Insurable Interest Not Permissable Underwritting Consideration for Life Insurance Coverage. The California Department of Insurance has just issued an Official Department Bulletin 94-4, dated 1/1/1991 interpreting Calfornia Insurance Code (CIC) Sec. 10110.1(b) enacted in 1991. The Code provides as follows:

An individual has an unlimited insurance interest in his or her own life, health or bodily saftey and may lawfully take out a policy of insurance on his or her own life, health or bodily saftey and have the policy made payable to whomsoeever he or she please, regardless whether the beneficiary has an insurable interest.

The California Department of Insurance has re-affirmed the absolute right of the insured to name "whomsoever he or she pleases" as the beneficiary of insurance.

COMMENT: The legal dictionary definition of insurable interest is "A person has an insurable interest in the life of another if a financial benefit is expected from the continuation of that life." The California Legislature has re-defined the beneficiary as being one and the same as the subject matter (life) insured, and the interest therein as being assignable. The original use of the term required the old definition to be followed literally, requiring a demonstrable and present financial interest in the continuation of the life of another. It was later expanded to include blood relations for whom the insured had contingent financial responsibilities. The purpose of the requiring that the beneficiary have an "insurable interest" was to limit moral risk. Moral risk in this instance means a beneficiary having a greater interest in the claims money than the continued life of the insured that could create an incentive for creatng a loss -- murder.

ACTION GUIDE: Underwriters need not review the group life beneficiary entry found on the enrollment form for lack of insurable interest. Expect more group conversions where an unrelated third party has a potential interest in making he premium payment.

Agents may be called upon to help draft a beneficiary clause naming persons whom might not have an insurable interest, and the wishes of the insured may now be respected. This can make it more difficult to assist in draftng an accurate beneficiary designation because persons and entities not previously namable may now be listed. This means transient personal reelationships will result in more frequent beneficiary changees and more frequent inquiry relative thereto. Beneficiares must be clearly identifiable to avoid mispayments leading to double payment.

Claim Examiners need be cautious about claims resulting from intentional means, accompanied by police reports, or under suspicious circumstances, with multiple claimants or where the beneficiary has been implicated in the death in order to take in to account the lack of beneficiary designation with lessser probability of moral risk. The Compliance Specialist can assist agents in formulatng beneficiary designations.

Voluntary Ingestion of Cocaine, Death Not 'Accidental Means' The California Supreme Court recently rules that the voluntary ingestion of cocaine is not covered within the terms of an accidental death benefit rider using the term "accidental means." Weil v. Federal Kemper Life, 94 CDOS 799, 804, affirmed 1/31/94.

COMMENT: The Court has taken a position held by a minority of judicially conservative states. The Court reasoned that death is one of the generally known possible consequences of using this unlawful drug and the risk can be contemplated prior to ingestion. In comparison, the rationale for considering the death accidental by other states is that a cocaine death is an accidental and unintended result of ingesting cocaine. The effect of the case is to invalidate the accidental death benefits. Boston Mutual's policy uses a 'results' test and has an express exclusion for unlawful drugs.

ACTION GUIDE:Death claim files of California insureds, that are forwarded to insurers, should be noted when the circumstances of or cause of death appears to be ingestion of a controlled substance (drugs). For example, a brain hemorrhage without a prior record of head trauma or hearth attack in a young person listed as idiopathic carditus, but without a family history could indicate cocaine abuse. A Calfornia coroner's office will include a separate supplemental sheet issued after the Death Certificate, which lists four topics (rubber stamped with yes/no boxes) which itemizes the delayed findings of chemical drug testng. Demand an original, executed stamped certified copy of the Death Certificate because the last item listed is cocaine and narcotics; since lines of the stamp can be whited out, a checked 'yes' box migh not appear on an unofficial copy.

