Insurance Claims And Issues

Health Insurance: Coverage, Claims, Rescission.

    What some term "post-claims underwriting" has been the subject of previous posts.  The term refers to Rescission of Life Insurance Policies and of Health Insurance Policies after large Claims are made on the policies.  The usual Rescission action by an Insurance Company under one of these Policies involves a misrepresentation of material information in the application.  If the Rescission is successful, the Policy is voided as though it never existed, the Policyholder receives the entire Premium back, and the Claim is not paid under that Policy.

    Reportedly, three Health Insurance Companies whose CEO's testified recently to a U.S. House of Representatives subcommittee about Rescission had thereby "canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period."  Lisa Girion, "Health Insurers Refuse to Limit Rescission of Coverage" (Los Angeles Times Online, Wed., June 17, 2009).

    It is pretty clear that Rescission does not appear as an option in most instances until a Claim is made on the Policy.  Until a Claim is made on the Life Insurance or Health Insurance Policy in question, there is simply no reason for the Insurance Company to more closely scrutinize the information on the application that led to the Policy being issued in the first place.  If the application survives that scrutiny, there ordinarily should be no Rescission; if the application does not survive that closer scrutiny, then there may be a Rescission action taken or filed by the Insurance Company.  Either way, the Claim is usually the triggering event for closer scrutiny of the application.

    On the other hand, Life and Health Insurance Companies often say that they look at Rescission as a weapon against intentional misrepresentation and fraud.  Yet, when asked point-blank at the House Subcommittee Hearing recently if they would be willing to limit their Rescission actions to intentional misrepresentation, each of the Insurance Company CEO's said, "No."  Id.

    One Member of Congress is quoted in the linked article as observing that "[t]his is precisely why we need a public option."  Id.  

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"Post-Claims Underwriting Rescission," revisited.

    Another Health Insurance Company in California has settled "Post-Claims Underwriting Rescission" allegations with a regulatory agency.  Health Net Inc. reportedly agreed with the California Department of Insurance to these provisions addressing such allegations in connection with Health Insurance Policies issued to individual persons:

     1.  Pay $3,600,000.00 in Penalties;

    2.  Pay up to $14,000,000.00 on Medical Claims it had previously denied; and

    3.  Offer to reinstate 926 individual Policyholders whose individual Health Insurance Policies were "rescinded" after they made Claims.

    The settlement agreeement is said to be the first of its kind with the California Department of Insurance.  As reported in the linked article, Federal Law prohibits cancellation of Group Health Insurance Policies issued to Employers.  Lisa Girion and Marc Lifsher, "Health Net to Reinstate 926 Dropped Policyholders in California" (Los Angeles Times Online, Friday, September 12, 2008).

    The newest settlement comes shortly after many related developments on cancellation and rescission and alleged "Post-Claims Underwriting," all of them posted here previously.  As summarized in the linked newspaper article, past developments on these issues include:

    Health Insurance Companies agreeing to pay fines to the California Department of Managed Health Care;

    A lawsuit by the Los Angeles City Attorney asserting fraudulent practices;

    And an Arbitration Hearing in which Punitive Damges were assessed because the evidence showed that in part Employee Bonuses were awarded based on the number of "Rescinded" Policies after Claims were made.  See id.

    It remains to be seen whether future allegations of these practices in California will resume against individuals who hold Health Insurance Policies, get sick, and make a claim.

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Update on "Post-Claims Underwriting" vs. "Rescission" by Health Insurance Companies.

     On Tuesday, July 22, 2008 the Governor of California signed a bill into law that prohibits Health Insurance Companies from awarding bonuses to their employees based on canceling or rescinding a Policyholder's-Patient's Health Insurance Coverage.  Lisa Girion, "Schwarzenegger Signs Ban on Health Insurers' Rescission Reward Practice" (Los Angeles Times Online, Wed., July 23, 2008).

