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February 23, 2008

California act to protect individual health insurance coverage

Lawmakers in several states are limiting insurers' ability to cancel health policies for consumers who buy their own coverage.

The state actions come as more people buy individual insurance policies because they are self-employed, unemployed or don't get coverage at work. More than 18 million people have individual coverage.

Unlike group health insurance policies offered by employers, individual plans require applicants to submit many years' worth of detailed medical information. The insurers use that information in deciding whether to offer coverage and how much to charge.

Most states allow insurers to revoke an individual policy — generally within two years of granting it — if they find an applicant lied or inadvertently omitted information on an application.

Cancellation of a policy is retroactive. Patients must pay for all their past medical care, even if the insurer previously approved and paid for the care. There is little nationwide data on the extent of cancellations. Blue Cross of California has said it cancels fewer than one-half of 1% of all new policies, an average of 1,000 a year.

Prompted by numerous consumer complaints and lawsuits against insurers, state lawmakers are taking action. Among their efforts:

•New Mexico. The Legislature this month passed bills requiring insurers to show that applicants deliberately gave incorrect information on an application. Current law allows cancellation if the error or omission was inadvertent. The governor has not said whether he will sign the bills, says spokeswoman Caitlin Kelleher. Without the law, "the consumer has no ability to defend" against a cancellation, says Melinda Silver, attorney with the state's Managed Health Care Bureau.

•Connecticut. In October, a new law took effect requiring approval from the state insurance commissioner before an insurer can cancel an existing policy.

•California. Legislation introduced last week would require insurers who want to cancel a policy to first win approval from the state's Department of Managed Health Care. Last year, legislators adopted a law requiring insurers to pay for any medical treatment they approve, even if they later cancel the policy.

California state regulators have announced cancellation-related fines against some insurers, including Blue Cross, Kaiser Permanente and Blue Shield of California.

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Posted by healthinsurance at February 23, 2008 06:37 PM