Consumer Protection in Private Health Insurance: The Role of Consumer Complaints. California

Overview

Commensurate with its size and diversity, California has a range of public and private sector organizations involved in either health insurance complaints management and regulation, or the production of health insurance complaints report cards.

Following the passage of comprehensive managed care legislation in September 1999, California is in a state of transition with two state government agencies currently sharing the major regulatory responsibility for health insurance, with a third agency waiting in the wings. In 1975 the Department of Corporations under the Knox-Keene Act assumed responsibility for the then evolving managed care industry, with California essentially leading the country in separating regulatory responsibility for indemnity health insurance from managed care. Given the rapid growth of managed care and the shrinking of the indemnity insurance market, the Department of Insurance now has regulatory responsibility for about 30% of the health insurance market including indemnity insurance and preferred provider organizations delivered by indemnity insurance companies and regulated under the California Insurance Code. Under legislation effective 1 January 2000, a newDepartment of Managed Care within the Business, Transportation and Housing Agency will focus exclusively on the licensing and regulation of managed care, essentially taking over this role from the Department of Corporations.

In addition, two other state government agencies have a minor regulatory role. The Department of Industrial Relations is involved in licensing and regulation of workers' compensation medical groups and managed care plans. The Department of Health Services shares responsibility as a purchaser with the Department of Corporations for managed care plans for Medi-Cal beneficiaries (the Californian Medicaid program).

California does not currently have a statewide independent Ombudsman to resolve consumer complaints as occurs in some other states such as Vermont. While the Department of Insurance and the Department of Corporations operate an Office of the Ombudsman and an Ombudsprogram respectively, the focus of these programs is more on improving and enhancing consumer satisfaction with the services of these Departments. However the 1999 package of managed care legislation also established a new Office of Patient Advocate in the new Department of Managed Care.

Finally the Health Rights Hotline, funded by private foundations, provides telephone assistance on health issues to consumers in the Sacramento area and produces annual reports including both quantitative and qualitative data on consumer complaints.

Recent History

The Managed Health Care Improvement Taskforce, comprising representation from health plans, employers, health plan members, providers and consumers, was created under AB 2343 in 1996 to review and report on the history and impact of managed care in California. The Commissioners of the Departments of Insurance and Corporations were ex-officio members of the Task Force.

The Taskforce report identified "public dissatisfaction with the current state of managed care regulation". Previous studies cited by the Taskforce included a 1992 Auditor General Report which found that the Department of Corporations had been lax about responding to complaints and a 1996 Consumers' Union report that documented difficulties consumers experienced in obtaining information from the Department of Corporations. The Taskforce essentially argued that the current regulatory structure, originating from the 1970s, was outdated in the context of the rapid growth and evolution of managed care.

Accordingly, the Taskforce recommended the establishment of a single entity responsible for regulation of managed health care and further study about the consolidation of authority for managed care and indemnity insurance. In 1999 the Californian legislature authorized the establishment of the new Department of Managed Care under AB 78.

Ombudsman Programs

The Managed Health Care Improvement Taskforce recommended that two pilot, independent external assistance or external ombudsman programs be established in different regions of the state with state funding. It further recommended that such programs be coordinated with the Sacramento-area independent assistance program (the Health Rights Hotline) and with existing targeted health care assistance programs (such as the Health Insurance Counseling and Advocacy Program (HICAP) and the Long-Term Care Ombudsman program.

Subsequently the Taskforce recommendation for two Ombudsman programs was included in SB 1689 which was passed by the legislature in 1998, but vetoed by Governor Wilson. Instead, AB 78 authorized the establishment of an Office of Patient Advocate in the new Department of Managed Care.

Interviewees commented that this represented a compromise, recognizing that the establishment of a statewide Ombudsman program (similar to the Vermont model) might have cost $15 million annually, more than the then entire budget for the Department of Corporations. There was also a view that it would be better to phase in a program gradually. The budget for the new Office of Patient Advocate is about $800,000 annually. It is too early to identify what approach the new Office will take, e.g. consumer advocacy and assistance, adjudication. There are also unresolved issues about the level of integration between the Office of Patient Advocate and the new Department of Managed Care.

