A BILL TO BE ENTITLED

AN ACT

relating to the cancellation of a health benefit plan on the basis

of misrepresentation or a preexisting condition; providing

penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter B, Chapter 541, Insurance Code, is

amended by adding Section 541.062 to read as follows:

Sec. 541.062. BAD FAITH CANCELLATION. It is an unfair

method of competition or an unfair or deceptive act or practice for

a health benefit plan issuer to:

(1) set cancellation goals, quotas, or targets;

(2) pay compensation of any kind, including a bonus or

award, that varies according to the number of cancellations;

(3) set, as a condition of employment, a number or

volume of cancellations to be achieved; or

(4) set a performance standard, for employees or by

contract with another entity, based on the number or volume of

cancellations.

SECTION 2. Chapter 1202, Insurance Code, is amended by

adding Subchapter C to read as follows:

SUBCHAPTER C. INDEPENDENT REVIEW OF CERTAIN CANCELLATION DECISIONS

Sec. 1202.101. DEFINITIONS. In this subchapter:

(1) "Affected individual" means an individual who is

otherwise entitled to benefits under a health benefit plan that is

subject to a decision to cancel.

(2) "Independent review organization" means an

organization certified under Chapter 4202.

(3) "Screening criteria" means the elements or factors

used in a determination of whether to subject an issued health

benefit plan to additional review for possible cancellation,

including any applicable dollar amount or number of claims

submitted.

Sec. 1202.102. APPLICABILITY. (a) This subchapter applies

only to a health benefit plan, including a small or large employer

health benefit plan written under Chapter 1501, that provides

benefits for medical or surgical expenses incurred as a result of a

health condition, accident, or sickness, including an individual,

group, blanket, or franchise insurance policy or insurance

agreement, a group hospital service contract, or an individual or

group evidence of coverage or similar coverage document that is

offered by:

(1) an insurance company;

(2) a group hospital service corporation operating

under Chapter 842;

(3) a fraternal benefit society operating under

Chapter 885;

(4) a stipulated premium company operating under

Chapter 884;

(5) a reciprocal exchange operating under Chapter 942;

(6) a Lloyd's plan operating under Chapter 941;

(7) a health maintenance organization operating under

Chapter 843;

(8) a multiple employer welfare arrangement that holds

a certificate of authority under Chapter 846; or

(9) an approved nonprofit health corporation that

holds a certificate of authority under Chapter 844.

(b) This subchapter does not apply to:

(1) a health benefit plan that provides coverage:

(A) only for a specified disease or for another

limited benefit other than an accident policy;

(B) only for accidental death or dismemberment;

(C) for wages or payments in lieu of wages for a

period during which an employee is absent from work because of

sickness or injury;

(D) as a supplement to a liability insurance

policy;

(E) for credit insurance;

(F) only for dental or vision care;

(G) only for hospital expenses; or

(H) only for indemnity for hospital confinement;

(2) a Medicare supplemental policy as defined by

Section 1882(g)(1), Social Security Act (42 U.S.C. Section 1395ss),

as amended;

(3) a workers' compensation insurance policy;

(4) medical payment insurance coverage provided under

a motor vehicle insurance policy; or

(5) a long-term care insurance policy, including a

nursing home fixed indemnity policy, unless the commissioner

determines that the policy provides benefit coverage so

comprehensive that the policy is a health benefit plan described by

Subsection (a).

Sec. 1202.103. CANCELLATION FOR MISREPRESENTATION OR

PREEXISTING CONDITION. Notwithstanding any other law, a health

benefit plan issuer may not cancel a health benefit plan on the

basis of a misrepresentation or a preexisting condition except as

provided by this subchapter.

Sec. 1202.104. NOTICE OF INTENT TO CANCEL. (a) A health

benefit plan issuer may not cancel a health benefit plan on the

basis of a misrepresentation or a preexisting condition without

first notifying an affected individual in writing of the issuer's

intent to cancel the health benefit plan and the individual's

entitlement to an independent review.

(b) The notice required under Subsection (a) must include,

as applicable:

(1) the principal reasons for the decision to cancel

the health benefit plan;

(2) the clinical basis for a determination that a

preexisting condition exists;

(3) a description of any general screening criteria

used to evaluate issued health benefit plans and determine

eligibility for a decision to cancel;

(4) a statement that the individual is entitled to

appeal a cancellation decision to an independent review

organization;

(5) a statement that the individual has at least 45

days in which to appeal the cancellation decision to an independent

review organization, and a description of the consequences of

failure to appeal within that time limit;

(6) a statement that there is no cost to the individual

to appeal the cancellation decision to an independent review

organization; and

(7) a description of the independent review process

under Chapters 4201 and 4202.

