Assembly Bills 1672 and 1768

ST A TE OF CALIFORNIA

DEPARTMENT OF INSURANCE

SAN FRANCISCO

Bulletin No. 93-4A

February 7, 1994

'ID:

ALL INSURERS PROVIDING "HEALTH" COVERAGE

SUBJECT:

Assembly Bills No. 1672 and 1768

This Bulletin updates Bulletin 93-4 of June 25, 1993, and reflects the 1993 amendments to the "all

health insurance" (previously referred to as "all employer") sections of AB 1672 (Chapter 1128, Stats

1992).

The 1993 substantive amendments were made by AB 1768 (Chapter 1052, Stats 1993) and are

effective January 1, 1994. (Minor technical amendments were made by AB 1742.) As used herein, "all

health insurance" means individual or group coverage which provides medical, hospitalj and surgical

benefits. General references to AB 1672 include all trailer legislation.

I. How AB 1672/AB 1768 AFFECT ALL HEALTH INSURANCE.

A. HIGHLIGHTS OF THE NEW LEGISLATION.

AB 1672 added §§ 10198.6 - 10198.9 to the California Insurance Code, applicable to employment­

related individual or group health insurance programs covering three or more persons.

With the

enactment of AB 1768, the employment-related requirement and the "three or more" requirement were

eliminated. As of January 1, 1994, Insurance Code§§ 10198.6 - 10198.8 apply to individual and group

products which cover one or more persons, regardless of the setting in which the coverage was

purchased.

Insurance Code §§ 10198.6 - 10198.9:

•

Apply to essentially all types of health insurance providing benefits to Californians regardless

of the situs of the c.:untrnct or group master policyholder and regardless of the number of persons

covered (Ins. C. §§ 10198.6(a) and 10198.8);

•

Narrowly define what can be excluded as a "preexisting condition" (Ins. C. §§ 10198.6(c) and

10198.7(a));

•

Establish maximum time limits for preexisting conditions exclusions imposed on newly eligible

persons and on waiting periods imposed on "late enrollees" (Ins. C. § 10198.7);

oup master policyholder and regardless of the number of persons

covered (Ins. C. §§ 10198.6(a) and 10198.8);

•

Narrowly define what can be excluded as a "preexisting condition" (Ins. C. §§ 10198.6(c) and

10198.7(a));

•

Establish maximum time limits for preexisting conditions exclusions imposed on newly eligible

persons and on waiting periods imposed on "late enrollees" (Ins. C. § 10198.7);

•

Require that insurers credit, toward the satisfaction of pnxxisting conditions exclusions or

waiting periods, newly-insured persons with the time that they were covered under qualifying

preceding health coverages in specified circumstances (Ins. C. § 10198.?(c));

•

For health benefit plans that cover three or more persons, prohibit waivers, exclusions or special

waiting periods for coverage applicable to specific persons (Ins. C. § 10198. 7(a));

•

For health benefit plans that cover one or two persons, prohibit waivers, exclusions or special

waiting periods which exceed 12 months (Ins. C. § 10198.7(b) and (d)).

Parallel Health and Safety Code provisions in AB 1672 and AB 1768 apply to Health Care Service

Plans.

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

Regulations§§ 2233 - 2233.99 for guidance about AB 1672 as it applies to products covering employers

of from 3 to 50 employees.)

B. QUESTIONS AND ANSWERS ABOUT THE PROVISIONS OF AB 1672/AB 1768

Most of the quest10ns below are from Bulletin 93-4, but the responses have been revised irt accordance

with the 1993 amendments to AB 1672. The comments reflect our understanding of the intended

operation of AB 1672 and AB 1768 and are provided to assist you in your analysis of the law. These

comments assume that the health benefit plans at issue ARE NOT subject to the "small employer"

provisions of AB 1672, except as noted.

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m Bulletin 93-4, but the responses have been revised irt accordance

with the 1993 amendments to AB 1672. The comments reflect our understanding of the intended

operation of AB 1672 and AB 1768 and are provided to assist you in your analysis of the law. These

comments assume that the health benefit plans at issue ARE NOT subject to the "small employer"

provisions of AB 1672, except as noted.

I. What plans are subject to AB 1672/AB 1768?

Any health benefit plan, either individual or group, covering one or more Californians is subject to the

"all health insurance" provisions of AB 1672 and 1768, to wit, Ins. C. §§ 10198.6 - 10198.8. These

provisions apply regardless of the presence or absence of an employment setting or sponsorship.

