States move to limit insurance rescissions

Legislators in at least four states are considering passing new laws limiting insurance companies' ability to rescind insurance coverage, a practice that has come under criticism both for harming patients and leaving doctors with unpaid bills or claims from insurers who want their payments back.

California, Connecticut and New Mexico have passed new laws restricting rescissions in the last few years, and media attention to the issue has spurred other states to take up the issue, said Dick Cauchi, health program director for the National Conference of State Legislatures.

"It would not be surprising to see more action on this issue in the coming months and years," he said.

California, where numerous insurers have been fined over violations of state regulations on rescinding individual policies, in the last few years has passed laws preventing insurers from rewarding their employees for rescissions and allowing physicians and hospitals to keep insurer payments for any care given patients whose coverage was later rescinded.

State lawmakers again this year are taking a crack at legislation requiring any rescissions to pass through state regulators. California Gov. Arnold Schwarzenegger vetoed such a bill last year, saying he wanted to implement systemwide health reform rather than making incremental changes.

Other states' proposals:

• A pending bill in Texas would bar insurers from rescinding insurance unless they can prove they were diligent in their original medical underwriting, and that the member intentionally lied or omitted important information from his or her application. The Texas Medical Assn. has put rescissions on its list of legislative priorities for 2009. Albert Gros, MD, an ob-gyn who practices in Austin, Texas, and heads the medical association's council on legislation, said that doctors should be concerned about whether they would be stuck with an unpaid bill, but that he and his colleagues are most interested in making sure patients are protected from delays or denials of care because of policy rescissions.
• A bill introduced in South Dakota would eliminate a law that allows nonprofit plans to rescind coverage in the case of misrepresentation on a member's application.
• A proposed law in Maryland would require insurers to prove that they performed adequate medical underwriting during the application process and thoroughly investigated any questions about a member's medical condition before issuing the policy. Maryland House Delegate Shawn Tarrant introduced the bill Jan. 28. He said Maryland Insurance Administration officials alerted him to the issue of rescissions. "It's nice to have health insurance expansions, but you have to make sure people who have coverage keep coverage," he said. Tarrant said in addition to keeping consumers from losing coverage, he wanted to make sure that physicians aren't left holding the bag by an insurance company's decision to rescind a policy. "If I have to amend the bill, or create another bill to make sure I'll protect doctors, I will."

The issue of individual health insurance rescissions has been in the spotlight for nearly two years in California, after investigations by the media and regulatory agencies uncovered a pattern of companies' revoking policies of members who had ended up filing costly claims.

In some cases, doctors and hospitals were left with unpaid bills or forced to pay back money to the insurers when policies were revoked.

Insurers including Kaiser Permanente, Health Net, WellPoint subsidiary Anthem and Blue Shield of California agreed over the last year to reinstate hundreds of members and to pay past medical claims as well as hefty fines to the state.

California health plans also agreed to change procedures around applications for individual health insurance, though they did not officially admit wrongdoing.

Anthem, Health Net and Blue Shield are still facing litigation from Los Angeles City Attorney Rocky Delgadillo, who sued the plans, alleging they had "gamed the system."

A study released in June 2008 by Families USA, a Washington, D.C.-based group that advocates for universal health care, found the individual insurance market is only loosely regulated in many states, and lax rules are a problem because of the increasing number of Americans who buy their own health insurance.

The report's authors found that in 44 states, a company could rescind a policy without any state review, and in most cases were not required to limit medical underwriting to before the policy is in effect.

The individual market is expected to grow further as the recession leaves more workers without a job, without coverage, or both.