More than 20 new insurance-related bills signed into law by Governor Brown

By Sam Sorich

September 30, 2012, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2012 regular legislative session.

Here are summaries of noteworthy insurance-related bills that were signed into law. All of these new laws will go into effect on January 1, 2013.

Senate Bills

SB 863 increases workers’ compensation permanent disability benefits by an estimated $750 million per year, phased in over a two-year period. The new law changes several aspects of the workers’ compensation system. Among other things, SB 863 creates an independent medical review process for resolving medical care disputes, establishes an independent bill review process for resolving medical billing disagreements, adopts a statute of limitations for workers’ compensation liens, and restricts the reasons that can be used to avoid obtaining treatment within a medical provider network.

SB 1216 conforms California law to the revisions made to the NAIC Credit for Reinsurance Model Law (adopted in 2011). Among other things, SB 1216 establishes criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers qualifies as an asset or credit against the liabilities of a ceding insurer.

SB 1234 and SB 923 create the California Secure Choice Retirement Savings Investment Board which is charged with conducting a market analysis to determine if the necessary conditions for implementation can be met and then report to the Legislature as to whether a statewide retirement savings plan for private employees, who do not participate in any other type of employer-sponsored retirement savings plan, should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.

SB 1298 establishes conditions for the operation of autonomous vehicles on public roadways for testing purposes. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 conforms California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act (adopted in 2010). Among other things, SB 1448 requires the board of directors of an insurer, which is part of a holding company system, to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls. In addition, SB 1448 authorizes the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company.

SB 1449 permits the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 expands the investment options available to the State Compensation Insurance Fund.

Assembly Bills

AB 53 requires each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report is due July 1, 2013. An insurer is required to update its report biennially. AB 53 includes a January 1, 2019 sunset date.

AB 999 revises the standards used by the insurance commissioner to approve the rates for long-term care insurance. AB 999 prohibits an insurer from using asset investment yield changes to justify a rate increase for long-term care policies unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies; or the insurance commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in California. AB 999 requires all of the experience on all similar long-term care policy forms issued by an insurer and its affiliates and retained within the affiliated group to be pooled together and used as the basis for determining whether a rate increase is reasonable.

AB 1631 removes the January 1, 2013, repeal date for the existing law which permits a person admitted to the bar of another state to represent a party in a California arbitration proceeding.

AB 1708 authorizes auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format is allowed to be presented to a peace officer.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium.

AB 1875 limits the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit.

AB 1888 allows a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle.  Attendance at the school prevents the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school does not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 establishes new permitted types of blanket insurance policies and expands the list of eligible policyholders who can purchase blanket insurance.  

AB 2138 gives the insurance commissioner the authority to require every admitted disability insurer, and every other entity liable for any loss due to health insurance fraud, to pay an annual maximum fee of 20 cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is 10 cents. AB 2138 allows an insurer to recoup the fee through a surcharge on premiums or by including the fee in the insurer’s rates.

AB 2160 requires the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here.

AB 2219 removes the January 1, 2013, repeal date for the existing law which requires a contractor with a C-39 roofing classification to obtain and maintain workers’ compensation insurance even if he or she has no employees. AB 2219 also removes the January 1, 2013, repeal date for the existing law which requires an insurer that issues a workers’ compensation insurance policy to a roofing contractor, who holds a C-39 license, to perform an annual payroll audit for the contractor. AB 2219 adds the requirement that the insurer’s audit must include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate.     

AB 2298 prohibits an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2301 modifies the definition of “covered claims” in the Insurance Code article relating to the California Insurance Guarantee Association (CIGA) to make clear that a covered claim is one which is presented to the liquidator in the state of domicile of the insolvent insurer or to CIGA.  

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 abolishes the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also repeals the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 revises the licensing requirements for travel insurance agents.

AB 2406 requires the Department of Insurance to publish on the Department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

Guidelines for Health Insurers Requesting Rate Increase Issued by California Insurance Commissioner (SB 1163)

by Marina Karvelas

On February 4, 2011, California Insurance Commissioner Dave Jones released draft guidelines for implementing SB 1163 (“Guidance 1163:2”).

SB 1163, signed by former Governor Schwarzenegger on September 30, 2010, responds to the federal Patient Protection and Affordable Care Act (“PPACA”), which requires the United States Secretary of Health and Human Services to establish a process for the annual review of “unreasonable” increases in premiums for health insurance coverage.

Under the federal act, health insurers must submit to the secretary, and the relevant state, a justification for an “unreasonable” premium increase prior to implementation of the increase.

SB 1163, effective January 1, 2011, requires health insurers to file with the California Department of Managed Health Care or the California Department of Insurance detailed rate information regarding proposed premium increases and requires that the rate information be certified by an independent actuary. 

