Report 97118.1 Summary - May 1998

Department of Corporations:

To Optimize Health Plan Regulation, This Function Should Be Moved to the Health and Welfare Agency

Results in Brief

Because both the health care industry and laws governing the industry are undergoing significant changes, the State should place regulatory responsibility for health care service plans (health plans) in a setting where health care is a primary focus. Although health plans have grown in number and complexity in the two decades since the State developed its regulatory structure for health plans, California continues to locate the responsibility for overseeing these plans in the Business, Transportation and Housing Agency (agency), which has business and transportation rather than health care as its primary focus. Currently, the Health Plan Division (division), which is part of the agency's Department of Corporations (Corporations), oversees more than 100 health plans. Further, since the 1970s, legislative changes have expanded Corporations' oversight of health plan operations by adding more stringent requirements to address the quality and delivery of care provided to health plan enrollees. Nonetheless, health care issues hold a minority interest for both the agency and Corporations, whose cardinal responsibilities include regulating certain investments and financial lenders.

During our review, we analyzed the skills, expertise, and focus of the Department of Consumer Affairs, the Department of Health Services, and the Department of Insurance; we did not attempt to ascertain the efficiency and effectiveness of operations at these departments nor at Corporations. All three departments perform, to varying degrees, the types of functions necessary to regulate health plans; however, of the three, the Department of Health Services, within the Health and Welfare Agency, offers the most suitable environment for the division. Additionally, we noted that the State also has the option of creating an entirely new entity that would perform the required regulatory functions.

Regardless of whether the State moves the division to an existing department or creates a new entity, our review concludes that the regulation of health plans belongs with the Health and Welfare Agency. In locating health plan oversight in this agency, the State can capitalize on the agency's expertise and its focus on health care matters.


To optimize the regulation of health plans, the Legislature should move the Health Plan Division, currently part of the Department of Corporations within the Business, Transportation and Housing Agency, to the Health and Welfare Agency. Further, if the Legislature decides to place the regulatory responsibility for health plans in an existing department, the Legislature should consider the Department of Health Services which has regulatory functions that are most similar in skills and focus to those of the Health Plan Division and has an overall health care related mission.

Agency Comments

The Business, Transportation and Housing Agency disagrees with our conclusions and recommendations except as they relate to the Department of Consumer Affairs and the Department of Insurance. Instead, it believes that the responsibility for regulating health plans should be assigned to a new department within the Business, Transportation and Housing Agency. Similarly, the Health and Welfare Agency disagrees with our recommendation to place health plan regulation within that agency, citing a potential conflict of interest and concern that ensuring solvency of health plans is not directly related to its core objectives. Finally, the Department of Health Services expresses concern that it may have a conflict of interest, and cites the governor's proposal that a new department be established to oversee managed care.