Insurance canceled after expensive claims are made
Michael Moore poses with a poster for his 2007 film
You’ve heard about recession, but what about rescission? That’s an industry term for when health insurance companies drop coverage and refuse payment, usually after an insured patient has been treated for an expensive condition.
It happens to people who buy coverage for themselves and their family on the individual market, as opposed to those who get group coverage through an employer. Insurers often claim rescissions occur because applicants either provided false information about their health history or failed to report pre-existing conditions.
Rescissions have been in the news over the past couple of years — Michael Moore’s health care movie Sicko contains a devastating interview with a former insurance company employee whose job was to flag and cancel the policies of people who had filed expensive claims.
Last month, our friends at the Council for Affordable Health Insurance, an industry trade group, issued a new report called “Understanding Health Insurance Rescissions.” It’s designed to help ordinary Americans understand why rescissions are a vital tool for fighting health insurance fraud — apparently, the definition of fraud has been broadened to include “attempting to use an expensive health insurance policy whose premiums you’ve been paying.
The report also says rescission is rarely used (just 1,900 rescissions nationally in 2006, according to an industry survey). That may be a bit of an underestimate.
California insurance regulators settled with two of that state’s biggest health insurers in July over claims they had illegally dropped coverage for 2,200 people after they became ill and filed claims. Anthem Blue Cross and its competitor Blue Shield agreed to pay $13 million in fines and restore coverage.
State investigators found Blue Cross used a computer program to systematically investigate and cancel the policies of pregnant women and the chronically ill. When the investigators examined 90 randomly selected rescission cases, they found violations of state law in every single one.
Another insurer, Health Net, Inc., set rescission goals and paid bonuses to employees based in part on how many individual policies were canceled and how much money the company saved. That’s illegal in California. Health Net is one of five health insurance companies whose rescission policies were investigated by California regulators over the past year.
Surprisingly enough, those cases aren’t mentioned in the industry group’s report. We offer them here as a bit of context that would otherwise go missing.
John G. Carlton is an editorial writer who covers health care, science, the environment and public utilities. Before joining the editorial page, "Doc" was the newspaper's medical writer for four years. He has also worked at newspapers in Connecticut and New York. He's fond of heavy sarcasm and light anti-tank weapons. He lives in west St. Louis County with his wife, Martha Madigan, their daughter Ana and an overly enthusiastic Australian Shepherd dog, Savannah. 
John G.,
Anything yet from the P-D about the LA Times tape??
http://jeffreygoldberg.theatlantic.com/archives/2008/10/what_is_the_la_times_hiding.php
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Bob,
Is the LA Times tape about health insurance rescissions, because that’s what this post is about. I cover health insurance, science, the environment and electric utilities.
Mr. Carlton - Instead of hiding behind Michael Moore’s skirt, can you please explain why it is wrong for a company to deny coverage when it discovers that somebody lied on their application? The only alternative to this would be for insurance companies to perform a costly, and exhaustive, medical examination of every person prior to extending coverage. Or of course, we could go the route of disallowing exclusion of pre-existing conditions and community rating - or, translated into plain English, much higher premiums for most people.
Nick,
I don’t think it is wrong to cancel policies when companies find someone purposely lied on the paperwork. But as the California cases show, that’s not what’s happening.
Women routinely had their insurance canceled because they got pregnant. Others lost coverage because they were diagnosed with cancer. There was no attempt made to justify those cancelations.
One example reported in the LA Times story (see link) was a couple whose coverage was canceled after their daughter developed a facial tumor even though it hadn’t been diagnosed when they filled out paperwork. The reason: The company said it should have been told the child had croup — that’s an upset stomach.
An earlier LA Times story reported on someone whose coverage was canceled for symptoms not reported on the paperwork, even though he supplied his medical records to an agent for the company who filled out the paperwork.
Information about how Health Net paid bonuses based on the number of policies canceled came from an arbitration hearing on the cancelation of a California beauty shop owner’s policy while she was in the middle of chemo for breast cancer (and not, as you imply, from Michael Moore’s movie). The reason, according to the insurance company, was that she had failed to disclose previous symptoms of heart problems.
Issues like this are one big reason why the individual insurance market doesn’t work for many uninsured people.
