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California rescission rules under attack by health plans

Insurers say the new regulations will impose added costs, create inconvenience and invade customers' privacy.

By Emily Berry — Posted Aug. 31, 2010

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A California health insurance trade group has asked a state court to block a new set of regulations limiting insurance coverage rescissions.

The action comes despite insurers' pledges not to rescind coverage except in cases of fraud.

The Assn. of California Life and Health Insurance Companies, a health insurance trade group, filed a petition with the Sacramento County Superior Court on Aug. 16, asking it to bar the California Dept. of Insurance from enforcing the new state regulations.

The directives require that insurers prove they have done thorough medical underwriting if they later want to rescind a policy. That includes accessing applicants' personal health records and looking through any commercially available medical records. Insurers also are required to use state-approved health questionnaires to screen applicants and must allow members to respond to investigations into their health history.

The new rules went into effect in California on Aug. 18, weeks before the federal limits on rescissions -- part of the Patient Protection and Affordable Care Act -- take effect on Sept. 23. The state rules require underwriting practices and paperwork requirements that aren't addressed by the federal law.

Most major insurers, including those in California, said they began honoring the federal law this year.

ACLHIC spokesman Richard Wiebe said not only are the new rules unnecessary, given the federal law, but the regulations give the department powers beyond its authority. He also said the requirements placed on insurers force the companies to invade customers' privacy.

"The debate is not over the restrictions on rescissions -- those questions have been answered by the federal government," he said. "The dispute we have with the department is over the regulations that are simply unnecessary and create new cost, inconvenience and privacy intrusions on consumers."

Wiebe said the department is overstepping its authority with the new regulations, engaging in "lawmaking" rather than "rulemaking."

California Insurance Commissioner Steve Poizner criticized the health insurers' action.

"Sometimes I think representatives in this industry have their heads permanently stuck in the sand," he said in a statement released Aug. 19. "Illegal rescissions are a repugnant industry practice. In this current environment, this lawsuit is simply shortsighted and morally wrong."

Multiple plans in California in 2008 and 2009 paid fines to settle state allegations that they illegally rescinded consumers' policies. State regulators said the plans claimed that members failed to disclose pre-existing conditions. The plans did not admit any wrongdoing.

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