Insurers Cancel When Policyholders Get Sick

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Published on Wednesday, 17 June 2009

Written by Martha Neil, ABA Journal

When she developed aggressive breast cancer, a Texas nurse says, her insurer canceled her individual medical insurance policy. The purported reason was that she had failed to disclose information when she applied for the health coverage -- she had once visited a dermatologist about her acne.

Such stories of health coverage rescinded as soon as policyholders of three insurance companies got sick, following months or years of premium payments, elicited bipartisan outrage yesterday during testimony before the House Subcommittee on Oversight and Investigations, reports the LA Times.

While representatives of three health care insurers said coverage was rescinded due to policyholder misrepresentation, testimony and a committee investigation suggested otherwise: Insurers seemingly gamed fraud laws and canceled over inadvertent or unimportant omissions, in order to save money on expensive health care they were contractually obligated to provide, the newspaper reports. At least one insurer has linked rescission to positive evaluations for employees, although it contends this was an isolated occurrence, and employees were also paid bonuses as a result of their work to canceled coverage.

Such rescission have sparked litigation and calls for legislation, in California and elsewhere, to require insurers to establish fraud in order to cancel coverage, the Times recounts.

They also show it will be necessary to offer a "public option" for medical insurance if individuals are required to have coverage as part of a possible health care reform program, said Rep. John Dingell (D-Mich.).

"This could reshape the debate," patient advocate Jerry Flanagan of the Santa Monica-based Consumer Watchdog tells the Times. "When insurance companies go under oath and admit they are canceling innocent patients when they get sick, it makes it very difficult for lawmakers to pass a law that requires every American to buy a policy or face a tax fine. It opens the way for a public option to hold the companies in check."

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