Assembly bill 1672: California takes the lead in health care reform.

Everybody is talking about health care reform. Change from Washington, D.C. is coming, but it will take some time to arrive. Meanwhile, important changes are taking place in California that will improve your health care coverage dramatically.

In 1992, the state passed into law a bill authored by Assemblymember Burt Margolin -- Assembly Bill 1672. This legislation is making health care coverage more fair and more stable for California workers and their families. Although most of AB 1672's provisions affect employees of small firms (generally of three-to-50 full-time workers), many of its most far-reaching changes impact companies of every size.

The primary purpose of the new law is to help every small business in California obtain health care coverage. It prevents insurance carriers (meaning both insurance companies and Health Maintenance Organizations -- HMOs) from declining a small group simply because of the nature of its business or the health conditions of its employees. This means many firms previously unable to get health insurance will now be able to obtain coverage.

AB 1672 also limits the ability of carriers to raise the premiums they charge small employers. This will mean that should you have to file a claim, thereby actually "using" your health insurance, it will not result in skyrocketing rate increases for your group's plan.

Three of the most important provisions of the law apply to businesses of all sizes, not just small ones.

First, whether a firm employs three, 30, 300, 3,000 workers or more, employees will be able to change jobs without fear of losing benefits for existing health problems they or their families may have. Second, working spouses will no longer need to "over insure" themselves by purchasing duplicate coverage from both of their employers.

No More Job Lock

When changing jobs, California workers often found themselves uninsurable because they or a family member had health problems. Even if they obtained coverage at their new jobs, those health plans might have excluded prior medical conditions for six months, a year or longer.

AB 1672 has changed all that. First, the new law prohibits carriers from declining for coverage any newly hired employees (or their dependents) of small employers who apply in a timely fashion. (How soon you need to apply for coverage depends on your employer's plan, but it is generally a good idea to fill out an application along with your other employment material, like a W-2).

Second, AB 1672 establishes a uniform pre-existing condition definition for all insured groups of three or more employees. Only health problems for which treatment, consultation or medication was obtained or recommended in the six months prior to your eligibility for coverage are now considered pre-existing conditions.

Third, it permits these conditions to be excluded from coverage for no more than six months from the effective date of your insurance. However -- and here's the good part -- time spent covered under prior health care coverage is counted toward those six months, so long as there is no substantial break in coverage. This means no more than a 30-day gap in coverage (not counting your new employer's eligibility waiting period). In some cases, even a 90-day break in coverage is permitted.

The result: you can change jobs or your employer can change carriers and you will not lose coverage for recent and current medical problems.

You must have no more than a 30-day (or 90-day if your prior coverage was through an employer) break in coverage. Otherwise, you will have to wait six more months before existing conditions are covered. Thirty days does not mean one month or 31 days. So, if you drop coverage with an individual plan on January 1, getting new coverage on February 1 (31 days later) could be too long a break in coverage.

Also, only group policies which cover firms of three or more persons, including at least one Californian, need give credit for prior coverage. An individual policy may still exclude benefits for existing conditions.

However, like group plans, individual policies do count toward maintaining continuous coverage. So long as the coverage provides for medical, surgical and hospital coverage (and is not simply a supplement to other insurance, like the medical coverage in auto insurance), it will count toward the pre-existing condition requirement. Even most government sponsored health plans, like Medicare and MediCal, will satisfy the requirements.

For example, let's say Jane leaves her firm and has no individual policy. Seven months later she gets a new job in California. Unfortunately for Jane, she has had too long a break in coverage to benefit from AB 1672. Her new employer's coverage might not cover any of her existing health problems until she has satisfied a six month pre-existing period.

However, if Jane had purchased an individual policy and maintained that solo coverage until beginning her new job, she would have met AB 1672's requirements. (Taking a COBRA extension or implementing the conversion provisions of her former group plan would also have worked). Any existing health problems -- no matter how severe -- would be covered under the new group plan, after the waiting period established by her new employer. Since the law prevents carriers from declining new hires who apply on time for coverage with a small employer she would have obtained the full benefit of the law.

