California To Fight Health Insurance Rescissions?

The LA Times is reporting that California Insurance Commissioner Steve Poizner will reveal new regulations aimed at stopping a controversial health insurance practice in which customers with costly illnesses are retroactively dropped.

The practice, known as “rescission,” is explained in this Q&A from Frontline with Karen Pollitz, a research professor at Georgetown University who studies health care finance:

How does this work?

[It works] particularly in underwritten policies, particularly where you had to show eligibility to get into a policy. It happens most in the individual insurance market, but it can happen in group policies as well.

Once you make a big claim, particularly in the first year or two of coverage, there’s an incentive for the insurer to go back and investigate and see, is there any reason why you shouldn’t have been in this policy in the first place? Maybe the claim is for a brain tumor, and the insurer can go back and comb through your records and realize: “Oh! Six months before you bought this policy, you complained to the doctor that you were having headaches. That’s a symptom. This was pre-existing. Had I known you had a brain tumor when I sold you the policy, I wouldn’t have sold you the policy, and so I’m taking it back, and I won’t be paying the claim”; or, “I’ll declare that this tumor was pre-existing. You can keep the policy, but I won’t pay the claims related to your pre-existing condition.”

Or they may find out you weren’t eligible. I heard a story once about somebody who made a claim for their child, and she was remarried. Her husband was not the child’s father, and the policy that he had through work didn’t cover stepchildren. And no one had really asked about child/stepchild when they applied, and they were perfectly happy to get the premiums while nobody was making claims, but once the kid got sick, this got investigated, and retroactively he was taken off the policy.

According to the LA Times the new regulations would :

  • Require insurers to write applications for coverage in plain English
  • Allow applicants a “not sure” answer to questions about their preexisting medical conditions
  • Bar insurers from dropping someone if the companies failed to thoroughly investigate an applicant’s medical history before issuing a policy.
  • Bar a cancellation if the patient was unaware of the medical information being sought on the application or failed to appreciate its significance.

For more info about rescission check out this episode of Frontline.

Proposal would combat rescissions of health insurance policies in California [LA Times]