The bill authorizes the departments to review these filings and issue guidance regarding compliance. It also requires the departments to consult with each other regarding specified actions as well as post certain findings on their Internet Web sites.

In his draft guidelines (“Guidance 1163:2”), Commissioner Jones lists several factors that will be used by the Department to determine if a rate is “unreasonable.”

Under Section A: Unreasonable Rate Increases, the first factor the Department will look at is:

[t]he relationship of the projected aggregate medical loss ratio to the federal medical loss ratio standard in the market segment to which the rate applies, after accounting for any adjustments allowable under federal law.” (Guidance 1163:2, § A, p. 1.) 

The draft guidelines expressly incorporate, by reference, the interim federal regulation effective January 1, 2011, titled “Health Insurance Issuers Implementing Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act,” 45 C.F.R. §§ 158.101-158.232.

The interim federal regulation requires health insurers to spend a certain percentage of consumers’ premiums on direct care for patients and efforts to improve health care quality.

For individual and small group market insurers, this is 80% of the consumers’ premium, and for large group market insurers, it is 85% of the consumers’ premium.

If insurers fail to meet the ratio requirements, beginning in 2012, they will be required to provide a rebate to their customers by August 1 of each year.

The federal rule allows for a State to require a higher medical loss ratio than that required under the interim regulation. The interim federal regulation (pdf), published December 1, 2010, is subject to a 60-day public comment period.

Other factors identified in Commissioner Jones’ draft guidelines to determine whether a premium increase is “unreasonable” include: 

  • Whether the assumptions for the rate increase are supported by substantial evidence;
  • Whether the choice of assumptions or combination of assumptions for the rate increase is reasonable;
  • Whether the data or documentation provided is incomplete or inadequate;
  • Whether the filed rates result in premium differences between insureds within similar risk categories that either are not permissible under California law or do not reasonably correspond to differences in expected costs;
  • Whether itemized changes are substantially justified by credible experience data;
  • Rate of return for prior three years and anticipated for the following year;
  • Insurer’s employee and executive compensation;
  • Degree to which the increase exceeds rate of medical cost inflation;
  • For individual policies, compliance with 10 C.C.R. 2222.12. (Guidance 1163:2, § A, pp. 1-2.) 

In addition to Filing and Notice requirements as well as specific filing forms (Sections B and D Guidance 1163:2), the draft guidelines contain several requirements for actuarial certification. Each of the following must be included in the actuarial certification:

  • The actuary’s qualifications and independence;
  • Opinion that the proposed premium rates are “actuarially sound in the aggregate;”
  • Complete description of data, assumptions, rating factors and methods with rate calculations for each contract or policy form;
  • Statement of opinion whether the rate increase is reasonable or unreasonable, and if, the latter, the justification for the increase; a discussion of the factors listed in § A, and 10 C.C.R. § 2222.10 for individual health insurance;
  • A description of the testing performed by the actuary. (Guidance 1163:2, § C, pp. 3-4.) 

Notwithstanding the above requirements, the Insurance Commissioner currently does not have the authority under SB 1163 to reject health insurance rate increases.

In the last legislative term, Commissioner Jones (formerly an assemblyman) sponsored AB 2578, a strong insurance rate reform bill that would have given the Commissioner such authority (it failed to pass in the Senate).

The Commissioner is currently supporting another effort at such legislation.

Commissioner Jones’ draft guidelines are subject to a 7 day public comment period before they are finalized.

Originally posted to Barger & Wolen's Insurance Litigation and Regulatory Law Blog

Provision in the Patient Protection and Affordable Care Act of 2009 Requiring Individuals to Purchase Health Insurance Declared Unconstitutional

On December 13, 2010, United States District Judge Henry Hudson, sitting in the Eastern District of Virginia, ruled that the Minimum Essential Coverage Provision in the Patient Protection and Affordable Care Act of 2009 (“PPACA”) recently enacted by Congress violated the United States Constitution. The Minimum Essential Coverage Provision requires that most United States citizens purchase health insurance by 2014 or face a penalty included in the individual’s tax return. 

The lawsuit challenging the constitutionality of the Minimum Essential Coverage Provision in the PPACA was filed by the Commonwealth of Virginia. The state contended, among other items, that the Minimum Essential Coverage Provision exceeded the power of Congress under both the Commerce Clause and General Welfare Clause of the United States Constitution. Judge Hudson agreed, explaining in a 42-page opinion, that the provision “exceeds the constitutional boundaries of congressional power.”

Reports indicate that President Obama’s administration intends to appeal the decision. It is widely anticipated that the ultimate resolution of the constitutionality of the Minimum Essential Coverage Provision will be made by the United States Supreme Court.