California Department of Insurance Comments on Revisions to AB 1672: AB 1768 issued 2/25/1994. The Departm,ent of Insurance (DOI) has issued a Bulletin to 'clarify' its position on the interpretation of various statutes affecting small employer group reform under Assembly Bill 1672 and is presented in queestion and answer format. Items 3 - 6 enumerate those Departmental concerns in BULLETIN 94-3.

Pre-existing Medical Condition Narrowly Defined. Effective 11/1994 CIC Sec. 10198.6(c) Department 'Reminder' issued as part of a Bulletin.

COMMENT: The person must actually have received professional "medical adice, diagnosis, care or treatment . . . recommended or received . . . " within the six month period before the effective date of coverage. The DOI has re-stated in a Bulletin that conditions for which a "reasonably orr prudent" person would have sought advice or treatment within the period does not qualify.

ACTION GUIDE: Claims Examiners must be diligent in reviewing the medical intake history and follow-up prior medical histories. Don't forget to ask for copies of the file folde covers, front and back, and inside and out as these are a common place to write information that does not get copied because of the physical inconvenience of copying them. Boston Mutual GP5-88 is in compliance with these rules.

Credit for Satisfaction of PCX Raised From 90 to 180 Days. Effective date: 11/1994. CIC Sec. 10198.7(c)

(a) No health benefit plan that covers three or more persons and that is issued, renewed or written by any insurer . . . self-insured employee welfare benefit plan . . . shall exclude coverage for any individual on the basis of a preexisting condition provision for a period of greater than six months following the individual's effective date of coverage, nor shall limit or exclude coverage for a specific insured person by type of illness, treatment, medical conditions, or accident except for satisfaction of a preexisting clause pursuant to this article. Preexistng conditions provisions of health benefit plans shall not exclude coverage for a period of time beyond six months following the indvidual's effective date of coverage and may only be related to conditions for which medical advise, diagnosis or care or treatment including the use of prescription medications, was recommended by or received from a licensed health care practitioner during the six months immediately preceding the effective date of coverage.

(b) No health benefit plan that covers one or two individuals and that is issued, renewed renewed or written by any insurer . . . self-insured employee welfare benefit plan . . . shall exclude coverage for any individual on the basis of a preexisting condition provision for a period of greater than twelve months following the individual's effective date of coverage, nor shall limit or exclude coverage for a specific insured person by type of illness, treatment, medical conditions, or accident except for satisfaction of a preexisting clause pursuant to this article. Preexistng conditions provisions of health benefit plans shall not exclude coverage for a period of time beyond twelve months following the indvidual's effective date of coverage and may only be related to conditions for which medical advise, diagnosis or care or treatment including the use of prescription medications, was recommended by or received from a licensed health care practitioner during the twelve months immediately preceding the effective date of coverage.

Sec. 10708(a) Preexisting condition provisions of health benefit plans shall not exclude coverage for a period beyond six months following the individual's effective date of coverage and may not only be related to conditins for which medical advice, diagnosis or care or treatment including the use of prescription medications, was recommended by or received from a licensed health practitioner during the six monhs immediately preceding the effective date of coverage.

COMMENT: This statute has been modified effective 1/1/95 to require the giving of credit for any time served in a health care policy waiting period during the prior 180 days, up from 90 days, toward the satisfaction of the waiting period under the current plan for groups of three or more. These statutes also attempt to extend the same rule to self-funded groups.

ACTION GUIDE: Preexistng conditions of California insureds need to be evaluated carefully taking in to account the new rules and the 180 day rule beginning in 1995.

Maximum Time Limits for PCX/ Waiting Period Requirements. Effective date: 11/1994, CIC Sec. 10198.7(a)

COMMENT:

ACTION GUIDE:

Exclusionary Riders for Individual Person Prohibited. Effective date: 7/1993. CIC Sec. 10198.7(a) . Prohibits waivers, exclusions or special waiting periods for coverage applicable to specified individuls

COMMENT: This law eliminates the use of pre-existing conditions limitations based on those conditions for which "a reasonable or prudent person would have sought medical advice or treatment." Likewise the term "manifest" is inapplicable where the patients admits in the medical hstory to physical manifestation clearly indicating a pre-existng condition. This section is the companion to item 3 above that defined pre-existing condition.

