Even after the media reported that health insurer Blue Cross rewarded employees for canceling policies of individuals with serious illnesses, executives from the nation’s three largest health insurance companies refused to stop this practice, called rescission. Also known as post-claims underwriting, rescission occurs when insurers cancel a person’s coverage, often after that person has paid thousands of dollars in premiums. The practice is ostensibly a means of recourse for companies in instances of fraud, when an applicant has intentionally failed to disclose pre-existing conditions. However, insurance companies increasingly use it to cut costs by searching for insignificant or irrelevant errors on policyholder’s initial applications. Los Angeles Chief Assistant City Attorney Jeff Isaacs, part of the legal team fighting these practices, explains: “[The policy of rescissions] appears to have evolved into a cost-savings method. It’s a systematic, institutional process to flag and pull anything that looks costly to the company.”
A hearing by the House Subcommittee on Oversight and Investigations on June 16 brought up criticism of the policy, reporting that in the past five years, over 200,000 people have had their coverage cancelled by three of the largest US health insurers, WellPoint Inc., UnitedHealth Group, and Assurance Inc. The hearing also found evidence that employees of these insurers had been encouraged and rewarded for terminating policies of people who had serious medical expenses, saving the companies over $300 million (see the performance reviews of these employees here and here, and the complete findings of the hearing here).
The subcommittee also heard testimony from patients and families of patients who had lost insurance coverage after developing serious health problems. Robin Breaton, a nurse from Texas, lost coverage three days before she was meant to undergo a double mastectomy to remove invasive breast cancer. Her insurer, Blue Cross, cancelled her policy after launching an investigation into her medical records and finding a note from her dermatologist that mistakenly noted she could have had a pre-cancerous skin condition. At the hearing, Breaton explained, “The sad thing is, Blue Cross gladly took my high premiums, and the first time I filed a claim and was suspected of having cancer, they searched high and low for a reason to cancel me.”
Losing health insurance, especially while struggling with poor health, can be financially devastating. A new study has found that medical problems contributed at least in part to almost two-thirds (62%) of bankruptcy filings in 2007. Even those with health insurance were not immune to financial losses – over 75% of those in the study had coverage, and 60% had private insurance. Researchers found that illness frequently led to job loss, which in turn led to a loss of insurance coverage. The lead author of the study, Dr. David Himmelstein of Harvard University, explained: “For middle-class Americans, health insurance offers little protection…. Private health insurance is a defective product, akin to an umbrella that melts in the rain.”
California Insurance Commissioner Steve Poizner proposed new regulations that would require application forms to be written in clearer language and include “not sure” options to questions about medical conditions (see full text of the proposed regulations here). Many of the questions in insurance application forms are difficult to understand or intentionally confusing. Under the new regulations, insurers would not be allowed to drop policies if the patient was unaware of, or did not understand, the medical information requested in the application.
More links:
The Health Care Crisis Hits Home
Commentary: Health Care Outrage Goes Uncovered
Consumerist: Insurance Industry Still Wants to Cancel Sick People’s Coverage
Um, no. This is simply unadulterated theft, pure and simple. The bottom line is that there is no place for profit in healthcare. The only solution is single payer health care, a tried and true health care system that other countries such as Australia practice with great success.
Have there been any reports of similar problems with the insurance plans competing to cover federal employees under FEHB Program?
I would not expect there to be any because OPM, the government agency that sets the rules for plans to participate in the FEHB Program, doesn’t allow insurance costs and benefits to discriminate by age, gender or the health of the employees who choose the plan. OPM also arbitrates disputes between the insurer and the employee.
Hopefully the insurance exchange envisioned by bills in Congress will use the FEHB Program as its model. In fact, no one has explained to me why Congress couldn’t just expand FEHBP to cover non-federal employees.
I feel that the information given will be here is very useful to me…thanks
This is an awful practice which sheds a terrible light on the health insurance industry. I agree with BTMendelsohn, we need to expand the governments FEHB program countrywide. We need to instill confidence back in the health insurance market, these are difficult times and cancelling the odd policy in the short term for high claims is going to do know good for the long term health of the market, excuse the pun!