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June 05, 2007

Health Insurance Coverage in Times of Need

In May, I wrote about problems with health insurance companies in California. Specifically, an insured with Blue Cross and Blue Shield of California sued the company alleging bad faith arising out of the company's decision to rescind a health insurance policy based on high claims expenses. In the lawsuit, the plaintiffs alleged that the carrier accused the insureds of misrepresenting responses to questions contained in the application for health insurance only when it became clear the company would have to pay over $450,000 in medical expenses.

Across the country, health insurance companies make decisions to take away health insurance policies which have become too expensive based upon allegedly false statements contained in policy applications. If an insured truly misled an insurance company in the insurance policy application and in reliance on material misrepresentations, the carrier issued a health insurance policy, Arizona law allows the carrier to rescind the policy. I am curious whether carriers are using minor variations in application questions which have been prepared in good faith as a basis for decisions to rescind unprofitable health insurance policies.

Imagine diligently preparing an application for health insurance answering all questions as best as you can. You timely pay premiums believing that your carrier will provide benefits when needed. Suddenly, you suffer injuries in an accident and require costly medical care. When you or your medical providers submit these medical bills to the carrier for payment, the company decides that your claims expenses are just too costly. As a result, the insurance company undertakes a review of your policy application to see if you made any material misstatements in it. Why? The insurance company entered into a contract with you and promised to pay your medical expenses according to the terms of its policy. However, if a policy has become unprofitable, the company may decide to investigate to determine whether it may properly rescind your health insurance policy and eliminate claims payouts on this money-losing policy if you made false statements on your application for coverage. If you made a false statement of a material fact on your insurance application, the insurance company will likely attempt to deny your medical expense claims and rescind your insurance policy.

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Posted by healthinsurance at June 5, 2007 04:29 PM