John - I certainly think it is abusive when an insurance company cancels coverage because you didn’t tell them your kid had a stomach ache. But that’s a far cry from saying that “rescission is wrong.” On the other hand, if I lied about having heart problems, but just happen to get cancer rather than having a heart attack, I still say that’s grounds for cancellation. If you lie on an employment application, it is grounds for termination - the employer doesn’t have to prove that your lie materially affected your specific job duties.
On a more general note, I don’t disagree that “the individual insurance market doesn’t work for many uninsured people.” In fact, I would take that a step farther: There are many insured people who remain underemployed because of health insurance issues. Very inefficient, from an economic perspective. The real solution is to disconnect health insurance from employment. This would have two positive effects: First, it would eliminate inefficient employment decisions driven by health insurance needs; Second, it would make the individual health insurance of sufficient size that mandatory acceptance and community rating would have much less impact. So long as individual health coverage is for the few rather than the many, the problems in that market will remain.
One more reason why we need a truly national system of health coverage where there can be a true distribution of the risk, the main reason you buy insurance. If you have a national system, then all that “talent” in the private market can work for the public sector and for a lower salary. How’s that for income resditribution and cost cutting?
In the individual insurance market, it is illegal for insurance companies to just kick people off insurance, with one important caveat…they have to be current on their premium payments. If they are current the only way an insurance company can cancel your coverage is for you to have lied or not revealed conditions that a reasonable person should have know about when making the application. Once on truthfully, they can not kick you off as a covered person current on their premiums.
How many of these people were kicked off because of non payment of their premium? The article ignores this bit of information.
Also, it is extremely important for people filing applications in the individual market to have help. Once you get turned down for health insurance it makes it more difficult to find coverage. Every application asks the question, ‘Have you been denied health insurance coverage in the past by an insurer?” If you do not answer this question truthfully you are guilty of lying on the application and grounds for rescission.
This comment about someone becoming pregnant while insured and the insurance company cutting them off is disingenuous. There had to be a reason why they were bounced. Leaving selective facts out makes for a sexier story against the big bad insurance companies, but it is not intellectually honest.
Mr. Carlton,
It is interesting that you chose to make you point with a couple of tear jerking antidotes rather than hard evidence. A casual reader would not understand from the reporting in the media that health insurance can only be cancelled for non payment or lying on the application. This is a prime example of why the media is held is such low regard and not trusted by many.
I am sure that on a few rare occasions someone can be cancelled unfairly. Current contract law is more than suitable for dealing with this problem. Obama’s plan would not allow pre existing conditions to cause exclusion. This would spread yet another cost on those who are already overburdened by the costs of deadbeats.
I have a suggestion. Do not wait until you are sick in order to get health insurance. Not allowing companies to exclude those with pre existing conditions would cause many more people to wait until they need medical care before getting insurance to pay the bills. This is a recipe to increase the costs even further.
P.S. Even mentioning a claim by a discredit propagandist like Michael Moore severely damages your own credibility.
There are definitely problems with the system as it is, as the article clearly points out. Socialism is not the answer. John Mc Cain wants to disconnect the healthcare system from employment, which is a distinct advantage as noted by other posters. Still, the way it looks, a socialist revolution is overthrowing the government as we speak, because now that people have gotten advantages (”affordable housing”, social services, etc…) under the old rules that ran up a 12 trillion dollar debt, the socialist movement doesn’t want to pay for the cost of those things. They have yet to pay - that’s where the deficit comes from.
For those who want to socialize your medical insurance while you live in your free house compliments of Barney Frank, if you would gladly move into your garage so that I can occupy your house, I would appreciate it, since my money was spent on medical insurance previously, so no one gave me a free house. Then, we will have the “fair” socialism in the system that you talk about - you can have the medicine that I spend my money on, and I can have somewhere decent to live, which didn’t cost you a thing but your liberty anyways.
Mr. Carlton,
I truly admire the patience and professionalism that you always display. I struggle much with that kind of patience, it is one of the sins that I struggle with in my life.
But, thanks for touching base on this REAL problem that so many would disingenuously attempt to deny because of political motives. How sad. Having been in the individual markets myself as an insurance rep, and having first hand knowledge of many horror stories of such claim denials and droppings of coverage, I know that the claims in this article are true. The funny thing is that before healthcare became an issue in this campaign year, most people for a very long time now had seem to understand and had knowledge that these issues you raised were very real and unfair to the consumer and humanity.
Wow, how political associations and politics can cause people to go into denial mode willing to allow many follow citizens to sink and die all for political ego sake.