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"Post-Claims Underwriting" or "Rescission": Feds, States, Cities Battle Health Insurers.

     The State of California's Department of Managed Health Care has reached an agreement with two of the larger Health Insurance Companies in California, Blue Cross and Blue Shield, to resolve complaints investigated by the Department about the Companies' alleged "post-claims underwriting" practices.  Lisa Girion, "California Fines Two Health Plans $13 Million" (Los Angeles Times Online, Friday, July 18, 2008).  By those practices the Health Insurance Companies allegedly attempted to rescind Health Insurance Policies for supposed misrepresentations made in the application at the beginning of the underwriting process, after the Policyholder made a claim for a lot of Health Insurance Benefits under the Policy.  The agreement includes these features:

     1.  Payment of a fine.  The two Health Insurance Companies together agreed to pay $13,000,000.00 or $13 Million in fines, $10 Million by Blue Cross and $3 Million by Blue Shield.

     2.  Payment of amounts which most lawyers would view as "consequential damages" or money for damages that are a consequence of the alleged unlawful actions.  No amount was reported, but instead a "process" was agreed to by which former Policyholders could "recover medical expenses they paid out of pocket after they were dropped as well as other damages, such as homes or businesses that were lost because unpaid medical debts ruined the former members' [i.e., Policyholders'] creditworthiness."

     3.  Offer of new policies.  Both Blue Cross and Blue Shield agreed to offer new policies to certain of their Policyholders whom they canceled since 2004.

     4.  Finally, both Companies agreed to write new application forms that would somehow be "easier for consumers to understand."

     The Director of the California Department of Managed Health Care is quoted in the article as saying that the fine is a record.  On the other hand, the Director of healthcare policy for "Consumer Watchdog" is also quoted in the article as saying that the agreement is "'obstructing justice'".

    In related developments, the Los Angeles City Attorney is pursuing his own previously filed lawsuit based on accusations of false advertising, unfair practices, and using intentionally misleading application forms, also reported by Lisa Girion, "Blue Shield Sued for Allegedly Lying About its Coverage" (Los Angeles Times Online, Thursday, July 17, 2008).  The president of the California Medical Association and the president-elect of the Los Angeles County Medical Association are both identified in this article as praising the efforts represented by this lawsuit against these alleged rescission practices directed at Health Insurance Policies.  On the other hand, a spokesperson for Blue Shield announced that it has 400,000 "individual policyholders," that Blue Shield has paid "nearly $4 billion in claims for those policyholders" since 2002, that Blue Shield's application forms "were reviewed and approved by two state regulators," and that its investigative and underwriting practices are in essence top notch, which he said, "'is why we have rescinded a fraction of 1% of individual and family policies.'"

     Not to  be outdone, perhaps, the United States Congress has reportedly scheduled hearings on the accusations that Health Insurance Companies engage in post-claims underwriting or rescission of certain Health Insurance Policies.  Avram Goldstein, "U.S. to Probe Health Plans That Cancel Sick Members (Update 3)" (Bloomberg.com, Thursday, July 17, 2008).  It is noteworthy that, according to this article, the Health Insurance Policies that are the alleged targets of rescission are only Health Insurance Policies issued to individual persons.

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Increasing Risk, Increasing Insurance Role.

    Current market conditions strongly reflect significant risk.  In this situation, Insurance Coverage Issues and Claims are inevitable.  They are coming.  They are coming under all sorts of Insurance Policies.  These Insurance Coverage Issues and Claims will in turn trigger many accusations that Insurance Companies and others acting in Fiduciary settings did not act in Good Faith and Deal Fairly.  In a climate like this one, these Issues and Claims are inevitable.  See generally Peter G. Gosselin, "In This Economy, Failure is an Option" (Los Angeles Times Online Sunday, July 20, 2008).

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Restoration of Rescinded Health Insurance Policies by Settlement Agreement.

