Calif. Governor Vetoes Strict Anti-Rescissions Bill

In a win for health insurance companies, California Gov. Arnold Schwarzenegger vetoed a bill that would have required proof that a policyholder intended to deceive before an insurer could retroactively cancel a policy.

The bill would have put the burden of proof on insurers to demonstrate that a patient "intentionally misrepresented" a known health condition when applying for coverage. All individual market health insurance plans would have had to complete medical underwriting prior to issuing a contract.

In a veto message, Schwarzenegger said he is "comfortable" rejecting the legislation because of steps taken through legislation and regulation to protect consumers. He cited a 2008 law he signed that clarified existing law banning health insurance companies from rewarding employees for rescinding a policyholder's insurance (BestWire, July 24, 2008).

Schwarzenegger also highlighted steps taken by the Department of Insurance and the Department of Managed Health Care, which have reached multimillion-dollar settlements with insurance companies over improper rescission practices over the past two years. In June, California Insurance Commissioner Steve Poizner introduced what he said would be the state's first-ever regulations to limit the practice of rescissions for individual health insurance policies (BestWire, June 9, 2009).

Schwarzenegger also rejected a similar bill last year. Both were sponsored by Assemblyman Hector De La Torre, D-South Gate. De La Torre said this year's bills specifically addressed objections made by the governor in 2008, including the need for the bill to have won Republican votes.

"The governor is playing a shell game on the issue of rescissions," said De La Torre, a Democratic candidate for state insurance commissioner. "They treated the symptoms, but not the disease of rescissions," he said of the governor's examples of actions.

Dr. Dev GnanaDev, president of the California Medical Association, said in a statement, "With this veto, the Governor told Californians that insurance company profits are more important than their access to health care when they get sick and treatment becomes costly."

Charles Bacchi, executive vice president of the California Association of Health Plans, said the bill would have undermined a century of contract law.

"Rather than offer consumers real legal protections from unfair rescission or cancellation, it would have invited dishonesty on applications and led to price increases and reduced coverage in the individual market," he said in a statement.

While any federal health care reform legislation will include restrictions on rescissions, De La Torre said the state should not wait.

"You never wait for someone else to do something when you can do it yourself," he said.