There are a number of different types of individual policies that can help you maintain continuous coverage between jobs. Ask your employer, health insurance agent or carrier about them. It is now more important than ever to maintain some sort of coverage between positions.

Too many working spouses have too much health insurance. That costs them, their employers and the "system" unnecessary dollars. Let's look at what used to happen:

Bob and Sue worked for different employers. Each of their jobs offered a health plan, but they felt the plan offered Sue was the better of the two. One option was for Bob to decline his own package and be insured as a dependent of Sue. However, if Sue later lost her coverage and Bob applied for his company's health plan, he and Sue would be considered "late enrollees." They would have to answer health questions and could be declined coverage, leaving them with no health insurance at all.

A second option was for Bob to cover himself at his firm and Sue to cover herself and the children at hers. If Sue later lost her coverage, Bob could try to add his family to his group plan. However, once again, Sue and the kids would be considered late enrollees and could be denied coverage.

As a result, some working couples signed-up for health plans with both employers and covered each other and any children as dependents of both. This protected them from the danger of becoming late enrollees, but it also was very costly and inefficient. So too many workers merely took the chance their dependents would be healthy enough to qualify for coverage if the need arose -- and too often they were not.

AB 1672 fixes this problem. Here's how it will work now:

Bob can now comfortably waive coverage under his employer's health plan and enroll as a dependent under Sue's better insurance. If she later loses that coverage, Bob has 30 days to seek coverage under his own employer's plan for himself and his family. As long as he meets this 30-day deadline, the carrier insuring Bob's firm has to accept Bob and his family, regardless of their health conditions. However, if Bob waits more than 30 days, then he and his family members will be considered late enrollees and they could be excluded from coverage for up to 12 months from the date he applies for coverage.

To qualify for benefits, you must apply for coverage under your employer's plan within 30 days of losing your other group coverage. That's 30 days -- not one month. Thirty-one days is one day too long. Also, you must have previously declined your employer's coverage because of having other group, not individual, insurance coverage through your spouse or parents. Declining coverage for any other reason, such as not wanting to pay a portion of the premium, is not sufficient.

Finally, you must have lost the other group coverage because:

1. the other employer stopped offering coverage or stopped paying premiums for the insurance;

2. the person through whom you had insurance lost their job or had a change in employment status, either voluntarily or involuntarily;

3. the other plan coverage was terminated; or

4. that person died or the two of you divorced.

Incidentally, if a court orders an individual to provide coverage to a spouse or minor children, the health plan of that person cannot treat the court-ordered dependents as late enrollees, if application is made within 30 days of the court order.

These provisions do not affect changing between employer sponsored health plans during your firm's enrollment period.

How to Tell if You and Your Company are Covered by AB 1672

Millions of Californians will benefit from AB 1672. If you are a full-time employee (working at least 30 hours per week) and your firm has at least three full-time employees, the majority of whom are California residents, then 1672's reforms probably apply. The guaranteed issue and rate limits provisions apply only if your firm has from five-to-50 full-time employees. (Smaller firms are phased in during the next two years). The rate limits effect companies of from three-to-50 employees and the provisions concerning pre-existing conditions and late enrollees apply to all firms of three or more workers.

However, if your employer does not contribute either directly (through premium payments) or indirectly (such as through increased wages) towards the cost of your coverage, then the new law may not apply. In addition, some rules may not apply to plans in force prior to July 1, 1993 until that coverage renews.

Reform from Washington may come sooner or later -- and most likely later. Thanks to AB 1672, California workers will start benefiting from changes in health care coverage right now.

Alan Katz and Bruce Hill are principals at Centerstone Insurance and Financial Services in Woodland Hills and Warren Blumberg is a principal at Centerstone's Anaheim office.