesses,” Wieske says. “Reducing
the contestability period just makes it easier for them to hide their condition.” That, he
says, ultimately leads to higher insurance premiums for everyone else.
Wieske argues that consumers are far better served if state regulators and lawmakers
focus on ensuring that insurance applications are clear and easily understood, and that
all rescission investigations
are independently reviewed
internally — i.e., by someone
other than the original
underwriter — prior to any cancellation action. Should the policy be voided, he says,
consumers should be able to appeal their case directly to an independent third party.
Several insurers, including Blue Shield and Health Net, have already started
developing their own third-party rescission review systems, and many have agreed
to make their applications more user-friendly. KANSAS Insurance Commissioner
Sandy Praeger (R) says she believes a consistent application across the states would
definitely help reduce rescissions, but she is more circumspect about requiring
“Once you have entered into a
contract with someone and taken
their money, you shouldn’t then
go back and try to figure out some
way to knock them off the rolls
when they become sick or injured.”
“The real issue here is about
people hiding their illnesses.”
State Net Capitol Journal
commissioners to approve every such cancellation until lawmakers settle what is and
is not legal practice in each state.
“An insurance commissioner needs clear guidelines before deciding these cases,”
she says.
Wieske does not favor pushing that responsibility onto insurance regulators, who
he contends are already overworked, and who already must approve the language in
health insurance applications. Rather, he says companies should reduce rescissions
by encouraging consumers to maintain an accurate personal health record in order to
avoid leaving out information on an application that later could lead to their policy
being voided.
“If a company gets a personal health record from the applicant, it is virtually
impossible to have a rescission,” he says.
Wieske says CAHI also supports state laws barring insurance companies from
paying bonuses for rescinded policies, something he calls “shocking.”
NCSL’s Cauchi notes that while the issue is gaining steam, it is possible that
many states may wait to see what comes of Washington’s new push for health care
reform before taking on a new fight of their own. That possibility doesn’t do much for
regulators like Praeger.
“Insurance is a very personal product, and we’re there to make sure that policy
gets upheld,” says Praeger. “Nobody who needs help with their health care insurance
is better off calling a federal government 800 number rather than their own state
insurance commissioner’s office.”
— By RICH EHISEN
Budget & taxes
OBAMA BUDGET OUTLINES STATE-RELATED POLICY SHIFTS:
Among the proposals included in the budget outline released by the Obama
administration last month was a call for nationwide limits on carbon dioxide
emissions, including those from automobiles. It was just one of several marked shifts
in policy Obama proposed that will directly impact states.
Also on the environmental front, the administration recommended sending $3.9
billion to states to help them build drinking water and sewage treatment plants,
especially in small towns, more than doubling the $1.8 billion allocated for that
purpose in 2007.
“People who live in small towns deserve to have clean water just like people in
big cities do,” said Steve Brown, executive director of the Environmental Council on
the States, a nationwide group of state environmental regulators.
State Net Capitol Journal
On education, the budget includes $2.5 billion in
funding to help states raise college completion rates
and an unspecified amount to help them improve early
childhood education.
On crime, the budget proposes adding $1 billion to
the Justice Department’s budget, including money for
50,000 more local police officers and $75 million for
the Second Chance Act, which provides grants to state
and local governments, nonprofits and other groups
to help former prisoners adjust to society. The act was
signed by President Bush last year but has not been
funded by Congress.
“It’s really a milestone that Second Chance is
included in the president’s budget,” said Jessica
Nickel of the Justice Center of the Council of State
Governments.
The budget also pledges to make the federal
government “a better partner” to states and localities
on homeland security initiatives. Real ID is likely to
be one major area of focus, with Homeland Security
Secretary Janet Napolitano — now in charge of
implementing the act — having been among the
numerous state officials who opposed it when she was governor of ARIZONA.
And on health, Obama called on Congress to set aside $634 billion over the next
decade to fund the expansion of healthcare programs.
The proposals were only broadly outlined in the plan released by the
administration on Feb. 26. Many of the details about specific programs and agencies
will be provided in April. (STATELINE.ORG)
STATES ROLL OUT STIMULUS ROAD PLANS: More than a dozen states
have already indicated how they plan to spend at least some of the nearly $50 billion
in transportation funds allocated to them in the economic stimulus package passed by
Congress last month, and they’re taking very different approaches.
Some, like KANSAS, will spend their money on a few marquee highway
construction projects.
“We wanted to build projects that would have a lasting impact, so that 20 years
later people could look at them and see what we did,” said KANSAS Transportation
Secretary Deb Miller.
Other states, like MARYLAND, are adopting a fix-it-first policy, using their
money to repair roads and bridges rather than build new ones.
The week in session
States in Regular Session: AK, AL, AR,
AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN,
KS, KY, MA, MD, ME, MI, MN, MO, MS, MT,
NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK,
OR, PA, RI, SC, SD, TN, TX, US, UT, VT, WA,
WV, WY
States in Recess: VT, WI
States in Special Session: CA “c”
States in Budget Hearings: DE
States Currently Prefiling or Drafting
for 2009: LA
States Projected to Adjourn: UT, WY
States Adjourned in 2009: VA
State Special Sessions Adjourned in
2009: AZ “a”, CA “a”, CA “b”, CT “a”, DE “b”,
FL “a”, IL 2007-08 Special Sessions “a”-”z”
Letters indicate special/extraordinary sessions
— Compiled By JAMES ROSS
(session information current as of 3/6/2009)
Source: State Net database
State Net Capitol Journal
“It’s like maintaining your car: if you neglect the
relatively easy periodic maintenance, you’re building
up to a very big bill — and eventually replacing it,”
said John D. Porcari, MARYLAND’s transportation
secretary.