ACTION GUIDE:Same action as item three to modify the pre-existing condition definition, but eliminates the option to issue riders, except for late registrants.

Anti-fraud Action Requires Notice to Authorities Within 60 Days. A new anti-fraud act requires insurers to notify the Department of Insurance within sixty days after it has determined that there is a belief that a filed claim is fraudulent. Failure to do so violates the law and subjects the insurer to penalties. A Bureau of Fraudulent Claims has been established. Adds CIC Sec. 1871.1 permitting insurers and their agents, while investiating suspected fraud claims, to have access to all relevant publc records that are required to be open for inspection under Chapter 3.5 of Division 7 of Title I of the Covernment Code. Chapter 323.

COMMENT: Notice is made by use of pre-printed form. Any such matter shoud be brought to senior personnel before submitting to the DOI. Claim examiners have attended a seminar offered by the Federal D.A.'s office and have been issued a guidline and complaint report forms.

ACTION GUIDE: CIC Sec. 1879.2(a) Insurance claim forms shall contain a statement in a form approved by the commissioner that contains the following statement. "Any person who knowlingly files a statement of claim contain any false or misleading informattion is subject to criminal and civil penalties."

Claim forms may now be filed forms. A review of othe state's laws suggests a slight change in the wording so tha it might be used everywhere with uniformity: "Any person who knowlingly files a statement oof claim containing any material omission, or false or misleading information is subject to criminal and civil penalties."

OBRA Coverage for Adopted & Non-custodial Children 7/9/1994 CIC Sec. 10119.10117

Children may not be excluded from coverage as dependants solely because they do not reside with the employee, insured or policyholder. Insurers must also enroll children of non-custodial parent upon application if a court order for medical support has been granted. Also, an insured or self-funded plan may not be exempted from and may not be subject to reduction when MediCal or Medicaid is also available.

COMMENT: Effectivly expands the interpretation of CIC Sec. 10121.6 (1991). A Qualified Domsestic Medical Support Order (DMSO) is a form document issed by the courts in many states and can be the basis for enrollment of non custodial lchildren. Inspect the order for authenticity, we are entitled to receive an original, just as we would accept only an original of any court order. Do not confuse QDMSO with QDRSO, a financial support order. Neither shoud be confuesed with a divorce decree in which the spouse is ordered to cooperate with (not pay) the othe spouse to receive COBRA continuation benefits. Proof of p/maternity , not legitimacy is sufficient.

ACTION GUIDE:

Stop-loss Coverage Subject to AB 1672 Eligibility Rules Effective date: 9/6/1994. California Insurance Regulatoins Sec.2233.70. Policies or certifcates issued to small employers which provide "stop loss" (including "minimum premium") coverage for such small employers' "self-funded" health benefits arrangments shall provide that a condition of eligiibility for stop loss coverage thereunder is that the small employer's plan shall not impose stricter limitations on coverage for new employees or depedents than the following:

1. a six month pre-existing condition exclusion for conditions for which medical advice, diagnosis, care or treatment, including prescriptions, medications, was recommended or received from a licensed health care practitioner during the six months immediately preceding the effective date of coverage.
2. where a six month pre-existng condition exclusion is not used, a 60 day waiting period.
3. credit must be givven for the time a person was covered under a similar prior plan, provided the person becomes eligible for coverage under the new paln within 30 days of termination of the period of coverage, exclusive of any waitng period. However, if employment had ended, credit must be given if the person becomes eligble under the new plan within 90 days of the termination of employement.
4. Late enrollees shall not be excluded from coverage for more than 12 months from the date of application.

COMMENT: (a - b) abovel is the same as fo fully insured plans.