Sec. 1202.105. INDEPENDENT REVIEW PROCESS; PAYMENT OF

CLAIMS. (a) An affected individual may appeal a health benefit

plan issuer's cancellation decision to an independent review

organization not later than the 45th day after the date the

individual receives notice under Section 1202.104.

(b) A health benefit plan issuer shall comply with all

requests for information made by the independent review

organization and with the independent review organization's

determination regarding the appropriateness of the issuer's

decision to cancel.

(c) A health benefit plan issuer shall pay all otherwise

valid medical claims under an individual's plan until the later of:

(1) the date on which an independent review

organization determines that the decision to cancel is appropriate;

or

(2) the time to appeal to an independent review

organization has expired without an affected individual initiating

an appeal.

Sec. 1202.106. CANCELLATION AUTHORIZED; RECOVERY OF CLAIMS

PAID. (a) A health benefit plan issuer may cancel a health benefit

plan covering an affected individual on the later of:

(1) the date an independent review organization

determines that cancellation is appropriate; or

(2) the 45th day after the date an affected individual

receives notice under Section 1202.104, if the individual has not

initiated an appeal.

(b) An issuer that cancels a health benefit plan under this

section may seek to recover from an affected individual amounts

paid for the individual's medical claims under the cancelled health

benefit plan.

(c) An issuer that cancels a health benefit plan under this

section may not offset against or recoup or recover from a physician

or health care provider amounts paid for medical claims under a

cancelled health benefit plan. This subsection may not be waived,

voided, or modified by contract.

Sec. 1202.107. CANCELLATION RELATED TO A PREEXISTING

CONDITION; STANDARDS. (a) For purposes of this subchapter, a

cancellation for a preexisting condition is appropriate if, within

the 18-month period immediately preceding the date on which an

application for coverage under a health benefit plan is made, an

affected individual received or was advised by a physician or

health care provider to seek medical advice, diagnosis, care, or

treatment for a physical or mental condition, regardless of the

cause, and the individual's failure to disclose the condition:

(1) affects the risks assumed under the health benefit

plan; and

(2) is undertaken with the intent to deceive the

health benefit plan issuer.

(b) A health benefit plan issuer may not cancel a health

benefit plan based on a preexisting condition of a newborn

delivered after the application for coverage is made or as may

otherwise be prohibited by law.

Sec. 1202.108. CANCELLATION FOR MISREPRESENTATION;

STANDARDS. For purposes of this subchapter, a cancellation for a

misrepresentation not related to a preexisting condition is

inappropriate unless the misrepresentation:

(1) is of a material fact;

(2) affects the risks assumed under the health benefit

plan; and

(3) is made with the intent to deceive the health

benefit plan issuer.

Sec. 1202.109. REMEDIES NOT EXCLUSIVE. The remedies

provided by this subchapter are not exclusive and are in addition to

any other remedy or procedure provided by law or at common law.

Sec. 1202.110. RULES. The commissioner shall adopt rules

necessary to implement and administer this subchapter.

Sec. 1202.111. SANCTIONS AND PENALTIES. A health benefit

plan issuer that violates this subchapter commits an unfair

practice in violation of Chapter 541 and is subject to sanctions and

penalties under Chapter 82.

Sec. 1202.112. CONFIDENTIALITY. (a) A record, report, or

other information received or maintained by a health benefit plan

issuer, including any material received or developed during a

review of a cancellation decision under this subchapter, is

confidential.

(b) A health benefit plan issuer may not disclose the

identity of an individual or a decision to cancel an individual's

health benefit plan unless:

(1) an independent review organization determines the

decision to cancel is appropriate; or

(2) the time to appeal has expired without an affected

individual initiating an appeal.

SECTION 3. Section 4202.002, Insurance Code, is amended to

read as follows:

Sec. 4202.002. ADOPTION OF STANDARDS FOR INDEPENDENT REVIEW

ORGANIZATIONS. (a) The commissioner shall adopt standards and

rules for:

(1) the certification, selection, and operation of

independent review organizations to perform independent review

described by Subchapter C, Chapter 1202, or Subchapter I, Chapter

4201; and

(2) the suspension and revocation of the

certification.

