Could we soon have federal protection against healthcare insurance rescissions? Stand by!

Kaiser Daily Health Policy Report
kaisernetwork.org, July 18, 2008
Capitol Hill Watch

House Committee To Investigate Health Insurance Policy Rescissions Nationwide

House Oversight and Government Reform Committee Chair Henry Waxman (D-Calif.) on Thursday at a hearing on health insurance policy rescissions said that the committee will launch a broad investigation into practices used by private health insurers in the individual market, CQ HealthBeat reports (Reichard, CQ HealthBeat, 7/17). About 14 million U.S. residents purchase health insurance through the individual market (Girion [1], Los Angeles Times, 7/18).

Waxman said that the investigation is necessary as a number of proposals seek to expand health insurance to more U.S. residents through the individual market (CQ HealthBeat, 7/17). As part of the investigation, the committee will send inquiries and requests for policy documents to a number of large health insurers (Girion [1], Los Angeles Times, 7/18).

Waxman said that whether federal legislation is needed to regulate the practices used by health insurers in the individual market remains undetermined. "We'll do an investigation first, and then we'll see if it makes sense," he said.

Hearing

The hearing focused on rescissions, a practice in which health insurers retroactively cancel individual coverage policies because of fraudulent or misrepresented information on applications and leave former policyholders liable for all medical claims previously covered by their policies. In addition, the hearing examined "post-claims underwriting," a practice in which health insurers re-evaluate policyholder applications after they had begun to file medical claims. The re-evaluations in some cases lead to policy cancellations or rescissions (CQ HealthBeat, 7/17).

During the hearing, Stephanie Kanwit of America's Health Insurance Plans said that policy cancellations and rescissions are necessary to protect health insurers from fraud. She said that health insurers cancel about 0.2% of individual coverage policies annually.

Kanwit also said that AHIP in December 2007 issued new guidelines on policy cancellations (Goldstein, Bloomberg/Indianapolis Star, 7/18). Under the guidelines, policies should state clearly that policyholders have the right to appeal rescissions and that a third party should administer their appeals, she said (CQ HealthBeat, 7/17). However, when asked by Waxman, Kanwit could not provide information on the number of health insurers that follow the guidelines (Bloomberg/Indianapolis Star, 7/18).

HIPAA Protection?

Waxman said that, under the Health Insurance Portability and Accountability Act, individual health insurance policyholders who have their policies canceled have the right to have their coverage renewed unless they have committed fraud or misrepresented their medical information intentionally. However, only four CMS employees administer HIPAA, and the agency has never taken action against health insurers for post-claims underwriting that violates the rights of policyholders under the law, Waxman said.

According to Abby Block, director of the Center for Drug and Health Plan Choice at CMS, the agency intervenes in such cases only when states fail to take appropriate action to protect policyholders. Block also said that states are responsible for allegations of improper policy cancellations or rescissions (CQ HealthBeat, 7/17).

California Fines

Officials from Anthem Blue Cross and Blue Shield of California on Thursday agreed to pay $13 million in fines and offer new health plans to more than 2,200 California residents who had their coverage rescinded after becoming ill and incurring large medical bills, the Los Angeles Times reports. Under the agreement, Anthem will pay a $10 million fine to the state Department of Managed Health Care and will offer new policies to the 1,770 former members who have had their coverage canceled since 2004, while Blue Shield will pay a $3 million fine to DMHC and will offer new policies to the 450 former members who have had their coverage canceled since 2004.

The fines are the "stiffest penalties yet in efforts by state authorities to curb what they view as an abusive practice of investigating and canceling policies after policyholders run up big medical bills," according to the Times. DMHC Director Cindy Ehnes said, "The fine is a record in DMHC history and it sends the message that if you come into California and sell health insurance, you must play by the rules" (Girion [2], Los Angeles Times, 7/18). Last week, Ehnes said that insurers who did not agree to settlements would face stiffer penalties (Tayefe Mohajer, AP/Contra Costa Times, 7/18).

In addition, the insurers agreed to establish a process for former policyholders to be compensated for medical costs they paid out of pocket after they were dropped from their plan, as well as other damages, such as loss of home or business resulting from bad credit due to unpaid medical debts. Neither insurer admitted any wrongdoing under the agreement.

As a result of Thursday's announcement and another deal struck earlier this year with Kaiser Permanente, Health Net and PacifiCare, nearly 4,000 California residents have had their coverage reinstated, according to Ehnes. The settlement also closes DMHC's investigation into rescissions.

According to the Times, the settlements do not directly affect a lawsuit by Los Angeles City Attorney Rocky Delgadillo, which involves rescissions by Blue Cross; lawsuits by former members seeking financial compensation; and Insurance Commissioner Steve Poizner's investigations into insurers' rescission practices (Girion [2], Los Angeles Times, 7/18).

Possible Future Fines

Blue Shield agreed to the settlement because although there is a lack of direction from the state on rescission practices, the insurer wants to move on from the issue, according to Blue Shield Vice President of Public Affairs Tom Epstein. Blue Shield could face an additional $2 million fine in 18 months if it does not simplify its applications and become more transparent with enrollees and members who are being investigated and risk losing their coverage, according to Ehnes. Epstein said, "We are certain to do those processes to avoid that fine" (AP/Contra Costa Times, 7/18).

Los Angeles Lawsuit

In related news, Los Angeles City Attorney Rocky Delgadillo on Wednesday filed a more than $1 billion suit against Blue Shield of California, alleging that the company illegally rescinded coverage for 850 policyholders after they became ill and filed claims, the Times reports. According to the suit, the not-for-profit insurer uses complex and confusing applications for coverage to facilitate mistakes by individuals that can later be used to cancel their coverage. Delgadillo said, "For decades, health insurers have gamed the system and reaped billions. The time has come to ... set things right."

The suit also accuses Blue Shield of falsely advertising its coverage, alleging that the insurer often rescinds coverage when members need substantial medical care.

Blue Shield spokesperson Tom Epstein said the suit is a "cheap political stunt" and "totally without merit." He said Delgadillo does not have a "shred of evidence" that the company acted improperly. The applications used for new members were reviewed and approved by two state regulators, Epstein noted. He said Blue Shield "has always been careful in our underwriting of health coverage policies and in our investigations of the rare contracts that are rescinded," adding, "This is why we have rescinded a fraction of 1% of individual and family policies."

Delgadillo brought similar suits earlier this year against Anthem Blue Cross and HealthNet (Girion, Los Angeles Times, 7/17).

From John Curry