Assembly Bill 1672

STATE OF CALIFORNIA

DEPARTMENT OF INSURANCE

SAN FRANCISCO

R11lletin No_ 93-4

June 25, 1993

TO:

ALL INSURERS PROVIDING EMPLOYMENT-RELATED "HEALTH" COVERAGE

SUBJECT:

Assembly Bill No. 1672:

I.

How it Affects All Employment-Related Health Insurance.

II.

Determining Whether a New Plan Entrant Gets Credit for "Time

Served" in a Prior Qualifying Plan.

II.

Changes to the Emergency Regulations (File No. RH-317) pertaining to

the "Small Employer" Provisions of AB1672.

SUMMARY

This Bulletin alerts you to those provisions of Assembly Bill No. 1672 (Chapter 1128 of the

Statutes of 1992) which apply to virtually all employment-related "health" insurance products

issued or in force in this state, regardless of the situs of the policy, effective July 1, 1993. This

Bulletin also provides guidance in interpreting the phrase "any waiting period" in Insurance Code

§§10198. 7(c) and 10708(c). This Bulletin also notifies you of a change in §2233.20, Renewal

Date, in the emergency regulations pertaining to the "small employer" provisions of AB1672.

I.

How AB1672 AFFECTS ALL EMPLOYMENT-RELATED HEALTH INSURANCE.

A. HIGHLIGHTS OF THE NEW LEGISLATION.

AB 1672 adds §§10198.6 through 10198.9 to the California Insurance Code, applicable to

employment-related individual or group health insurance progr::im._ c.ovP-rine three or mru:e.

persons. These provisions apply regardless of whether the employer contributes to the premium.

Insurance Code §§10198.6 through 10198.9:

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Apply to most types of health insurance "... offered through employment or sponsored

by an employer . . . " providing benefits to California residents ". . . regardless of the

situs of the contract or group master policyholder" (Ins. C. §§10198.6(a) and 10198.8);

These provisions apply regardless of whether the employer contributes to the premium.

Insurance Code §§10198.6 through 10198.9:

•

Apply to most types of health insurance "... offered through employment or sponsored

by an employer . . . " providing benefits to California residents ". . . regardless of the

situs of the contract or group master policyholder" (Ins. C. §§10198.6(a) and 10198.8);

•

Narrowly define what can be excluded as a "pre-existing condition" (Ins. C.

§§10198.6(c) and 10198.?(a));

•

Establish maximum time limits for pre-existing conditions exclusions imposed on newly

eligible persons and on \\'aiting periods imposed on "late enrollees" (Ins. C. §10198.7);

•

Require that insurers credit, toward the satisfaction of pre-existing conditions exclusions

or \\'aiting periods, newly-insured persons with the time that they were covered under

qualifying preceding health benefit plans in specified circumstances (Ins. C.

§10198. 7(c));

•

Prohibit waivers, exclusions or special waiting periods for coverage applicable to specific

persons {Ins. C. §10198.7(a).

Parallel Health and Safety Code provisions in AB1672 apply to Health Care Service Plans.

(Please refer to Bulletin 93-3, of April 15, 1993, and Title 10, California Code of Regulations

§§2233 through 2233.99 for guidance about AB1672 as it applic::s Lu pruuucts l:uvering employers

of from 3 to 50 employees.)

B.

QUESTIONS AND ANSWERS ABOUT THE PROVISIONS OF AH 1672 WHICH

APPLY 1D EMPLOYMENT-RELATED HEALTH INSURANCE.

The comments below reflect our understanding of the intended operation of AB1672 and are

provided to assist you in your analysis of the law.

These comments assume that the health

hP-nefit plans at issue ARE NOI' subject to the 1'small employer1' provisions of AB1672, except

.as noted.

11Trailer11 legislation is always possible, so you should ensure that you are referring

to a current version of the law.

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low reflect our understanding of the intended operation of AB1672 and are

provided to assist you in your analysis of the law.

These comments assume that the health

hP-nefit plans at issue ARE NOI' subject to the 1'small employer1' provisions of AB1672, except

.as noted.

11Trailer11 legislation is always possible, so you should ensure that you are referring

to a current version of the law.

1. What size employer plans are subject to AB 1672?

The jurisdicliuual language of the "employment-related'' provisions of AB1672 does not speak

in terms of employer sire. Any health benefit plan that covers three or more persons (not just

employees) and that is offered or provided through employment or is sponsored by an employer

may be subject to the "employment-related" provisions of AB1672.

Note that plans covering employees of employers of between 3 and 50 employees may be subject

to the employment-related provisions of AB1672 even if they are exempt from the "small

employer" provisions of the law - for example, small employer plans which are paid for entirely

by the employees. Ins. C. §§10198.7(a) and (d).

2. Does AB 1672 apply to individual (including selected group or ''franchise") health insurance

policies··offered through emplnyment or sponmred by an employer?

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Yes, except for noncancellable or guaranteed-renewable policies (as defined in Ins. C. §§10273

and 10273.3t respectively) which were delivered prior to July 1, 1993. Ins. C. §10198.6(a).

