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to reinstate 926 policies in California, pay $3.6 million in fines, and reimburse $14 million in medical claims for rescinded policies. In July 2008, Anthem Blue Cross agreed to pay $11 million in hospital claims deriving from rescinded policies in California.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.”