Someone Please tell the President: It’s Been Illegal to Drop Coverage Since 1997

In fact, these protections have existed in federal law since 1997. Title 45 of the Code of Federal Regulations (45 CFR  § 148.122)  is about “guaranteed renewability of individual health insurance coverage.” Paragraphs (a) and (b) read as follows:

(a)    Applicability. This section applies to all health insurance coverage in the individual market.

(b)   General rules. (1) Except as provided in paragraph (c) of this section, an issuer must renew or continue in force the coverage at the option of the individual.Paragraph (c) releases the health insurer from the obligation to renew coverage if you haven’t paid your premiums, if you’ve committed a fraudulent act under the terms of the coverage, if you move out of the insurer’s coverage area, or if you quit an association through which you’ve purchased insurance. 

These are all reasonable limits, and there’s no necessity for such federal regulation. Despite the president’s claim that “no one holds these companies accountable for these practices,” state insurance commissioners do, in fact, enforce good-faith execution of insurance contracts. President Obama should know this because Kathleen Sebelius, his Secretary of Health and Human Services, served as Insurance Commissioner in Kansas.

If a health insurer drops you because you’ve misrepresented your health status on your application, it’s called “rescission.” If the insurer does it illegally, it’s called “post-claims underwriting.” Yes, it happens, but a lot less than the president suggests, and insurance commissioners and attorneys-general are ruthless about it. Last September, Health Net agreed to reinstate 926 policies in California, pay $3.6 million in fines, and reimburse $14 million in medical claims for rescinded policies. In July 2008, Anthem Blue Cross agreed to pay $11 million in hospital claims deriving from rescinded policies in California.

Let’s put these rescissions into perspective. I estimate that about one percent of the people in the individual market have claims of more than $30,000 annually (extrapolated from the usual distribution of health costs). California has about 2.6 million individually insured, so about 26,000 people annually would fit the bill here. From 2003 through September 2007, there has been an average of 39 complaints annually: less than one-sixth of one percent of expensive claims.

Professor Scott Harrington points out that one of the horror stories peddled by the President during his speech last week was grossly misrepresented by Mr. Obama. The Illinois Attorney-General caused the patient’s coverage to be re-instated, and expensive treatment extended his life by over three years.

Authorities have often gone overboard. In February, 2008, an arbitrator ordered Health Net to pay $9 million to a woman whose coverage was rescinded because she misrepresented her actual weight. The arbitrator’s 28-page decision describes how she applied for health insurance:

  • She did not fill out the application, but let the agent do it for her, while she was styling hair at her salon.
  • She told the agent that the weight on her driver’s license was 185 lbs.
  • She did not read the application before signing it.
  • When the agent returned to his office to process the application, he saw that her weight (as written) would have increased her premium, so he called to inform her.
  • She told him that she actually weighed less than stated on her driver’s license.
  • He scratched out the “official” weight, and wrote in the lesser weight, before mailing the application.

This does not impress me as responsible behavior, but on reflection the status quo has actually served this woman pretty well.  Maybe those who have been “abused” by health insurers have the most to lose from President Obama’s “reforms.”

Comments (18)

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  1. Ken says:

    Good post, John. This message needs to get out there.

  2. Clark says:

    There is somebody named Brian who keeps commenting here and complaining about recisions. I hope he reads this post.

  3. Vicki says:

    I wish the mainstream media would not let Obama get away with repeating things that are not true.

  4. John Goodman says:

    President Obama gave two egregious examples of rescissions in his speech to Congress. Yet in both cases, there are complicating factors. A Wall Street Journal editorial (http://bit.ly/2GFKjM) added this: “These two cases are presumably among the most egregious identified by Congressional staffers’ analysis of 116,000 pages of documents from three large health insurers, which identified a total of about 20,000 rescissions from millions of policies issued by the insurers over a five-year period. Company representatives testified that less than one half of one percent of policies were rescinded (less than 0.1% for one of the companies).”

