Consumer Protection in Private Health Insurance: The Role of Consumer Complaints. B. Jurisdiction and Liaison with Health Plans


Department of Insurance

The Department of Insurance operates a consumer Hotline for inquiries and complaints which is essentially “the eyes and ears” of the Department. When the Hotline receives an inquiry or complaint, it does not immediately refer it onwards. The priority is to find out exactly what the problem is and help educate the consumer by giving them options.

The Department mainly takes calls from consumers. About 10 years ago the Department had a greater role in assisting providers on payment issues, but such calls have declined with the decrease in indemnity health insurance. The Department has a policy of not dealing with attorneys calling on behalf of consumers.

In 1999 the Department established an Interagency Connection to bring together the various federal and state agencies involved in insurance including the California Departments of Insurance and Corporations, the U.S. Department of Labor and the federal Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)) (HCFA(now known as CMS)). This group holds quarterly meetings to share issues of concern. In addition, there are regular contacts at staff level between each of these departments. There is also quite frequent contact with the Attorney General’s Department on insurance complaints. Regulators at the Department of Insurance stated that there has been a great improvement in sharing information across state government agencies over the last decade.

Within the Department of Insurance, the Consumer Hotline is the first point of contact for consumer inquiries and complaints handling about 25,000 calls per month across all lines of insurance, but other Bureaus may also be involved in investigation and resolution of complaints. Note, however, that the Department of Insurance currently receives very few calls relating to health insurance – only about 200 calls per month (or less than 0.1% of calls across all insurance lines). This volume of calls about health insurance appears to be disproportionately small given that 30% of insured Californians are in health insurance regulated by the Department of Insurance. The Consumer Hotline may ask consumers to complete a written complaint form (called a Request for Assistance). When the Department receives written complaints, they are handled by the relevant bureau (e.g. a complaint about pricing will be handled by the Rating and Underwriting Services Bureau).

The Department writes to the insurance company (which has 21 days to respond for non-urgent complaints), requesting its file on this policy and an explanatory statement. Once the outcome of complaints is determined, the insurance company generally responds directly to the consumer, with a copy to the Department of Insurance. The Department may then write to the consumer summarizing the outcome, but the substantive response is provided by the insurance company. In addition, the Department will write to the insurance company indicating whether the complaint is justified. The Department will handle urgent complaints (e.g. a non-renewal notice went to the agent but did not get passed to the consumer, so policy is about to expire) as a “phone and fax” complaint.

Complaints data is shared with other sections of the Department, including market conduct staff, who undertake targeted exams based on trends or other criteria identified from a review of consumer complaints.

The Department of Insurance requires all health insurance companies to have its contact phone number included on all policies and all Explanation of Benefits material, taking effect as of 1 January 1998.

Insurance companies are required to keep complaint logs for five years which may be examined in market conduct examinations undertaken by the Department of Insurance. (Note: The Department’s Consumer Hotline must keep records of inquiries and complaints for 3 years.) However there is no specific requirement for insurance companies to submit internal complaints or grievances to the Department of Insurance, but, again, this might occur upon request if tracking a specific issue or undertaking market conduct.

Staff within the Insurance Department have access to a relatively new integrated complaints database which became operational in February 1997. The Department reports complaints data to the NAIC CDS complaints database.

Role of the Office of the Ombudsman within the Department of Insurance

The Ombudsman Program was formed in 1994 by the then newly appointed Insurance Commissioner. The Department’s publications explain the Ombudsman role as follows:

"Beyond helping to ensure prompt responses and exemplary customer service, the Office of the Ombudsman engages in activities aimed at providing additional information to consumers. This office highlights critical insurance issues, focuses the spotlight on areas in need of regulatory reform, and facilitates a healthy exchange between consumers and the CDI."

Compared to the independent assistance programs in Vermont (independently contracted) and Maryland (located separately from the insurance regulatory agency), the internal Ombudsman program in the Department of Insurance does not appear to have a particularly strong consumer advocacy role.

The Ombudsman program is in direct contact with consumers by both phone and email. However regulators at the Department of Insurance advised that because of the complex nature of many insurance complaints, the established protocol was for the Ombudsman program to refer most consumer complaints and inquiries directly to the Consumer Services Division Hotline, which then responded to the consumer with a copy to the Ombudsman program.

