Consumer Protection in Private Health Insurance: The Role of Consumer Complaints. A. Jurisdiction and Responsibility for Consumer Complaints Systems



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.