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June 01, 2008

States target companies for rescinding health policies

An insurance-industry practice of retroactively dismissing individual health policies and leaving some people with costly medical bills has come under fire from California to Connecticut.

The practice is generating many complaints to government regulators and some lawsuits claiming insurers have improperly dropped coverage. Some states are passing tough measures or pursuing regulatory actions and assessing fines to restrict these retroactive health policy voids.

Insurance companies say such cancellations, which they call "rescissions," are a rare but necessary tool to stop consumer fraud and lower costs for all individual policyholders.

Yet, consumers and lawyers who have challenged such insurance cancellations say there are many examples of insurers targeting patients who have been diagnosed with chronic or life-threatening diseases that require costly medical care.

In Arizona, two women say in separate lawsuits that Health Net of Arizona dropped their policies after they were diagnosed with cancer and that the insurer demanded that their doctors, labs and other medical care providers refund payments. A Phoenix man sued Golden Rule Insurance Co. after his policy was dropped and the insurer refused to cover the costs to remove a brain tumor and other medical procedures.

"The goal is to try to put a stop to this practice because it is hurting a lot of people," said William Shernoff, a Claremont, Calif., attorney who has filed dozens of lawsuits challenging such policy cancellations by insurers. "It is not only a financial burden on the people. When their coverage is pulled, they can't get treatment."

New Mexico Gov. Bill Richardson recently signed a bill that limits insurance companies' ability to rescind a policy. Insurers must show a consumer has been "willfully fraudulent" before rescinding a policy. Before the change, insurers could merely point to a mistake or omission on a health insurance application before dropping a policy.

The insurance industry recognizes how such cancellations are seen as controversial, and has recommended changes that it says will be fair for consumers and insurers alike.

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Posted by healthinsurance at June 1, 2008 07:18 PM