California’s New Consumer-Friendly Administration Should Revive Attempt to Ban Discretionary Clauses in ERISA Disability & Health Plans

When Dave Jones was sworn in as California’s seventh Insurance Commissioner this month, he promised to promote consumers’ interests by pushing for health insurance reform. His first act of office was to sign an order forcing insurers doing business in California to spend 80 percent of their revenues on the health care costs of policyholders, rather than on administration or overhead. That would be 10 percent more than they had to spend on policyholders last year. For a $125 billion industry, that’s $12.5 billion more in medical benefits insureds can expect this year. Not a bad first day in office!
See “New Insurance Commissioner Jones Promises to Look Out for Consumers,” http://www.sacbee.com/2011/01/04/3297097/new-insurance-commissioner-jones.html.

Jones developed his reputation as a consumer watchdog while serving in the California Assembly, proposing a number of consumer-friendly bills. Most notable was AB1868, an attempt to ban insurance companies from enforcing clauses in disability policies that allow insurers “discretion” about whether or not to pay claims. When people sue, courts have little authority to second-guess the insurer’s so-called judgment. Needless to say, a profit-minded company’s discretion is almost always influenced by the bottom line. While Jones’ bill passed BOTH HOUSES of the Legislature, Gov. Schwarzenegger inexplicably refused to sign it into law. See “Governor Schwarzenegger Vetoes AB1868 – Insurance Companies Benefit, the Public Suffers,” http://www.californiainsurancelawyerblog.com/2010/09/governor_schwarzenegger_vetos.html.

With the backing of Jones, we will be urging the California Legislature to revive AB1868 to present to the new administration. We believe it’s time for everyone with rulemaking authority to vote in the interests of people with disabilities.

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