Hence, the Ombudsman program serves as an additional window for consumers with complaints and provides an opportunity for the Commissioner’s office to monitor the level of services provided by the Consumer Services Division. It could, perhaps, be more accurately described as an internal quality improvement initiative rather than a consumer-focused advocacy function. A listing of the current projects undertaken by the Office of the Ombudsman tends to confirm this view (Attachment 1). Regulators at the Department of Insurance noted that the Ombudsman had been instrumental in proposing workplace improvements to enhance client responsiveness, such as an additional phone line in the licensing program, and improving the Department’s web site.

Department of Corporations

It should be noted that staff from the Department of Corporations were not able to be interviewed for this study, given the workload associated with the transition to the new Department of Managed Care. Commentary on the Department of Corporation’s operations is based on its web site and reports and other publications.

Until the establishment of the Department of Managed Care, the Department of Corporations has responsibility for the administration of the Knox-Keene Health Care Service Plan Act of 1975 which includes health care service plans and specialized health plan contracts. Under Section 1345(f) of the Act a "health care service plan" is defined as an entity:

"who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for to reimburse any part of the cost of these services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees". 

The Department licensed 53 full-service health care service plans and 62 specialized health plans, covering about 55 million Californians in total as of 31 March 1998. Within the Department of Corporations, the Health Plan Division licenses and regulates health care service plans including handling consumer complaints, while the Health Plan Enforcement Division ensures compliance with the statutory and regulatory requirements.

The vast majority of insured Californians are covered by some type of managed care. In 1998 the private insurance market for people under age 65 comprised 62.3% of people enrolled in HMOs, 27.5% enrolled in PPOs, 8.0% enrolled in a POS, 2.1% in indemnity insurance and 0.1% in an exclusive provider organization (EPO) (derived from Schauffler and Brown, 2000). Hence, about 70% of the privately insured population are in plans regulated by the Department of Corporations (including HMOs and POS plans).

The Department of Corporations does not accept complaints until either there has been a decision by the plan, or consumers have spent 30 days (until January 2000 this was set at 60 days) working through the plan’s internal grievance process, whichever is the lesser. If consumers attempt to file a complaint with the Department of Corporations (called a Request for Assistance) before this time, they are redirected back to their plan, unless the complaint relates to an emergency or urgent situation in which case it will be accepted.

Once a written complaint or RFA is received, it is reviewed by Consumer Service Representatives, Health Care Service Plan Analysts, Attorneys, and/or physicians or other health professionals as relevant. (Note that there are currently no medical providers on staff). Where the health plan’s actions do not comply with the Knox-Keene Act, the Department will require that it make necessary changes. In response to some RFAs, the Health Plan Division may review a health plan’s operations generally to see if systemic problems are indicated, in addition to resolving the individual RFA. The Department advises consumers that the RFA review is an informal process which should not be considered a substitute for arbitration or other formal legal proceedings.

Knox-Keene regulated health plans are required to resolve non-urgent grievances within 30 days and urgent grievances within five days. They are also required to report information about internal complaints or grievances lasting longer than 30 days to the Department of Corporations. Plans must track their resolution, analyze the complaints and use the information for quality improvement. They are required to notify their members of the Department of Corporations in their Evidence of Coverage material and in any denial letters.

1999 report by Consumers Union and the Center for Health Care Rights (Attachment 2) was highly critical of the Department of Corporations including its annual complaints reports, its handling of grievances and the extent of its public education activities. The major findings of this report relating to inadequate performance by the Department of Corporations in collection, analysis and presentation of data, and in public education are further discussed in Sections C and D of this chapter. In terms of the Department of Corporation’s jurisdiction and liaison with health plans, the Report also highlighted the following problems:

  1. Many health care service plans were not complying with the requirement to publicize the Department of Corporations in their correspondence with members about the grievance process. In 1997 the Department assessed almost $900,000 in fines to 80 plans for failure to provide the required notices to members.
  2. If health care service plans do not meet the required timelines for handling grievances (30 days or 5 days for urgent grievances), they are required to file reports with the Department of Corporations about “late grievances”. The Consumers Unions and Center for Health Care Rights report criticized the Department’s management of these late grievance reports, including the absence of adequate guidelines for reporting. In addition, the information collected is not analyzed or presented to consumers in a manner that would help them understand differences in grievance handling across individual health care service plans.

Consumers may also be interested in understanding the relative performance of plans for all grievances or internal complaints, not just late grievances. For example, the New York Department of Insurance publishes grievance data in its consumer reports. Other measures which consumers may find useful include: the plan’s performance in resolution of grievances, the categories of grievances and the proportion of grievances that are resolved within the required timelines, none of which are currently reported by the Department of Corporations.

