State Senate Holds Hearing on Insurance Rescissions

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The State Senate held a hearing Thursday to examine what's being done to stop health insurers from illegally cancelling policies. Under state law, insurers are allowed to cancel policies only if the company proves the policyholder lied on the application. But state officials have found hundreds of cases where insurance companies "rescinded" policies anyway.

Julie Small: The Department of Managed Health Care found that Blue Cross, Blue Shield, Healthnet, and Kaiser have wrongfully rescinded hundreds of policies in California in recent years. The state fined those insurers about a quarter of a million dollars. But Jerry Flanagan with Consumer Watchdog says the state didn't help most patients get their insurance reinstated.

Jerry Flanagan: What we're seeing here is the department is back on its heels, looking for any reason not to help the patients they have a duty to protect.

Small: State officials have focused instead on getting insurance companies to notify policy holders when they're at risk of losing insurance. They're also working to create application forms that are easier to understand. But Flanagan says consumers fill out those forms just fine.

Flanagan: Dawn Foils, a Blue Cross member, got a letter in the mail one after back surgery saying, "If you had told us about a previous back surgery, we would never have given you coverage, and we wouldn't have covered you for this back surgery." Well, Dawn went back to her application, and found that she had disclosed the back surgery. And she pointed it out to Blue Cross, and Blue Cross said, "You know, well, tough. We're sticking with the rescission."

Small: Flanagan wants the state to require insurers to check out applicants completely before they issue policies. But Chris Ohman of the California Association of Health Plans says that's overkill. He says about 7% of the 28 million Californians with health insurance have policies that can be rescinded. And he says insurers have rescinded only about one-tenth of 1% of those.

Chris Ohman: If you start to require people to get physicals, or to get blood tests, or for every application, provide medical records, you build in a lot of cost, and a lot of delay to people's ability to get access to insurance. And I think that's going in the wrong direction.

Small: The state Department of Managed Health Care has prepared regulations to clarify and bolster the law that restricts rescissions. If the department issues those regulations, insurers would be expected to screen applicants more aggressively. One state official grimly pointed out California might see a spike in the number of people denied insurance. That would push them into the state's high risk pool – the health insurer of last resort.