3. Are "supplemental coverages" such as "cancer" or "long-term care" subject to AB 1672?

Yes and no. Insurance Code §10198.6(a} specifically exempts certain types of products, such

as Medicare supplement, long-term care and dental and vision products. All other products

which provide medical, hospital, and surgical benefits, regardless of whether they ::ire pmvicfP.d

on an "indemnity" or expense-incurred basis, are subject to the law. Thus, dread disease and

hospital indemnity products must comply with the law

198.6(a} specifically exempts certain types of products, such

as Medicare supplement, long-term care and dental and vision products. All other products

which provide medical, hospital, and surgical benefits, regardless of whether they ::ire pmvicfP.d

on an "indemnity" or expense-incurred basis, are subject to the law. Thus, dread disease and

hospital indemnity products must comply with the law.

Note that, in contrast to the "small

employer" provisions of AB1672, there is no exemption of products whose cost is not

contributed to by employers.

4_ Must programs established before July 1, 1993 (AB1672's effective date), provide a 30 day

"open enrollment period" for previously-excluded employees and dependents, as required ofsuch

programs when they cover "small employers"?

No, unless the carrier wants to impose or has imposed a special limitation on coverage for "late

enrollees", as defined in Ins. C. §10198.6(b) and as discussed immediately below.

5. On its face, Ins. C. §10198. 7(d)forbids exclusion of late enrollees/or more than 12 months.

Must a health benefit plan accept all late enrollees after 12 months regardless ofmedical status?

We believe that the Section means that there may not be any special limitation, lasting more than

12 months, based on a person's being a late enrollee as defined in Ins. C. §10198.6(b).

Therefore, at the end of 12 months, the late enrollee should have the same rights as a new

enrollee - if new entrants are not medically underwritten, then neither should "late enrollees"

be, at the end of the 12 month waiting period. Simifarly, a per,;on who is: not a late enrollee

under 10198.6(b}, because, for example, he or she had lost other group coverage, would have

to be treated as a new enrollee upon application for coverage. In cases where new employees

or dependents may he excl11rlP-d for underwriting reasons, late enrollees may also be so excluded.

6.

Insurance Code §§10198.6(c) and 10198

month waiting period. Simifarly, a per,;on who is: not a late enrollee

under 10198.6(b}, because, for example, he or she had lost other group coverage, would have

to be treated as a new enrollee upon application for coverage. In cases where new employees

or dependents may he excl11rlP-d for underwriting reasons, late enrollees may also be so excluded.

6.

Insurance Code §§10198.6(c) and 10198. 7(a) seem to limit definitions of "pre-e.xistirtg

conditions" to those for which "medical advice, diagnosis, care, or treatment . . . was

recommended or received . . . " within six months before the effective date of coverage. May

an insurer also include conditions for which a "reasonable " or "prudent" person would have

sought advice or treatment within that si.x months? May the definition include conditions which

became "manifest" within that period?

No.

Only those conditions described in the cited Code Sections may be "pre-existing

conditions". An insurer may make the definition of "pre-existing conditions" more precise, such

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as by defining "medical advice", etc., more specifically, but it may not expand the definition

beyond the boundaries established by the Code Sections.

7. When must a plan be brought into compliance with the new law?

The operative provisions (sub§§ (a) and (d) of Ins. C. 10198.7) of AB1672 apply to any product

"... issued, renewed or written by any insurer ... " on or after the effective date of the law -

July 1, 1993. We understand that the intent of the word "written" was to make the law apply

to all programs in force as of that date.

8. Do the "waiting period'' limitations ofABJ672 apply to employer-imposed rules postponing

new employees' eligibility for fringe benefits until they have been at work for some period ofrime

("probationary periods")?

No.

AB1672 does not generally regulate employers' activities. However, such probationary

periods are included in the term "any waiting period" as used in Ins. C. §10198.?(c) - see Item

II, below.

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riod'' limitations ofABJ672 apply to employer-imposed rules postponing

new employees' eligibility for fringe benefits until they have been at work for some period ofrime

("probationary periods")?

No.

AB1672 does not generally regulate employers' activities. However, such probationary

periods are included in the term "any waiting period" as used in Ins. C. §10198.?(c) - see Item

II, below.

9. If a carrier wants to cover immediately a "late enrollee" who could be excluded entirely for

une yeur, cuuld ir impose a waiver of coverage for a specified pre-existing condition for that

year?

Yes.

lt would appear to be consistent with the law to allow carriers to impose individual

"waiver" riders on late enrollees in lieu of totally excluding them from coverage, for the period

of time that the late enrollee could be excluded entirely. We construe the "small employer"

provisions of AB1672 similarly. (Ins. C. §§10198.6(b) and 10198.?(d)).

10. Does AB 1672 apply to insured "Taft-Hanley" plans?

Insurance products issued to such plans must comply with AB 1672's "employment-related"

provision,;: pf>rtaining to pre-existing conditions limitations and late enrollees regardless of the

size of the employers involved. Note that Title 10, California Code of Regulations §2233. lO(b),

in the Emergency Regulations becoming effective July 1, 1993 (File No RH-317), exempts some

insured "Tuft-Hartley" plans from the "small employer" provisions of AB1G72.