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

"all health insurance" provisions of AB 1672/ AB 1768 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)(b) and (f).

2. Are "supplemental coverages" such as "cancer" or "long-term care" subject to AB 1672/AB 1768?

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 are provided on an "indemnity" or

expense-incurred basis, are subject to the law. Thus, dread disease and hospital indemnity products

must comply with the law. Blanket policies providing medical, hospital and surgical benefits must also

comply.

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ong-term care and dental and vision products. All other products which provide

medical, hospital, and surgical benefits, regardless of whether they are provided on an "indemnity" or

expense-incurred basis, are subject to the law. Thus, dread disease and hospital indemnity products

must comply with the law. Blanket policies providing medical, hospital and surgical benefits must also

comply.

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3. Muse programs eswblished before July 1, 1993 (AB 1672 ·~ effective dule), pmvide a 30 day "open

enrollment period" for previously-excluded employees and dependents, as required of such 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.

4. On its face, Ins. C. § 10198. 7(/)forbids exclusion of late enrollees for 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, hased on a person's heine a late enrollee as define.d 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. Similarly, a person who is not a late enrollee under 10198.6(b), because, for example, he or

she has 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 be excluded for underwriting reasons, late

enrollees may also be so excluded.

5. What preexisting conditions exclusions or waivers may be used as ofJanuary 1, 1994?

As of January I, 1994, the effective date of AB 1768, Ins. C

xample, he or

she has 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 be excluded for underwriting reasons, late

enrollees may also be so excluded.

5. What preexisting conditions exclusions or waivers may be used as ofJanuary 1, 1994?

As of January I, 1994, the effective date of AB 1768, Ins. C. § 10198.7 establishes two sets of rules

for preexisting conditions and waivered conditions, depending on the number of persons covered by the

particular policy.

If three or more persons are covered, a health benefit plan may not use a preexisting condition provision

more stringent than a "six and six" provision, i.e., one that excludes for six months from the effective

date those conditions for which the person received medical advice, etc. during the six months preceding

the effective date.

Waivers of coverage of a specific condition applicable to specific insureds are

prohibited, but if no preexisting condition provision is imposed, a 60 day waiting period may be used .

.!.f one Q[ two persons are covered, the health benefit plan may not use a preexisting condition exclusion

more stringent than a "12 and 12", i.e., one that excludes from the effective date those conditions for

which the person received medical advice, etc. during the twelve months preceding the effective date.

If the plan docs not contain a preexisting conditions exclusion provision, tlie11 it may i11dutle a wdiver

of a specific illness for twelve months; the waivered condition must be one for which the insured

received advice, etc. during the twelve months preceding the effective date. If neither a preexisting

conditions exclusion or a waiver is used, a 60 day wait may be imposed.

6.

Insurance Code§§ 10198.6(c) and 10198.l(a) and (b) seem to limit definitions of "preexisting

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

or received ..

e insured

received advice, etc. during the twelve months preceding the effective date. If neither a preexisting

conditions exclusion or a waiver is used, a 60 day wait may be imposed.

6.

Insurance Code§§ 10198.6(c) and 10198.l(a) and (b) seem to limit definitions of "preexisting

· 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

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conduwnsfor which a "reasonable" or "prudent" person would have sought advtce or trearment Within

that six months? May the definition include conditions which became ·manifest" within that period?

No. Only those conditions described in the cited Code Sections may be "preexisting conditions". An

insurer may make the definition of "preexisting conditions" more precise, such as by defining "medical

advice", etc., more specifically, but it may not expand the definition beyond the boundaries established

by the Code Sections.

A preexisting condition may not include a pregnancy which existed in the

specified time period (6 or 12 months) before the effective date unless the insured had received medical

advice, etc. within that time period.

7. W'hen must a plan be brought into compliance with the new law?

The operative provisions (sub§§ (a) and (t) of Ins. C. § 10198.7) of AB 1672 apply to any product " .

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

1993.

We understand that the intent of the word "written" was to make the law apply lo all prngrnms

in force as of that date. Similarly, the amendments made by AB 1768 apply to any product in force

as of January 1, 1994, the effective date of AB 1768.

8. Do the "waiting period" limitations of AB 1672 apply to employer-imposed rules postponing new

employees' eligibility for fringe benefits until they have been at work for some period of time

("probationary periods")?

No

pply lo all prngrnms

in force as of that date. Similarly, the amendments made by AB 1768 apply to any product in force

as of January 1, 1994, the effective date of AB 1768.