The amount of latitude the stimulus law
gives states in determining how they spend their
transportation dollars and the fact that many states
were expecting significantly more money has spurred
battles in some states. In WASHINGTON, for
instance, Gov. Christine Gregoire (D) was pushing
for $75 million to jumpstart a project to replace the aging elevated highway spoiling
Seattle’s waterfront with a tunnel. But the Democrat-controlled Legislature is
planning to shut the state’s largest metropolitan area completely out of the stimulusfunding
lottery, spending its allocation instead on state controlled roads and projects
put on hold due to fiscal constraints.
Such battles won’t last long, however, since states have to start spending their
money within four months. (NEW YORK TIMES)
VA RELIEF FOR MEDICAID: States seeking new ways to tighten their belts
may want to look in the direction of WASHINGTON state. A program that went
statewide there in 2003 shifts the cost of eligible veterans’ health care from Medicaid
— one of the biggest expenditures for states — to the federal VA system.
By summer, the two-person office in the state’s Department of Social and Health
Services that runs the program will have transferred more than 4,400 veterans and
their dependents from Medicaid to VA or U.S. Department of Defense care, saving
the state more than $16.2 million.
On top of that, veterans receive better benefits from the VA than Medicaid,
according to Bill Allman, manager and founder of the state’s Veterans Benefit
Enhancement project.
“It’s the right thing to do, to give citizens access to coverage that they’re eligible
for,” said Allman, a Vietnam veteran himself. “The fact that you save state dollars,
that’s a bonus.”
Officials in several states have contacted Allman asking how to set up similar
programs. CALIFORNIA will actually have a pilot program running in several
counties by July, and the state’s Legislative Analyst’s Office estimates that the state
could one day save up to $250 million by shifting about 144,000 veterans to VA
health care. (STATELINE.ORG)
STATES SHORTCHANGING PROBATION AND PAROLE: States are
spending disproportionately more on prisons than on probation and parole programs
Upcoming elections
3/05/2009 - 3/26/2009
03/07/2009
Louisiana Special Primary
Senate District 16
03/24/2009
California Special Primary
Senate District 26 (Ridley-Thomas)
Connecticut Special Election
House District 15
State Net Capitol Journal
— even taking into account the greater costs of prison operation — according to a
new study by the Pew Center on the States.
The study, released last week, found that states spend seven times more money
on prisons than on probation and parole, even though the vast majority of those under
correctional supervision aren’t actually behind bars. The report also indicated that,
despite a quadrupling in corrections spending over the last two decades, recidivism
rates have remained fairly steady.
Pew researchers say states
focused on cutting services
like education and health
care to control their budgets,
consequently, are misguided.
“States are looking to make
cuts that will have long-term
harmful effects,” said Sue Urahn,
managing director of the Pew Center on the States. “Corrections is one area they can
cut and still have good or better outcomes than what they are doing now.”
The Pew report provided six recommendations to help states improve their
probation and parole systems, including providing incentives to offenders enabling
them to reduce their sentences, as ARIZONA is doing; classifying offenders
and allocating resources based on risk, as WISCONSIN Gov. Jim Doyle (D) has
proposed; and using electronic monitoring technology. (NEW YORK TIMES,
STATELINE.ORG, PEW CENTER ON THE STATES)
BUDGETS IN BRIEF: CALIFORNIA’s unemployment rate has broken the
10 percent barrier for the first time since 1983. The rate jumped to 10.1 percent
in January, up from 8.7 percent a month earlier, the Employment Development
Department reported last month (SACRAMENTO BEE). • The COLORADO
Senate gave initial approval to SB 228, sponsored by Sen. John Morse (D), which
would lift the state’s 6 percent cap on general fund growth (DENVER POST). •
MASSACHUSETTS business groups endorsed a 25-cent increase in the state gas
tax, a more aggressive hike than the 19-cent increase Governor Deval Patrick (D) has
proposed. Business leaders say the state needs to move faster on repairing its ailing
roads and bridges in order to foster a strong business climate (BOSTON GLOBE).
• The NEW HAMPSHIRE House approved a plan to nearly double the state’s gas
tax over the next three years from its current 18-cents-per-gallon rate to 33 cents per
gallon. House Bill 644, sponsored by David Campbell (D), passed the House 190-
162, largely along party lines (CONCORD MONITOR).
— Compiled by KOREY CLARK
“States are looking to make cuts
that will have long-term harmful
effects. Corrections is one area
they can cut and still have good or
better outcomes than what they
are doing now.”
State Net Capitol Journal
STIMULUS SPURS STATES’ RIGHTS REVOLT: Despite the billions
of dollars in state aid promised by President Obama’s economic stimulus
package, not every state official supports it. Some consider it the last straw.
Lawmakers in at least 16 states have introduced resolutions asserting their
state’s right to ignore any federal law or policy they deem unconstitutional. The
measures, they say, are a response to decades of overreach by the federal government,
culminating with the stimulus package.
“This has been a progression from (the New Deal) days to today, with the only
break being Ronald Reagan,” said SOUTH CAROLINA state Rep. Michael Pitts (R),
sponsor of one of the resolutions.
“The stimulus bill is simply
propellant for the resistance.”
Several governors have also
threatened to refuse stimulus
money, claiming it would raise
taxes in their states. As most
of those governors — and the
resolution sponsors — are
Republicans, some