BILL ANALYSIS
Senate Research Center S.B. 350
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Because state law does not require the Texas Department of Insurance (TDI) to track health insurance rescission rates, and TDI does not routinely collect information on rescission rates from health insurance companies, there is no way to know the extent of improper health insurance rescissions and cancellations in Texas. TDI's response to a Congressional request for information last fall indicated that the 36 health insurance carriers in Texas that issue more than 250 policies rescinded about 1,700 individual policies in 2007, and 1,544 in 2006. Information regarding the reasons for these policy revocations was not provided; neither was information regarding whether or not these decisions were justified.
Under state law, health insurance policies can be cancelled or rescinded if a policyholder purposefully or accidentally provides false information that affects the medical claims on an application. The application process is complicated and insurance agencies are not required to perform due diligence in investigating the accuracy or completeness of an application before issuing a policy. Individuals and small businesses in particular may struggle to understand available coverage options, find information regarding premium rates, and fill out long technical insurance applications. Most individuals and small businesses rely on insurance agents or brokers to help them navigate the application process to find coverage. Agents or brokers are not required to disclose whether they have a financial incentive to promote certain plans over others or work for specific health plans, though they are required to be licensed by the state. A list of licensed agents is made available on the TDI website.
As proposed, S.B. 350 requires insurance agents to verify in writing that the information provided to an applicant is complete and accurate, and that it was provided in easy-to-understand language and understood by the applicant. This bill requires agents to advise applicants that there is a civil penalty for violation of this law. In cases where a policy is cancelled or rescinded because of information inaccurately provided in an application, the bill requires an insurer to offer a new policy with the same terms as the old coverage to other individuals (e.g., family members) covered by a plan.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Subtitle A, Title 8, Insurance Code, by adding Chapters 1217 and 1218, as follows:
CHAPTER 1217. APPLICATION FOR HEALTH BENEFIT PLAN COVERAGE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1217.001. DEFINITION OF HEALTH BENEFIT PLAN. Defines "health benefit plan."
[Reserves Sections 1217.002-1217.050 for expansion.]
SUBCHAPTER B. APPLICATION FOR COVERAGE
Sec. 1217.051. APPLICATION ASSISTANCE; CIVIL PENALTY. (a) Provides that a life, accident, and health agent (agent) who assists an applicant in submitting an application to a health benefit plan issuer (issuer) has a duty to assist the applicant in providing answers to health questions accurately and completely and is required to attest certain information on the written application.
(b) Provides that an agent is liable for a civil penalty in an amount not to exceed $10,000, in addition to any other penalty or remedy available by law, if the agent wilfully states as true any material fact the agent knows to be false in an attestation required by Subsection (a).
(c) Authorizes the attorney general or a county or district attorney to bring an action to recover a civil penalty under Subsection (b). Requires the penalty to be deposited in the general revenue fund, except that for a penalty recovered in a suit first instituted by a local government or governments under this subsection, 50 percent of the recovery is required to be deposited in the general revenue fund and the other 50 percent is required to be equally distributed to the local government or governments that instituted the suit.
(d) Requires that an application for health benefit plan coverage include a statement advising affiants of the civil penalty authorized under this section.
CHAPTER 1218. CANCELLATION OR RESCISSION OF HEALTH BENEFIT PLAN COVERAGE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1218.001. DEFINITION. Defines "individual health benefit plan."
[Reserves Sections 1218.002-1218.050 for expansion.]
SUBCHAPTER B. CANCELLATION OR RESCISSION
Sec. 1218.051. INDIVIDUAL HEALTH BENEFIT PLAN; CONTINUATION OF COVERAGE. (a) Provides that an issuer that intends to cancel or rescind an individual health benefit plan policy or contract, because of information contained in the application for the policy or contract or otherwise communicated to the issuer concerning a particular individual, is:
(1) required to offer to each other individual covered under the policy or contract the opportunity to obtain a new individual health benefit plan policy or contract with benefits equal to those of the canceled or rescinded policy or contract; and
(2) authorized to permit an individual, otherwise entitled to an offer of coverage under Subdivision (1), to remain covered under the policy or contract with a revised premium rate to reflect any reduction in the number of individuals covered by the policy or contract.
(b) Provides that an issuer is not required to continue existing coverage of or issue new coverage to an individual if the cancellation or rescission is based on information about that individual.
(c) Authorizes the issuer to revise the premium rate only to reflect the number of persons covered by the new policy or contract if a new individual health benefit plan policy or contract is issued under this section.
Sec. 1218.052. PREEXISTING CONDITION EXCLUSION; WAITING OR AFFILIATION PERIOD. (a) Prohibits an issuer required to offer coverage under this chapter from declining to issue the coverage or impose any preexisting condition exclusion on an individual who retains existing coverage or obtains new coverage under this chapter.
(b) Authorizes the issuer, notwithstanding Subsection (a), to apply the same preexisting condition provision or waiting or affiliation period in a new policy or contract issued under this chapter if an individual was subject to one under the canceled or rescinded health benefit plan policy or contract. Prohibits the time period in the new policy or contract for the preexisting condition provision period or waiting or affiliation period from being longer than the applicable period in the canceled or rescinded policy or contract. Requires the issuer to credit any time the individual was covered under the canceled or rescinded policy or contract to the preexisting condition provision period or waiting or affiliation period in the new policy or contract.
Sec. 1218.053. NOTICE. Requires an issuer that cancels or rescinds an individual health benefit plan policy or contract to notify in writing each individual covered under the policy or contract of the offer of coverage required to be made under this chapter.
Sec. 1218.054. MINIMUM TIME TO ACCEPT OFFER. Requires an issuer required to offer continuation of coverage under this chapter to allow an individual entitled to the coverage at least 60 days to accept the offered coverage.
Sec. 1218.055. EFFECTIVE DATE OF COVERAGE. Provides that a new health benefit plan policy or contract issued under this chapter is effective as of the effective date of the canceled or rescinded policy or contract, and prohibits there being a lapse in coverage.
SECTION 2. (a) Provides that the change in law made by Chapter 1217, Insurance Code, as added by this Act, applies only to an application for health benefit plan coverage submitted to a health benefit plan issuer on or after January 1, 2010. Provides that an application submitted before that date is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.
(b) Provides that the change in law made by Chapter 1218, Insurance Code, as added by this Act, applies only to a cancellation or rescission of an individual health benefit plan policy or contract or health benefit plan coverage on or after the effective date of this Act. Provides that a cancellation or rescission of a policy, contract, or coverage before the effective date of this Act is governed by the law in effect immediately before that date, and that law is continued in effect for that purpose.
SECTION 3. Effective date: September 1, 2009.