(b) The standards adopted under this section must ensure:

(1) the timely response of an independent review

organization selected under this chapter;

(2) the confidentiality of medical records

transmitted to an independent review organization for use in

conducting an independent review;

(3) the qualifications and independence of each

physician or other health care provider making a review

determination for an independent review organization;

(4) the fairness of the procedures used by an

independent review organization in making review determinations;

[ and ]

(5) the timely notice to an enrollee of the results of

an independent review, including the clinical basis for the review

determination ; and

(6) that review of a cancellation decision based on a

preexisting condition be conducted under the direction of a

physician .

SECTION 4. Sections 4202.003, 4202.004, and 4202.006,

Insurance Code, are amended to read as follows:

Sec. 4202.003. REQUIREMENTS REGARDING TIMELINESS OF

DETERMINATION. The standards adopted under Section 4202.002 must

require each independent review organization to make the

organization's determination:

(1) for a life-threatening condition as defined by

Section 4201.002, not later than the earlier of:

(A) the fifth day after the date the organization

receives the information necessary to make the determination; or

(B) the eighth day after the date the

organization receives the request that the determination be made;

and

(2) for a condition other than a life-threatening

condition or of the appropriateness of a cancellation under

Subchapter C, Chapter 1202 , not later than the earlier of:

(A) the 15th day after the date the organization

receives the information necessary to make the determination; or

(B) the 20th day after the date the organization

receives the request that the determination be made.

Sec. 4202.004. CERTIFICATION. To be certified as an

independent review organization under this chapter, an

organization must submit to the commissioner an application in the

form required by the commissioner. The application must include:

(1) for an applicant that is publicly held, the name of

each shareholder or owner of more than five percent of any of the

applicant's stock or options;

(2) the name of any holder of the applicant's bonds or

notes that exceed $100,000;

(3) the name and type of business of each corporation

or other organization that the applicant controls or is affiliated

with and the nature and extent of the control or affiliation;

(4) the name and a biographical sketch of each

director, officer, and executive of the applicant and of any entity

listed under Subdivision (3) and a description of any relationship

the named individual has with:

(A) a health benefit plan;

(B) a health maintenance organization;

(C) an insurer;

(D) a utilization review agent;

(E) a nonprofit health corporation;

(F) a payor;

(G) a health care provider; or

(H) a group representing any of the entities

described by Paragraphs (A) through (G);

(5) the percentage of the applicant's revenues that

are anticipated to be derived from independent reviews conducted

under Subchapter I, Chapter 4201;

(6) a description of the areas of expertise of the

physicians or other health care providers making review

determinations for the applicant; and

(7) the procedures to be used by the applicant in

making independent review determinations under Subchapter C,

Chapter 1202, or Subchapter I, Chapter 4201.

Sec. 4202.006. PAYORS FEES. (a) The commissioner shall

charge payors fees in accordance with this chapter as necessary to

fund the operations of independent review organizations.

(b) A health benefit plan issuer shall pay for an

independent review of a cancellation decision under Subchapter C,

Chapter 1202.

SECTION 5. Section 4202.009, Insurance Code, is amended to

read as follows:

Sec. 4202.009. CONFIDENTIAL INFORMATION. (a)

Information that reveals the identity of a physician or other

individual health care provider who makes a review determination

for an independent review organization is confidential.

(b) A record, report, or other information received or

maintained by an independent review organization, including any

material received or developed during a review of a cancellation

decision under Subchapter C, Chapter 1202, is confidential.

(c) An independent review organization may not disclose the

identity of an affected individual or an issuer's decision to

cancel a health benefit plan under Subchapter C, Chapter 1202,

unless:

(1) an independent review organization determines the

decision to cancel is appropriate; or

(2) the time to appeal a cancellation under that

subchapter has expired without an affected individual initiating an

appeal.

SECTION 6. Section 4202.010(a), Insurance Code, is amended

to read as follows:

(a) An independent review organization conducting an

independent review under Subchapter C, Chapter 1202, or Subchapter

I, Chapter 4201, is not liable for damages arising from the review

determination made by the organization.

SECTION 7. The change in law made by this Act applies only

to an insurance policy that is delivered, issued for delivery, or

renewed on or after the effective date of this Act. An insurance

policy that is delivered, issued for delivery, or renewed before

the effective date of this Act is governed by the law as it existed

before the effective date of this Act, and that law is continued in

effect for that purpose.

SECTION 8. This Act takes effect immediately if it receives

a vote of two-thirds of all the members elected to each house, as

provided by Section 39, Article III, Texas Constitution. If this

Act does not receive the vote necessary for immediate effect, this