  5. Bart Ingles says:

    It’s hard to know what some of the figures actually mean. I’m having trouble reconciling some of them, such as:

    “Last September, Health Net agreed to reinstate 926 policies in California…”

    “…there has been an average of 39 complaints annually…”

    And Health Net is just one company. Did it reverse all rescissions done over the last century?

    Here’s another juxtaposition that looks pretty bad, from the USA Today link:

    “One large insurer, Blue Cross of California, says it revokes less than one-half of 1% of all individual policies each year.”

    “Nationwide, data collected by the federal Agency for Health Care Research and Policy show that about 1% of people in the individual market have claims that total more than $30,000 in a given year.”

    That would be half of all large claims rescinded! I can’t believe that’s accurate either, but it’s not reassuring.

    I can understand the desire not to impose one person’s costs on another, but I also have doubts that accurate risk assessment is really practicable. It’s more like “risk assignment” based on a couple of dozen questions on an application. Maybe if all medical records were online in some machine-understandable format, then insurers could issue provisional policies based on the questionnaire, and then complete a full underwriting process within 60 or 90 days before issuing a permanent policy (and not wait to do it until after a large claim is filed two years later). In the meantime applicants could maintain prior coverage for a couple of months until the policy is formally approved. But I don’t see this happening soon.

  6. Bruce says:

    Where is Brian, now that we have cleared this up?????

  7. Bart Ingles says:

    I guess he finally figured out that he was in the wrong classroom.

    For all I know I’m just as much a nuisance as he was, but at least I’m in agreement with most of what I read here. Maybe I should post more “amen” comments to balance my critical ones, but they always seemed sort of superfluous.

  8. John R. Graham says:

    Mr. Ingles: Would you agree that someone who believed that his policy had been illegally rescinded by a carrier after an expensive claim would go to the Insurance Commissioner and demand regulatory/legal action? I cannot imagine that one would not, especially given the punitive nature of the redress. So, if the ratio of complaints/rescissions is so low, one really must conclude that the individual market is subject to adverse selection: These people waited until they got sick, did not disclose it when they applied for coverage, and when they were rescinded they knew they had no case.

  9. Bart Ingles says:

    John, that’s a fair point, but I was looking at the number of reinstatements, compared to the number of complaints. How can there be more reinstatements than complaints? I wasn’t disputing the market forces, but there must be something wrong with the numbers.

    Maybe there’s a more common avenue of complaint that’s not counted here. I’d never heard of the California Department of Managed Care. I wonder what’s its relationship to the California Department of Insurance.

  10. sam kohen says:

    You forgot to mention that the Health Net paid the claims examiner $2000.00 for that particular file. Good job. As well the weight difference was 5 pounds, so you better be careful when you go out and stay away from French fries or coke.

  11. Brian T. Schwartz says:

    I have a question on something John wrote: “If a health insurer drops you because you’ve misrepresented your health status on your application, it’s called “rescission.” If the insurer does it illegally, it’s called ‘post-claims underwriting.’”

    I’ve been trying to verify that this is how the terms are used, but have not been able to. For example, in this Robert Wood Johnson Foundation report:
    http://www.rwjf.org/files/research/61209postclaimsunderwriting.pdf

    it appears that post-claims underwriting is part of the rescission process. This makes sense to me if you interpret “post-claims underwriting” as just that: changing the underwriting of a policy after a claim has been made. This can be valid if the insurer has new information about the customer’s health history before the policy started.

    Feedback?

  12. [...] Dr. Berman also says that the health control legislation (HR 3590) ” prevents health plans from dropping coverage when a child or adult becomes ill.” But this is not likely a violation f contract, it’s been explicitly against the law since 1997. [...]

  13. Kartik says:

    Good post.

    I saw this website called guaranteedhealthcare.org which was critical of you John. While it’s true health care costs are too high and rash decisions have been made by third parties to cut costs, you might be denied COVERAGE for a certain treatment. Costs need to go down, that’s the number 1 issue.

  14. Kartik says:

    which reminds me, where’s Brian? His story seems to go all over the place I don’t know what to believe.

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