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.

A 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.

In 1998 the Managed Health Care Improvement Task Force commissioned a one-off survey of insured Californians to assess the level and nature of their health insurance complaints and the processes used for dispute resolution (Attachment 4). While not strictly a “complaints report card”, it is examined here as it provides some background on the underlying level of complaints and to whom consumers turn.

The Department of Insurance does not currently produce complaints report card studies for indemnity health insurance. Its 1999 Consumer Complaint Study is only available for other lines of insurance business, namely, automobile, life, and homeowners' insurance. This study ranks insurers on the basis of closed justified complaints ratios related to the number of policyholders and includes data for 1996, 1997 and 1998. Staff at the Department suggested that health insurance complaints were not included in the 1999 Consumer Complaint Study because of the small size of the indemnity market, although as noted previously enrollment in indemnity and PPO plans comprises about 30% of the private insurance market. The Department of Insurance was required (but failed to meet the deadline) to include health insurance complaints in this report by 1 July 1999.

The Department of Insurance changed its protocols for handling and publicizing consumer complaints in the late 1980s, following legal challenges by several insurance companies as to the validity of complaints information in the public arena. As a result, the Department now establishes proof of justified complaints and notifies insurance plans by letter when a complaint is found to be justified.

Regulators at the Department of Insurance verbally advised that over the three year period from February 1997 to February 2000 there had been a total of only 7,356 phone calls (equivalent to 200 per month) concerning general health insurance issues (including general inquiries and complaints) and about 10,000 calls about long term care. The Department is not currently able to produce data on either company-specific or aggregate health insurance complaint indices.

The Department of Corporations is currently the only state government source of health insurance complaints reports, with their annual reports providing data on managed care plans, referred to as health care service plans (Attachment 5). In brief, the Department of Corporations annual reports provide information for each health care service plan on the total number of complaints and complaints index, with detailed information on 32 complaints category issues available for all health care service plans.

Finally, the Center for Health Care Rights produces annual reports detailing the experience of its Sacramento based Hot Line (Attachment 6).

For each of these reports this study describes the major features, analyzes the data, and assesses the usefulness of the report from both the perspective of consumer friendliness and its value in monitoring the implementation of patient protection legislation.

Publications

The Department of Insurance produces a number of general brochures related to health insurance and long term care. Since 1995 the Department has strengthened its efforts to improve the consumer friendliness and comprehensibility of these publications.

Outreach

Regulators at the Department of Insurance noted that there is an extremely active Speakers’ Bureau which commenced operation in the mid-1980s. The Speakers’ Bureau runs sessions with diverse audiences including: Chambers of Commerce, Seniors Centers, State Fairs, California Association for Home Health Care, LA City Sheriff Department, MS society, Rotary, junior high schools, mobile home parks, and small and large employer groups. Commissioner Quackenbush publicizes the complaints function with the annual release of the consumer complaints study (see Attachment 7 for an example of this press release).

The Department of Corporations has been criticized as an “invisible regulator” in the 1999 report by the Consumers Union and the Center for Health Care Rights. The report found the following problems associated with public education:

• Inadequate listing of the Department of Corporations in telephone books and directory assistance, resulting in many consumers being unaware of the Department’s role in regulating managed care and handling consumer complaints about managed care; and
• Insufficient use of the media, including news releases to promote the Department’s Hotline.

The Lewin evaluation examines the public education and outreach activities of the Health Rights Hotline. Activities undertaken by the Hotline include:

• Publication of brochures;
• Presentations and distribution of materials at community events;
• Television advertising;
• Mailing of postcards with a Hotline sticker to 250,000 households;
• Distribution of a Hotline newsletter; and
• Advertising in the Sacramento Yellow Pages.

The Lewin evaluation has examined, at some length, the cost effectiveness of various outreach activities (refer Attachment 3 for further details).