ACTION GUIDE: Group Representatives need to review plans for compliance with these new standards.

Dept. of Insurance Eliminates "Actively-at-Work' Requirements Effective date: 10/1/1994. California Dept. of Insurance Bulletin 94-9. "Actively-at-work" or "not disabled" may no longer be used to limit eligibility. Health insurers may not use either the pre-existing condition exclusion or a waiting period exclusion, but not both, to limit coverage.

Concepts such as the following are eliminated from California small group health insurance plans:

1. requirements that an employee be physically present at the place of work in the effective date of coverage.
2. requirements than an employee by physically present at the place of work for a specified number of days following hospitalization before coverage begins.
3. requirements that a dependent be capable of performing the usual activities of person of like age and sex for a specified number of days following hospitalization before coverage begins; and
4. exclusions of dependents who are hospitalized or disabled on the effective date of coverage.

COMMENT: Boston Mutual's policy form GP5-88's policy definition of actively-at-work does not contain any of the above language, but as a rule, claims examiners routinely use these concepts to test bona fide active employment. "Actively engaged" is the new concept and term under AB 1672 that applies. This is a reference to 'bona fide' employees, but without a physical presence at work rule. No standards have been issued as to what constitutes a bona fide employee, but payroll and tax record documents should be used as the standard in the interim. The enrollment of a person as an employee on a plan immediately prior to an emergency hospitalization to give the mere appearance of insurance coverage to effectuate hospital admission is a form of insurance fraud. It is very likely that we will see Court made definitions of this term.

ACTION GUIDE: Certificate amendments need not be issued. Customer Service representatives and Claims Examiners need to be alert to insured who will now qualify under the plans.

Access/ Small Group Reform - New Brochures Required Effective date: 7/12/93. CIC Sec.10700(e)(3). Amends the small employer group reform provisions pertaining to first premium payment and "first look" by deleting the provisions in the Insurance Code Sec.10706.5 . Adds CIC Sec. 10706.5 stating that after the small employer submits a completed application form for a plan contract, the plan shall within 30 days, notify the employer of the employer's actual premium charges for that plan contract. Provides for effective dates based on when payment is received. Thirty days after the effective date of the plan contract, the small employer has the option of changing coverage to a different plan offered by the same health care service plan. Amends CIC Sec.10705(e)(2) stating when recommending a particular benefit plan design or designs the agent will provide the small employer, upon request with the required brochures containing the benefit plan design or designs being recommended by the agent or broker. Adds to the Insurance Code Sec. 10705(E) that prior to filing an application for a small employer contract, a signed statement needs to be obtained from the small employer acknowledging that the small employer has received the disclosures required by this section. The disclosures under CIC Sec. 10700(e)(3) is a brochure with a comparison of all of the carrier's various plans. Deletes CIC Sec. 10705(f) pertaining to coverage not taking effect for ten days from receiving the small employer risk rates unless employer waives the right to that information.

COMMENT: These procedures are, with the exception of the new comparison brochure and right to switch plans, consistent with how Boston Mutual currently does business under RMI.

ACTION GUIDE: Undewriting must establish time standard objectives for satisfying this statutory requirement. Marketing must create a comparative brochure of all plans by company.

Geographic Regions by Risk Catagory Redefined Effective date: 1994. CIC Sec. 10700(w)(3)(A). Amends CIC Sec. 10700(w)(3)(A) and (B) pertaining to risk catagories by clarifying that in determining geographic regions, an area may not be smaller than an area with the first three digits of its zip code in common within a county and shall not divide a county in to more than two regions. Amends Sec.1357.03(a) of the Health and Safety Code clarifying that a plan shall fairly and affirmatively offer market and sell all of the plan's health care service plan contract sold to small employers or to associate that include small employers to all small employers in each service area. Amends CIC Sec.10705(b) clarifying that each carrier, except a self-funded employer, shall fairly and affirmatively offer market and sell all of that carrier's benefit plan designs that are sold to offered through or sponsored by small employers to associations that include small employers to all small employers in each geographic region.

