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March 11, 2008

Scrutiny of California Health Insurers Draws National Attention to the Problem

Dow Jones on Friday examined how a "series of troubling developments" related to rescissions of individual health insurance policies in California "is bringing national attention to the problem of patients having their coverage taken away when they need it most." According to Dow Jones, health insurers maintain that they "have a responsibility to ensure applicants are truthful about any pre-existing conditions they may have so companies can accurately price insurance policies and hold down costs for all their members," but consumer advocacy groups "warn that tactics such as tying financial incentives to the number of rescissions an employee makes or involving doctors in investigations after policies have been issued aren't working and may be illegal in some states."

California Department of Managed Health Care spokesperson Lynne Randolph said, "We don't think it is only happening in California ... but California's farther ahead in terms of enforcement," adding, "We had a statute in place that companies must do underwriting up front and a consumer must willfully misrepresent their health condition on an application in order for a company to rescind. We feel that means it can't just be an inadvertent omission."

America's Health Insurance Plans, which has begun to draft a proposal that would allow individual health insurance policyholders to appeal rescissions, said that the practice affected only 0.15% of individual health insurance policyholders in 2006. AHIP President Karen Ignagni said, "We recognize the process needs to be very transparent and people need to have peace of mind that they will have an independent review," adding, "As states adopt this proposal, they'll have a place where they can have these cases vetted external to the health plan." Meanwhile, some health insurers, such as Health Net, have begun to establish their own independent review programs.

Sandy Praeger, president of the National Association of Insurance Commissioners, said that health insurers are "making a lot of money collecting premiums" on individual coverage policies and "need to honor those contracts." She said, "I don't dispute (their) ability to drop someone who's intentionally lied," adding, "But to have policy language and application forms that are hard to understand and rely on a third party to explain them to you, it opens the door to people making unintentional mistakes. They shouldn't be held accountable for those." NAIC has begun to develop a standardized application for individual health insurance policies that could help prevent unintentional errors (Gerencher, Dow Jones, 3/7).

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Posted by healthinsurance at March 11, 2008 12:06 PM