Staffing

The Department of Insurance Consumer Services Hotline has about 60 staff, including supervisors and clerical staff, working across all lines of insurance. The staff are organized into 5 teams of 10 staff with a supervisor, with regular supervisor meetings to examine emerging health complaints or patterns of complaints. In addition, there is a triage team comprising 6 people including a supervisor that handles health issues.

Volume of Business

As indicated earlier, the Department of Insurance receives about only 200 calls per month about health insurance to its Consumer Hotline.

The Lewin Group evaluation reports on the volume of print material distributed by the Health Rights Hotline. Over the 18 month period from July 1997 to December 1998 the Hotline distributed over 65,000 individual print materials to consumers in the four-county Sacramento area, the majority of which occurred through community organizations, health fairs, Hotline presentations and providers. The Hotline mailed 6,669 items to 2,358 callers. Exhibit IV.12 in the Lewin Group report details the number of copies of individual publications distributed to Hotline callers.

The Lewin Group evaluation indicates that the Hotline received over 7,530 calls in the first 18 months, 4300 of which became cases. Of these 25% were general information inquiries and about 75% sought assistance with a specific problem.

External Audit

The Department of Insurance is subject to both internal audit and external audit by the State Auditor’s office. External audit of the Consumer Services Division has occurred infrequently – possibly twice in the last sixteen years. However the Department strongly emphasizes internal audit including supervisors undertaking quality control on the Hotline (once per week or as needed), and random review of closed complaints by supervisors and other lead staff.

The Department of Corporations is subject to audit by the State Auditor. The 1999 Consumers Union and Center for Health Care Rights study reports some of the findings of the State Auditors 1999 report. Concerns expressed by the Auditor included that the Department failed to notify consumers when their complaints took longer to resolve than the allowed 60 days. The Auditor also expressed concern that the Department was not able to make a determination in about one- quarter of complaint resolutions as to whether there had been a violation or not.

Consumer Satisfaction Surveys

The Department of Insurance sends consumer satisfaction survey postcards monthly to a 15- 20% sample of all closed complaints. The postcards are color coded for return to the specific bureau which handled the complaint (e.g. Hotline, Rating and Underwriting Services Bureau etc). but regulators noted that the response rate to postcard surveys was generally quite low. Departmental publications noted that in 1998, consumer satisfaction surveys indicated that 86% of all consumers who contacted the Department would recommend it to others and 79% believed that their problem was resolved satisfactorily. The Department is also now including postcards when it sends out consumer education brochures, in an effort to seek consumer feedback and improve the content of these materials.

As part of its evaluation of the Health Rights Hotline, the Lewin Group undertook a consumer satisfaction survey of 489 clients who had used the Hotline. Of this sample, 62% rated the Hotline very helpful, 23% somewhat helpful, 5% not very helpful and 8% not at all helpful. The Lewin Group also evaluated in detail the helpfulness of particular tools used by the Hotline such as referrals and print materials (see Exhibit V.3 in Lewin report).

The Lewin evaluation of the Health Rights Hotline surveyed Hotline clients as to their satisfaction with referral contacts suggested by Hotline staff including medical providers, health plans, the California Department of Corporations and employer benefits departments (see Exhibit V.2 in Lewin report). On average, Hotline clients rated all referral contacts as very helpful in 31% of cases and somewhat helpful in 21% of cases. The most positive rating of referral sources was for employer benefits departments which were rated very helpful in 53% of cases. The least positive rating was received for the Department of Corporations which was rated very helpful in 24% of cases and somewhat helpful in 10% of cases. While this is not equivalent to surveying consumers who contacted the Department of Corporations directly and the sample size was limited, the Department was a significant outlier in terms of consumer satisfaction in this survey.

Staff at the Center for Health Care Rights commented that while the telephone consumer survey is quite costly, it provides value for money in allowing the collection of more data. It allows the Center to assess consumer satisfaction with referral sources as described above, in addition to consumer satisfaction with the Hotline itself.