8. Do the "waiting period" limitations of AB 1672 apply to employer-imposed rules postponing new

employees' eligibility for fringe benefits until they have been at work for some period of time

("probationary periods")?

No. AB 1672 does not generally regulate employers' activities. However, such probationary periods

are included in the term "any waiting period" as used in Ins. C. § 10198.7(e) - see Part II, below.

9. If a carrier wants to cover immediately a "late enrollee" who rnuld hf' excluded entirely for one

year, could it impose a waiver ofcoverage for a specified preexisting condition for that year?

Yes.

It 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 AB 1672

similarly. Ins. C. §§ 10198.6(b) and 10198.7([).

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

Insurance products issued to such plans must comply with AB 1672's "all health insurance" provisions

pertaining to preexisting conditions limitations and late enrollees regardless of the size of the employers

involved. Note that Title 10, California Code of Regulations§ 2233. lO(b) exempts some insured "Taft­

Hartley" plans from the "small employer" provisions of AB 1672 but there is no similar exemption from

. the "all health insurance" provisions. Ins. C. § 10198.6(a).

ll. Does AB 1672 apply to self-insured "large employer plans"?

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ions and late enrollees regardless of the size of the employers

involved. Note that Title 10, California Code of Regulations§ 2233. lO(b) exempts some insured "Taft­

Hartley" plans from the "small employer" provisions of AB 1672 but there is no similar exemption from

. the "all health insurance" provisions. Ins. C. § 10198.6(a).

ll. Does AB 1672 apply to self-insured "large employer plans"?

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

religious organizations must comply with Ins. C. §§ 10198.6 - 10198.8. Such plans are not subject to

ERISA and are thus not exempt from state regulation under that law's "preemption provision". Ins.

C. § 10198.7(a)(b) and (t).

Lawful private single-employer or labor-management ("Tuft-Hartley") fully 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§(g) of

the Section prohibits carriers from providing "stop loss" coverages to such self-insured plans that have

preexisting conditions or late enrollee provisions that are inconsistent with AB 1672/AB 1768.

12.

What policy fonn filings are required as a result of the "all health insurance" provisions of AD

1672/AB 1768?

Due to the important changes in coverage made by the legislation, insurance companies should notify

existing insureds of the changes as soon as possible.

An existing policy affected by the legislation

should be revised, via rider or a new policy or certificate, which forms must be filed or approved as

otherwise required by law.

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

IN A PRIOR QUALIFYING PLAN

erage made by the legislation, insurance companies should notify

existing insureds of the changes as soon as possible.

An existing policy affected by the legislation

should be revised, via rider or a new policy or certificate, which forms must be filed or approved as

otherwise required by law.

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

IN A PRIOR QUALIFYING 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, unless that person

leaves the sector for so long that his or her re-entry suggests an anti-selection motive. A new employee

or dependent should not have to suffer new preexisting conditions exclusions because the employer or

insurer imposes delays between the start of employment and eligibility for 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(e) - pertaining to all 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 plan entrant "credit for time served" under qualifying prior coverage against any

limitations in the carrier's plan applicable to new entrants. Similarly, the cited SP.ctions rf',qnire 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

. Similarly, the cited SP.ctions rf',qnire 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

within 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."

The credit for qualifying prior coverage provision found in Ins. C. § 10198.7(e) is not limited to

empluymenl related coverage. An individual shall be given credit fur time served under a prior plan

s

whether or not the prior or new plan is employment related. The pnor plan and the new plan need not

be similar in coverage or contain similar exclusions and prior plans need not have contained a

preexisting conditions exclusion.

Please note the broad definition of "qualifying prior coverage", which includes COBRA or other

continuation covt>rar;,, anrl puhlic programs; exclusions are limited to those specified. Qualifying prior

coverage is not limited to a single plan which preceded the new plan; if a continuous series of

continuous plans preceded the new plan, all such plans would constitute qualifying prior coverage.

Also, qualifying prior coverage need not be "accrued" or "earned" after July 1, 1993 or after January

I, 1994, the respective effective dates of AB 1672 and AB 1768.

Ill.

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

licensees should be directed to:

Marsha Seeley, Senior Counsel

California Department of Insurance

45 Fremont Street

San Francisco, CA 94 I 05

Telephone (415) 904-5724

~

GARllM l;1\J DI

ln&urance Commissioner

1672\b934Ircm.624

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