End to Rescission, and More Good News

Published: May 2, 2010

Americans are already starting to see the benefits of health care reform. The new law requires health insurance companies — starting in September — to end their most indefensible practice: rescinding coverage after a policyholder gets sick. In recent days insurers and their trade association have rushed to announce that they will end rescissions immediately.

That is very good news for the thousands of people who each year pay their premiums but lose their coverage just when they are likely to run up big medical bills.
The insurers decided to act quickly after they were whacked by some very bad publicity. An investigative report by Reuters said that one of the nation’s biggest insurers, WellPoint, was targeting women with breast cancer for fraud investigations that could lead to rescissions.
Although WellPoint fiercely denied singling out breast cancer patients for scrutiny, it acknowledged using computer algorithms to search for a range of conditions that applicants would likely have known about at the time they applied. That seemed like a backhanded admission that it was indeed searching for excuses — the company would say legitimate reasons — to cancel coverage. The Obama administration and Congressional Democrats urged insurers to end rescissions at once.
Insurers claim policies are rescinded only when people have misrepresented or lied about their health status or other important factors at the time of application. Insurers do rescissions only on individual policies, not employer-based coverage. They argued that to keep down rates for the rest of their customers they needed the ability to exclude people who failed to report pre-existing conditions.
An investigation and hearings last year by the House Committee on Energy and Commerce challenged those claims. They found many troubling cases where the pre-existing conditions were trivial, unrelated to the claim, or not known to the patient.
Some companies issued policies quickly to start collecting premiums and only later, if a policyholder filed expensive claims, performed a detailed examination of medical records. If they found any discrepancies or omissions, they would retroactively cancel the policy, refund the premiums paid, and refuse to pay for further medical services. At that point, of course, the applicant would be unable to get coverage from any other insurer.
The House investigation found that three big insurers rescinded some 20,000 policies over a five-year period, and a survey by the National Association of Insurance Commissioners found more than 27,000 rescissions in an overlapping five-year period. That’s a small percentage of the millions of policies issued or in force in any given year, but a disaster for the thousands of people who lost their insurance.
The insurers were wise to short-circuit the criticisms and end rescissions now. This follows a recent agreement by many companies to start letting dependents stay on their parents’ policies until age 26, which isn’t required until September. Under pressure from the White House, the industry has also agreed to cover children with pre-existing medical conditions as soon as new rules are issued.
Many of the other major provisions of reform don’t kick in until 2014, but it is already changing the behavior of insurers. That means more security for many Americans who might otherwise find insurance unaffordable or unavailable.