Illinois insurance commissioner to require documentation for rescission reviews

Illinois health plans will face heightened scrutiny if they revoke members' coverage, under new rules announced by the state's insurance director.

Michael McRaith released a bulletin to all insurers Dec. 21, 2009, alerting them that, effective immediately, if they rescind a policy and the consumer files a complaint with the insurance department, the company would be required to hand over complete copies of its underwriting policies as part of the department's review.

The bulletin cited state law that says an insurer may rescind coverage only "when an insured has provided a false statement on an application which materially affected the acceptance of a risk or hazard." The department can determine if that happened only if it looks at the company's underwriting practices, the bulletin said.

McRaith said he believes Illinois has one of the highest, if not the highest health insurance rescission rates in the country. His department has been working with legislators on a change in state law that would bar rescission except in cases of outright fraud by policyholders.

Mary Ann Schultz, spokeswoman for the state's largest health plan, BlueCross BlueShield of Illinois, had no comment on the policy itself but said the company complies with insurance department requests.

The change in rules has drawn reactions across the board from insurance companies, McRaith said, some of whom claim that their full underwriting guidelines are confidential and protected. He said he rejects that argument, since the department routinely deals with proprietary information and trade secrets without compromising their confidentiality.

According to a June 2008 report by health insurance advocacy group Families USA, only one state -- Connecticut -- required insurers to ask for the state insurance commissioner's permission to rescind a policy. The form that Connecticut insurers use to request a rescission notes that insurers should not submit copies of their proprietary underwriting guidelines.

According to the Families USA report, insurance departments in 18 states granted consumers a formal appeal process if their health insurance is rescinded, and another eight said they would investigate if a consumer complained.

The report did not track whether insurers would have to submit copies of their underwriting guidelines to the department as part of an appeal or complaint investigation.

Health insurance rescissions have been the subject of government scrutiny from local to federal levels over the past few years. Most recently, a state appeals court ruled that the Los Angeles city attorney had the authority to sue health plan WellPoint, the parent company of Blue Cross of California -- now known as Anthem Blue Cross -- for improperly rescinding health coverage, a charge the company has denied.