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F I S C A L I M P A C T R E P O R T

SPONSOR Feldman

ORIGINAL DATE

LAST UPDATED

1/24/08

2/08/08 HB

SHORT TITLE Insurance Defense & Maximum Coverage

SB 226aSCORC

ANALYST Weber

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission (PRC)

SUMMARY

Synopsis of SCORC Amendment

1.

On page 2, line 3, after the period, insert "In the event a misstatement in an application is

made that is not fraudulent or willful, the issuer of the policy may prospectively rate and collect

from the insured the premium that would have been charged to the insured at the time the

policy was issued had such misstatement not been made".

Senate Corporations & Transportation Committee amendment still raises the standard of proof so

as to require the insurer to show at any time after the policy has been issued that the applicant's

statements or omissions were willful or fraudulent but offers the insurer the opportunity to

collect future premiums consistent with the actual health of the insured even if any misstatements

were not willful.

Synopsis of Original Bill

Senate Bill 226 amends the Insurance Code to raise the standard of proof concerning material

misstatements or omissions in individual applications for major medical health insurance during

the first two years after a policy is issued, to increase the minimum cap for policies issued under

the Minimum Healthcare Protection Act from $50,000 to $100,000, and to increase the

maximum break in coverage from 63 to 95 days to be deemed a period of creditable coverage.

Section 1 amends NMSA 1978, Section 59A-22-5. Currently, an insurer may void an individual

policy of major medical health care coverage or refuse to pay claims on the policy due to

material misstatements or omissions, even if inadvertent, regarding pre-existing health conditions

in the application for coverage. After the policy has been in effect for two years, the insurer must

be able to show that the statements or omissions made were willful or fraudulent. The bill raises

the standard of proof so as to require the insurer to show at any time after the policy has been

issued that the applicant's statements or omissions were willful or fraudulent.

Senate Bill 226/aSCORC – Page

2

Section 2 amends NMSA 1978, Section 59A-23B-3. Currently, the annual minimum cap on

coverage for policies under the Minimum Healthcare Protection Act is $50,000.00. The bill

proposes to raise the minimum to $100,000.00.

Section 3 amends NMSA 1978, Section 59A-23E-5. Currently, if an individual had health care

coverage under a group health plan, and then loses that coverage, if the individual applies for

alternative health care coverage within 63 days, the period of time in which the individual was

not covered will be deemed "creditable coverage." Periods of "creditable coverage" are counted

against any pre-existing condition waiting periods. The bill raises the number of days to 95 to be

deemed a period of creditable coverage.

SIGNIFICANT ISSUES

The PRC developed the legislative language in this bill with the intent to provide additional

protections to consumers. The new standard for rescission should make it more difficult for

health care insurers to void or deny coverage under individual policies of health care coverage. If

as a result of this legislation insurers spend more time on the underwriting process, this increased

administrative cost may be passed on to the consumer.

The $50,000 minimum cap was set in 1991 for health care policies purchased pursuant to the

Minimum Healthcare Protection Act, and the cost of health care has increased since that time.

The higher minimum may make this product more saleable, and will provide added coverage to

individuals who have previously purchased a basic health care policy under this Act from

exceeding their maximum yearly benefit.

Increasing the period of time of deemed creditable coverage from 63 days to 95 days will allow

individuals more time to seek alternate health care coverage and for some individuals it may

decrease the waiting period for coverage of pre-existing conditions.

MW/mt