COMMENT:

ACTION GUIDE:

No Maternity Benefit Required: Coverage Need Not Be Offered Effective date: 10/6/94. Court ruling depublished. ; Kirsch v. State Farm Mutual Auto Ins. Co.. 284 Cal Rptr. 260 (1991){depublished '94} ruled that a group health insurance policy that fails to cover normal maternity expenses the same as any other illness discriminates against women under the California Unruh Civil Rights Act. This ruling could have been imputed to all health insurance policies, but has been 'depublished', meaning expunged from the official public record.

COMMENT: The case has been depublished because of a technicality, meaning the court's ruling does not set legal precedence and applies only to that plaintiff. There have been inquiries in this regard.

ACTION GUIDE: Maternity coverage need not be offered as a matter of late under group insurance.

Claim for Experimental Procedures - Denial/Appeal Procedure Outlined Effective date: 1/1/1995. CIC Sec. 10144.1. A disability insurer denies coverages for an experimental medical procedure or plans of treatment for a claimant with a terminal illness, which for the purposes of this section refers to an incurable or irreversable condition that has a high probabiity of causing death within one year; or less, under a disability insurance policy that includes hospital, medical or surgical coverage issues in this state shall provide written notification directly to the claimant or representatives which shall include all of the following:

1. The specific medical and scientific reasons for the denial and specific references to pertinent policy provisions upon which the denial is based.
2. A description of the alternative medcial procedures or treatments coverd by the policy, if any. Compliance with this subdivision by an insurer shall nt be construed to mean that the insurer is engaged in the unlawful practice of medicine.
3. A description of the process by which the claimant or representtive may exercise his or her right to appeal the denal and obtain and participate in a review of the information provided to the claimant or representative pursuant to subdivisions (a) and (b). The review shall not be limited to written communications and shall be provided by the appropriate named fiduaciary or his or her designee rendering the decision. The review shall be provided to the cliamant within 30 calendar days following the receipt of the request for review. However, the review required by this section shall be held within five business days of the treating physician determines, in consultation with the medical director of insurance, based on standard medical practice, that the effectiveness of whether the proposed treatment, services or supplies or any alternative treatment, services, or supplies covered by the policy would be materially reduced if not provided at the earliest possible date.

COMMENT:Step (a) can be very lengthy and require a significant review of the medical literature that might best be accompliahed by a computer generated review through Nexis computer services or similar resources.

ACTION GUIDE: Claim Examiners must follow the procedures outlined in the statute in coordination with Utlization Review Department and the Claim Appeal Review Committee or Claim Department Vice-President.

Insurer May Not Release Health Care Information to Employer Effective date: 1/1/1995. CIC Sec.791.26

COMMENT:

ACTION GUIDE:

U/R Authorization Not Rescindable After Services Rendered Effective date: 1/1/1995. CIC Sec. 796.04

COMMENT:

ACTION GUIDE:

Obstetricians/Gynocologists Qualify as Primary Care Physician Effective date: 7/5/1994. Bulletin 94-6; California Insurance Code Sec. 10123.83. PPO's that use a 'gatekeeper' arrangement. Where a designated primary care physician's referral is required to access provider specialists, must now qualify obstetricians and gynecologists as primary care physicians, provided they meet the written eligibility criterion for all other such providers, seeking primary care physician status as under Sec.14254 of the Welfare and Institutions Code.

COMMENT: Alliance has a new PPO product with a gatekeeper requirement.

ACTION GUIDE: Review physician roster and brochures of 'gatekeeper' type PPO for compliance.

This Bulletin is accompanies by an instructional cover letter, and policy endorsements for filing with the Trustees to follow, and certificate amendments for distribution or modeling to your format style and distribution to Insureds.

If you have any questions, please telephone Dean Blake, Compliance Specialist at RMI, 818-222-3740, ext 112.