California Gov. Schwarzenegger Vetoes Legislation Restricting Retroactive Cancellation of Health Insurance Policies, Signs Narrower Measure and Medical Record Privacy Bill

California Gov. Arnold Schwarzenegger (R) on Tuesday vetoed legislation (AB 1945) that would have prohibited health plans from rescinding health insurance policies unless they could prove that consumers intentionally misrepresented information on their applications, the AP/Sacramento Bee reports. The legislation also would have created an independent review process for each rescission case.

In a memo to lawmakers, Schwarzenegger called the practice of rescission "deplorable," but said he vetoed the measure because it lacked several consumer protections and was "written by attorneys that stand to benefit from its provisions" (Tayefe Mohajer, AP/Sacramento Bee, 9/30).

Schwarzenegger signed into law a narrower bill (AB 2569) dealing with health policy rescissions. Under that bill, when insurers rescind a policy, they are required to allow family members to retain their coverage (Rau/McGreevy, Los Angeles Times, 10/1). Assembly member Hector De La Torre (D), who introduced the broader rescission legislation, said that the family protection provision was left off the measure because it was included in AB 2569. "The governor is not fulfilling his obligation to the insured population of California," De La Torre said.

William Shernoff, a leading attorney in rescissions lawsuits, said the veto "is going to mean business as usual for the insurance companies, which means continued rescissions and more litigation," adding, "The insurance lobby is very powerful in this state and they got what they wanted, to not have a law that would clarify the situation."

Christopher Ohman, president of the California Association of Health Plans, supported the veto, saying, "Rather than offer consumers real legal protections from unfair rescission or cancellation, [the bill] would have invited dishonesty on applications and lead to price increases and reduced coverage in the individual market" (AP/Sacramento Bee, 9/30).

Patient Privacy
Schwarzenegger also signed legislation to create a hospital privacy oversight office, as well as a bill that allows the state to issue fines as high as $250,000 for multiple violations of patients' private medical files at hospitals. Schwarzenegger in a statement said, "Repeated violations of patient confidentiality are potentially harmful to Californians, which is why financial penalties are needed to ensure employees and facilities do not breach confidential medical information."

The bills also raise maximum penalties for serious medical mistakes to $125,000 when their occurrence indicates that other patients also could be in danger (Los Angeles Times, 10/1).

Vetoes of Other Health Care Measures
Schwarzenegger also vetoed a measure (SB 840) that would have created a state-run, single-payer health care system in California, saying that he could not support "a bill that places an annual shortfall of over $40 billion on our state's economy."

In addition, the governor vetoed a measure (SB 981) aimed at addressing the practice of balance billing. The measure would have prohibited emergency department physicians from billing patients directly when there are billing disputes with their HMOs. In his veto statement, Schwarzenegger said the bill would have rewarded "non-contracting physicians by assuring their continued financial slice of the pie" without fixing the state's "broken health care system" (Rojas, Sacramento Bee, 9/30).