Regulatory Authority Over Medical Groups and Independent Practice Associations

Entities which fall outside the jurisdiction of either the Department of Insurance or the Department of Corporations include:

  1. Some preferred provider organizations which are self-funded by employers - ERISA plans; and
  2. Medical groups and independent practice associations (IPAs) - these are not directly regulated but are regulated indirectly by the Knox-Keene plans with which they contract. The Department of Corporations has until recently provided limited licensure for medical groups to accept full capitation contracts.

California is probably unique in the nation for the evolution of medical groups and independent practice associations (IPAs) which assume financial risk from HMOs. However California experienced the financial collapse of two large physician-practice-management companies in 1998. FPA and MedPartners had been among the first groups to obtain limited licenses when the Department began regulating provider risk arrangements in 1996. (Bodenheimer, 1998; Brewster, Jackson and Lesser, 2000).

In response, the legislature passed AB215 in 1999 which prohibits (from 1 January 2000 until 1 January 2002) the issue of limited licenses. It also prohibits any licensed HMO on and after 1 January 2000 from contracting with any person for the assumption of financial risk with respect to certain health care services and any other forms of global capitation (Schauffler and Brown, 2000: p112).

One future issue will be the extent to which regulation needs to focus below plan level, with common oversight of health payment and delivery functions. Currently the Department of Health Services licenses hospitals and undertakes Medicaid contracting. As Californian plans devolve more risk to providers, there will need to be greater co-ordination with other regulatory authorities.

Department of Managed Care

The new Department of Managed Care is intended to commence operation by no later than 1 July 2000. Daniel Zingale was appointed Director Designee in December 1999. One of the major changes in the recent legislation is the requirement under AB55 to establish an independent review system for resolving member complaints about health plans, effective 1 January 2001.

The Department will include an Office of Patient Advocate, replacing the existing Ombudsprogram in the Department of Corporations. This Office's role will include the compilation of annual quality of care report cards, development of educational material and the provision of advice to health plan members about complaints systems of both the Department and health plans.

Assembly Bill 78 (Section 38) also requires that the Director of the Department of Managed Care undertake a study, in conjunction with an Advisory Committee on Managed Care,

"to consider the feasibility and benefit of consolidating into the Department of Managed Care the regulation of other health insurers providing insurance through indemnity, preferred provider organization, and exclusive provider organization products, as well as through other managed care products regulated by the Department of Insurance", 

with a report due to the Governor by 31 December 2001. If this occurs, California will be unique in having come full circle – being first in the nation in 1975 to separate regulatory responsibility for managed care from indemnity insurance, and in the near future, potentially reuniting these regulatory roles. Common oversight of all health insurance products is strongly supported by the Center for Health Care Rights.

Health Rights Hotline

The Health Rights Hotline is a joint project of the Center for Health Care Rights and Legal Services of Northern California, with funding from private foundations, the Henry J Kaiser Family Foundation, the Sierra Health Foundation, the California Wellness Foundation and the California Endowment.

The Hotline is a pilot program in the Sacramento area that provides free assistance and information to consumers with questions or concern about their health care. Factors which distinguish the Hotline from health care ombudsman programs in other states include:

  1. Independence - it is independent of health plans, providers, purchasers or government regulators. For example, the Vermont Office of Health Care Ombudsman is dependent upon government funding.
  2. Universality - it assists all consumers regardless of their health insurance status, including consumers in managed care and indemnity insurance, the private market, Medicare, Medi-Cal etc.
  3. Data analysis - it undertakes systematic collection and analysis of data to provide feedback to health system stakeholders on problems and policy solutions.

Center staff commented that the major challenge flowing from their independent status is getting adequate promotion of their service, with the ideal being a mandated requirement on plans to publicize the existence of the Hotline. The lack of direct regulatory authority over plans has not affected the ability of the Hotline to provide effective assistance to consumers.

The Hotline uses the information it collects for systemic policy advocacy. Sometimes policy changes can flow from a single complaint. One example was a Medi-Cal consumer who rang up because her plan was not providing coverage for chiropractic services which is required in California. The Hotline investigated and discovered that the Evidence of Coverage material failed to include this mandatory service, resulting in the plan reversing its position and advising 30,000 members in Sacramento and other counties by mail of the change to cover chiropractic services.

The Center is also producing an analytical report, based on statistical analysis of Hotline calls over the first two years of operation, examining patterns of complaints by health condition.

The Health Rights Hotline has recently been subjected to an evaluation by the Lewin Group, covering the first 18 months of operation. Much of the commentary in later sections of this report is based on the Lewin evaluation (Attachment 3), with findings referenced to specific tables from the report.