Thursday, February 11, 2010

Now you see it, now you don't

Imagine for a moment that you just had a car accident. You have car insurance and have been paying premiums for years, so you feel somewhat reassured that your insurance company will pay for the damages. You call in the accident to your insurance company. The next day, the company calls and says it is rescinding your policy back to the date that it became effective; the company will return all the premiums to you, but they won’t pay for the current damages.

The reason? On one of the forms you filled out to obtain your policy, you stated that your car was red, but it’s actually blue. The insurance company says that misrepresentation allows them to rescind your policy.

That scenario sounds a bit wacky, right? I mean, isn’t that the point of insurance? You shell out money for a bit of financial security and some peace of mind. You actually hope never to see the money again because if you do, it means that something bad has happened, such as a car accident, and you’re receiving a check to pay for the damages. And, further, what in the heck does the car being blue instead of red have to do with anything?

Yet, when it comes to health insurance (not a perfect analogy to car insurance, but you get my drift), this practice – called rescission – is perfectly legal in many states.

 In "Coverage Denied: How the Current Health Insurance System Leaves Millions Behind", the authors explain, “When a person is diagnosed with an expensive condition such as cancer, some insurance companies review his/her initial health status questionnaire. In most states’ individual insurance market, insurance companies can retroactively cancel the entire policy if any condition was missed – even if the medical condition is unrelated, and even if the person was not aware of the condition at the time. Coverage can also be revoked for all members of a family, even if only one family member failed to disclose a medical condition.”

The report indicates that “[a] recent Congressional investigation into this practice found nearly 20,000 rescissions from three large insurers over five years, saving them $300 million in medical claims – $300 million that instead had to come out of the pockets of people who thought they were insured, or became bad debt for health care providers.”

Reforming rescission. Both the House and Senate reform bills include provisions that address rescission. In the House bill, Act Sec. 103 prohibits health insurers in the group and individual markets from rescinding coverage unless an independent, external third party has determined there is clear and convincing evidence of fraud. Further, rescission may not take effect until the insured is given notice of the proposed rescission and an opportunity for review by an independent, external third party.

In the Senate bill, Act Sec. 1001(5) prohibits group health plans or health insurance issuers offering group or individual coverage from rescinding such plan or coverage with respect to an enrollee once the enrollee is covered under such plan or coverage involved. The provision doesn’t apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. Further, such plan or coverage may not be cancelled except with prior notice to the enrollee.

Health care summit agenda. On February 25, President Obama will hold a televised health care summit with Republicans and Democrats to try to get the stalled reform legislation moving. The issues to be discussed aren’t clear right now. Well, how about putting the rescission issue on the agenda? Would anyone defend this practice on national television? I doubt it. But I also doubt this issue will be discussed at the summit. Why? A few reasons jump to mind, but Wendell Potter, a former insurance executive who testified about this issue last summer, focused on one of the more unsettling ones when he said, “I saw how [health insurance companies] confuse their customers and dump the sick — all so they can satisfy their Wall Street investors.”


Post a Comment