(In~. C.

§10198.6(a)).

11. Does AB 1672 apply to selfinsured "large employer plans n?

"Self-insured" plans operated by state and local government entities (if not otherwise ex.empted)

and religious organizations must comply with Ins. C. §§10198.6 through 10198.8. Such plans

are not subject to BRISA and are thus not exempt from state regulation under that law's

"preemption provision". (Ins. C. §§10198.?(a) and 10198.7(d)).

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B 1672 apply to selfinsured "large employer plans n?

"Self-insured" plans operated by state and local government entities (if not otherwise ex.empted)

and religious organizations must comply with Ins. C. §§10198.6 through 10198.8. Such plans

are not subject to BRISA and are thus not exempt from state regulation under that law's

"preemption provision". (Ins. C. §§10198.?(a) and 10198.7(d)).

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Lawful private single-employer or labor-management ("Tuft-Hartley") self-insured plans which

are otherwise legitimately exempt from state regulation under ERISA need not comply with the

requirements of Ins. C. §10198.7.

(Note that "MEWAs" are illegal under California law.)

However, sub§(e) of the Section prohibits carriers from providing "stop loss" coverages to such

self-insured plans that have pre-existing conditions or late enrollee provisions that are

inconsistent with AB1672.

II. DETERMINING WHETHER A NEW PLAN ENTRANT GETS CREDIT FOR "TIME

SERVED II IN A PRIOR OUALIFYING PLAN.

We understand that the intent underlying the "credit for time served" concept is that, once

someone has entered the private health care sector, he or she need "pay their dues" only once,

unk:s:s that person leaves the sector for so long that their re-entry suggests an anti-selection

motive. A new employee or dependent should not have to suffer new pre-existing conditions

exclusions because the employer or insurer imposes delays between the start of employment and

eligib1l1ty tor coverage which, when added to his or her time between employment periods or

coverages, exceed the 30 or 90 day period applicable under the law.

Insurance Code §10198.7(c)- pertaining to employment-related health insurance- and §10708(c)

- pertaining to "small employer" health insurance - provide that a carrier shall ignore "any

waiting period" in determining whether to give a new pbn entrant "credit for time served" under

a Prior Qualifying Plan against any limitations in the carrier's plan applicable to new entrants

le under the law.

Insurance Code §10198.7(c)- pertaining to employment-related health insurance- and §10708(c)

- pertaining to "small employer" health insurance - provide that a carrier shall ignore "any

waiting period" in determining whether to give a new pbn entrant "credit for time served" under

a Prior Qualifying Plan against any limitations in the carrier's plan applicable to new entrants.

Similarly, the cited Sections require that time attributable to applying for coverage "within the

applicable enrollment period" be ignored in determining whether to give a new plan entrant

"credit for time served." We believe that the phrase "any waiting period", as used in the

Sections, includes both employer-imposed "probationary periods" and carrier-imposed waiting

periods for coverage. We also believe that the phrase ''becomes eligible wit11i11 30 (or 90) days

of termination of prior coverage" should be read as meaning "becomes employed or has a new

health benefit plan take effect. "

m.

CHANGES TO THE EMERGENCY REGULATIONS (FILE No. RH-317)

PERTAINING TO THE "SMALL EMPWYER11 PROVISIONS OF AB1672.

A. The following suhsta.ntive ch:mees have been made in the emergency regulations as set forth

in the "Notice of Proposed Adoption of Emergency Regulations ... ", File No RH-317, dated

June 11, 1993:

1. The last sentence in Section 2233.20(b) has been changed as follows:

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"Such guarantees must be set forth in the master policy and in the eertificet-es issued le eoWJFCti

employees or in the individual policies issued to stteh covered employees."

2. Section 2233.52 has been stricken entirely and the phrase "or waiting period" has been

stricken from the first sentence of §2233. 70.

B. Addenda to the 1'Notice of Proposed Adoption of Emergency Regulations ... '', File No RH-

117, dated June 11 , 1 991.

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e master policy and in the eertificet-es issued le eoWJFCti

employees or in the individual policies issued to stteh covered employees."

2. Section 2233.52 has been stricken entirely and the phrase "or waiting period" has been

stricken from the first sentence of §2233. 70.

B. Addenda to the 1'Notice of Proposed Adoption of Emergency Regulations ... '', File No RH-

117, dated June 11 , 1 991.

1. The following text was omitted from the top of Page 3 of because of a reproduction error

(no text ,vas omitted from the regulations): "These regulations are necessary to interpret the

ambiguities and uncertainties in AB 1672 which"

2. On Page 12, "Ms 11 should be deleted from the fourth line of the last paragraph and the last

word on the page should be "your".

IV.

INQUIRIES about this Bulletin or AB 1672 as it applies to Department of

Insurance licensees should be directed to:

Marsha Seeley

California Department of Insurance

Legal Division

45 Fremont Street

San Francisco, CA 94105

Telephone (415) 904-5724

JOHN GARAMENDI

Insurance Commissioner

1R7 :>\~Q141reM.R:>4

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