Updating Fines Set in 1975: New Bill Would Raise Penalties Health Insurers Pay When They Break the Law

California has some of the strongest patient health protections in the country, but they often carry such weak enforcement power that insurance companies find it cheaper to pay the fines for violating the law than to provide the health care patients are entitled to under it.

A new bill introduced Wednesday aims to change that by increasing the minimum penalties insurers have to pay for violations by a factor of 10, from $2,500 to $25,000.

“That will create a stronger incentive to follow the law and not just look at fines as a nuisance or a cost of doing business,” said Sen. Scott Wiener, D-San Francisco, author of the bill, SB 858.

Some of the original fine amounts were set in 1975, when, Wiener notes, the price of gasoline was around $0.59 a gallon and chicken was $0.59 a pound. Meanwhile, in the last two decades, average monthly health premiums in California have quadrupled.

It’s only fair that the penalties insurers face rise in step with premium increases and inflation, says Diana Douglas, policy manager for Health Access, a consumer advocacy group sponsoring the legislation.

The bill also would give state regulators greater flexibility when they assess fines. In addition to raising the floor for penalties and tying them to premiums, the bill would allow regulators to consider factors like: an insurer’s financial status, including profits and reserves; the insurer's history of violations; the cost of the care that was denied; and the harm to patients, in coming up with a fine that is meaningful enough to deter denials of care.

“What we don't want is to keep seeing plans making this determination that to provide this coverage would cost $100,000, but the penalty is only $2,000,” Douglas said.

The California Association of Health Plans, a trade group for insurance companies, declined to comment on the legislation Wednesday, saying it needed more time to review it.

Sen. Wiener also introduced a second bill Wednesday, SB 853, that would make it easier for patients to access specialty drugs. In cases where insurers deny coverage of an expensive drug and the patient appeals the decision, Wiener wants to make sure patients can still get the drug while they wait the weeks or months for the appeal to be resolved.

“If you are a patient who is having serious health problems and you need that medicine now, it's unreasonable to say, ‘Hey, you need to wait potentially months for this appeal to run its course,’” Wiener said.

Under the proposal, insurers would have to cover the cost of the drug pending appeal, and if the denial of the drug were ultimately upheld, insurers could not try to recoup the cost of covering it temporarily.