Schwarzenegger signs law that bans insurers from linking employee bonuses to health insurance coverage limits, cancellations

California Gov. Arnold Schwarzenegger (R) on Tuesday signed legislation (AB 1150) that prohibits health insurance companies from rewarding employees who cancel or limit an enrollee's coverage, the Los Angeles Times reports.

The measure was introduced by Assembly member Ted Lieu (D) after the Times reported that insurer Health Net based employee bonuses in part on meeting or exceeding targets for rescinding individual health insurance policies. Some critics say that health insurers use confusing applications so that when a plan member begins filing claims for coverage, the insurer can find mistakes that can be used to justify a cancellation or rescission.

The new law comes as the state Department of Managed Health Care last week fined Blue Shield of California and Anthem Blue Cross $13 million related to rescission practices. As part of the settlement, the insurers offered new plans to 2,220 California residents whose plans had been rescinded.

Schwarzenegger said, "Until we achieve comprehensive health care reform, stopping unfair health care rescissions is an urgently needed consumer protection," adding, "This terrible practice further illustrates the erosion of our health care system and the need for comprehensive health care reform." Schwarzenegger said he will "continue working with my partners in the Legislature to stop unfair health care rescissions once and for all" (Girion, Los Angeles Times, 7/23).