There is bipartisan backing to protect consumers from insurers’ wrongdoing

Despite claims from state regulators that they have taken the needed steps to end the health insurance industry’s unscrupulous practice of rescission, a bipartisan group of legislators on the Assembly Committee on Accountability and Administrative Review agreed last week that more should be done to protect consumers.

A Committee hearing intended to probe how the Department of Managed Health Care and the Department of Insurance handled allegations of widespread wrongdoing by insurance companies led Democrats and Republicans to jointly support new regulations to lessen rescissions and require an independent review when companies seek to strip someone of their coverage.

Rescission is used by health insurers to drop coverage for an individual or an individual’s family.  It is typically based on a review of the individual’s initial application for coverage that the insurer, and the insurer alone, determines included omissions in the individual’s health history.  While rescission is appropriate if insurers can show a consumer deliberately lied about a potentially costly health problem, countless examples indicate companies have used the flimsiest of reasons to kick someone out of coverage when they got sick and began incurring huge medical bills.  

A 51-year-old San Diego resident who was diagnosed with lymphoma lost his coverage because his insurer stated that he failed to disclose a prior knee injury.  The family of a 4-year-old girl lost their coverage because the insurance company alleged the family had failed to disclose a tumor in her jaw, even though the tumor was not diagnosed until after the insurance had been issued.

These cases indicated a broken system without proper protections for patients and their families when they are sick and at their most vulnerable.

In 2008 and 2009, both the Department of Managed Health Care and the Department of Insurance entered into settlement agreements with the state’s largest health insurers that sought to help consumers who had been rescinded and change company rescission policies going forward.

The Assembly Committee on Accountability and Administrative Review, which was created last year to provide legislative oversight of state government, investigated the agreements to determine how many consumers benefited from them.  

The answer: Not many.

Data given to the Committee by the two regulatory agencies indicate that only about 5 percent of rescinded consumers obtained new coverage based on the agreements, and less than that recouped money for medical expenses incurred after they were rescinded.  Incredibly, both departments indicated during a Committee hearing last week that they neither set goals for consumer participation nor have bothered to gather follow-up information on why participation was so low.

In addition to offering consumers new coverage and a shot at reimbursement, the settlement agreements between the departments and insurers also required insurers to revamp some of their policies regarding rescission.  For example, both departments required insurers to create new application forms to ensure they were easier to understand and less likely to include errors or omissions that could later be used against consumers through a rescission process.

Despite mandating some important changes, however, Governor Schwarzenegger’s Department of Managed Health Care (DMHC) has not done enough to ensure that rescission is uncommon and reserved only for bad actors that deliberately provide misleading information on their application.

DMHC has not required insurers to create an independent review process to ensure that all rescissions are appropriate.  An independent review process was required by the Department of Insurance.  The need for independent review is obvious: Insurance companies should not be the judge and jury when it comes to stripping someone of critical insurance when they get sick.

DMHC testified that three of the five major insurers under their regulatory authority have agreed to create some type of an independent review process.  It does not make sense to have some, but not all, of the companies utilize this importance practice.  Republicans and Democrats on the Committee agreed that DMHC should require this of all insurers, just as the Department of Insurance has done.

DMHC also told the Committee that they have suspended a process they began in 2007 to create new regulations regarding rescission.  The Department of Insurance is nearing completion of its new regulations, yet DMHC has abandoned its proposed regulations, and its responsibility.  

This leaves a vague and ambiguous statute in place that could be exploited again by insurers, and is a clear indication of DMHC favoring the insurance industry over the consumers it is supposed to be protecting.  Although DMHC claims to have put protections in place, officials admitted at the Committee hearing that rescissions have continued since the settlement agreements were put into place.  

Committee members were unanimous: the DMHC should finish the rule-making process it began in 2007 so that the public, the Legislature, and insurers know and understand the rules regarding rescission practices.   

Anything less is an incomplete response to a problem with serious implications for Californians and a failure to protect consumers.

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