     It is reported that previously posted events concerning rescission and cancellation of at least some Health Insurance Policies in California have partly come to an end, by Lisa Girion, "1,200 People to Have Canceled Healthcare Coverage Restored" (Los Angeles Times Online, www.latimes.com, Friday, May 16, 2008).

     The California Department of Managed Health Care "brokered" a settlement with two of the larger Health Insurance Companies doing business in California, by the terms of which rescinded patients-policyholders will reportedly be able to buy "new insurance regardless of preexisting medical conditions."  For at least one of the two Health Insurance Companies agreeing to the settlement, a spokesperson avowed that "up to" the entire number of its policyholders whose Health Coverage was rescinded would be subject to "reinstatement".

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California State Government Department Reviews Health Insurance Policy Rescissions ...

... And It's NOT the California Department of Insurance Performing this Review.

    The California Department of Managed Health Care, responding to numerous accounts of cancellations and rescissions of Health Insurance Policies in California after Claims were made, announced that it would submit Health Insurance Policies rescinded over the last 4 years by each of California's 5 major Health Insurance Companies "to an independent arbiter."  Lisa Girion & Marc Lifsher, originally published online under the headline, "State to Review Canceled Health Insurance Policies" changed to, "Hope For Patients Who Lost Insurance Policies" (Los Angeles Times Online, Friday, April 18, 2008).

    If the "independent arbiter," not otherwise identified or explained in the linked newspaper article, determines that a given Health Insurance Policy was wrongly canceled then that Policy reportedly will be reinstated "and the insurers would be responsible for medical bills incurred while patients were without coverage".

    It is reported that California officials do not have a clue how many Health Insurance Policies were rescinded in California in the past 4 years, but they apparently believe that the number is in the thousands.

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Premium, Claim, Rescission of Health Insurance in California: Lawsuit.

     Hyping the Health Insurance Company bottom line by canceling or rescinding Policies after a Premium is collected and a Claim for benefits is made, are conduct that is frowned upon in California.   The Los Angeles City Attorney has filed a lawsuit based on such allegations including an apparent fraud cause of action perpetrated upon 500,000 Policyholders by California's "largest for-profit health insurer".  The lawsuit was filed in Los Angeles County Superior Court.  The City Attorney reportedly seeks restitution and penalties.  Before the lawsuit was filed, the City Attorney's Office established a web site at which it received information regarding Health Insurance Company claim practices, at www.protectingtheinsured.org.  Lisa Girion, "Anthem Blue Cross Sued Over Rescissions" (Los Angeles Times Online, Thursday, April 17, 2008).

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California Health Carrier Called on to Prove Cancellation Improvements Claims.

    Rescission or cancellation of Health Insurance Policies is a hot button Insurance Issue in California at the present time.  There are accusations that Health Insurance Companies rescind or cancel Policies improperly because they have been presented with expensive claims for high medical bills.

    Blue Cross of California issued a press release on February 23.  In the press release, Blue Cross touted changes it already made starting in 2006.  Blue Cross, the press release asserted, changed its cancellation practices in ways that will help Policyholders avoid having their Health Policies improperly canceled.

    The City Attorney of Los Angeles read Blue Cross's press release of February 23.  Six days later, a lawyer who works for the City Attorney sent Blue Cross a letter.  The lawyer introduced himself as the head of "a special litigation unit" looking into Blue Cross's "'rescission [i.e., cancellation] practices'" because those practices "'may constitute violations'" of California's laws against unfair competition and false advertising.

    In other words, the February 29 letter told the press releaser to back up the press release or things would not go well for it.  "If Blue Cross fails to adequately back up its claims," the letter advised, then "the city attorney's office may presume that they were false or misleading and take action, such as issuing an alert to consumers and possibly taking legal action."   Lisa Girion, "Healthcare Insurance Probe Grows" (Los Angeles Times Online, Wed., March 5, 2008).

    If only similar responses would be made to the press releases from those people in Washington.

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