Healthcare insurance cancellation

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Can a health plan cancel a patient's healthcare insurance policy?

After September 23, 2010

Affordable Care Act enacted by President Obama, prohibits insurance companies from rescinding coverage. In the past, insurance companies could search for an error, or other technical mistake, on a customer’s application and use this error to deny payment for services when he or she got sick. The new law makes this illegal. After media reports cited incidents of breast cancer patients losing coverage, insurance companies agreed to end this practice immediately. Effective for health plan years beginning on or after September 23, 2010. See healthcare.gov.

However, consumers still need to be careful, since some of the insurance companies are already looking into cases where they can cancel a policy. For example, an insurer claims what constitutes the term "rescission" excludes termination of an insurance plan when the employer or individual misses payments. Another example given is if an employer makes a mistake in international interpretation of an individual's marital status or dependent eligibility.

Before September 23, 2010

Under current practice (as of March 2010), health plans have the authority to unilaterally rescind a policyholder's insurance if they find there has been a "willful misrepresentation" of the patient's medical history on their initial health care application.

Insurance rescissions affect people with individual coverage, which is sold and priced based on an applicant's medical history. For example, in 2008, about 2.6 million of the 28 million Californians with health coverage have individual plans.

Unlike group health policies offered by employers, individual plans require applicants to submit many years' worth of detailed medical information. The insurers use that information in deciding whether to offer coverage and how much to charge.

Most states allow insurers to revoke an individual policy — generally within two years of granting it — if they find an applicant lied or inadvertently omitted information on an application.

Insurers say some enrollees lie on applications in order to gain coverage and that rescinding policies from those who hide preexisting conditions prevents premiums from going up for everyone.

But regulators and law enforcement officials allege that insurers do little to verify applications before issuing coverage and then wait to see what happens. When patients incur substantial medical claims, insurers go back and scour applications for omissions, even innocent ones, in order to rescind their coverage, critics say.

A number of high-profile cases in recent years have found that health plans have improperly revoked policies from insurance holders for accidental omissions on their health insurance applications.

Los Angeles Times reported that two of the California's largest health plans, Kaiser Permanente or Health Net, agreed in May 2008 to reinstate coverage to nearly 1,200 patients whose policies were dropped after they incurred high medical expenses. Under the deal, patients whose insurance was rescinded since 2004 will be allowed to purchase new insurance regardless of preexisting medical conditions.

Anthem Blue Cross has been also under scrunity by California health regulators for 1,770 patient policies canceled. Reference

The Los Angeles City Attorney's office launched a website, at [www.protectingtheinsured.org], aimed at encouraging patients and physicians to share their complaints about the practices of health insurers.

Besides California legislators, the following state lawmakers are taking action.

  • New Mexico. The governor signed a bill in 2008 that limits insurance companies' ability to rescind a policy. Insurers must show a consumer has been "willfully fraudulent" before rescinding a policy. Before the change, insurers could merely point to a mistake or omission on an application before dropping a policy. The New Mexico law raises the burden of proof for the insurer. Reference
  • Connecticut. In October 2007, a new law took effect requiring approval from the state insurance commissioner before an insurer can cancel an existing policy. Reference
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