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Ruling out rescissions

Federal and state legislation takes aim at the insurance industry's practice of dropping patients.

September 16, 2009

One of the best arguments for universal health insurance is that it would eliminate cases such as Robin Beaton's. A former nurse in Texas, Beaton's coverage was canceled retroactively by Blue Cross while she was awaiting a double mastectomy. Why? As she told Congress, she had unwittingly omitted some of her medical history from her application form. It wasn't related to her cancer, but the omission gave Blue Cross an excuse to rescind her policy.

Beaton was fortunate enough to have her coverage reinstated a few months later, after her congressman intervened. Thousands of other individual policyholders haven't been so lucky. A congressional subcommittee found that 20,000 people had their policies rescinded by just three insurance companies over a five-year period, saving the companies $300 million in claims. It also unearthed evidence suggesting that one of those companies -- WellPoint Inc., which owns Blue Cross in California -- encouraged employees to rescind policies as a way to cut costs.

Rescissions are just the most extreme form of cherry-picking those seeking individual coverage. Other techniques that insurers use include denying policies to people who previously suffered a serious ailment, or tailoring coverage to exclude unusual and costly conditions. Such exclusions push consumers into expensive state programs for "high risk" individuals or leave them with no coverage.

The healthcare bills being debated in Congress would eliminate these problems by requiring insurers to offer policies to everyone, prohibiting them from making customers with past illnesses pay higher premiums and requiring virtually everyone to carry policies -- a set of reforms that industry lobbyists have endorsed. Yet the fate of that legislation is uncertain. Meanwhile, Assemblyman Hector De La Torre (D-South Gate) has pushed a bill encouraged employees to rescind policies through the Legislature to give consumers more protection against rescissions. Insurance companies have opposed this measure, however, as has the Chamber of Commerce, arguing that it would make it virtually impossible to stop fraud.

The insurers have little credibility on this issue. De La Torre's bill, AB 2, like the regulations recently proposed by state Insurance Commissioner Steve Poizner, would require companies to use a clear, standardized application form and to investigate consumers' medical histories before granting them policies. The bill also would forbid rescissions except in cases of intentional deception -- a tough standard that would force insurers to review applications more diligently. That's where the responsibility belongs. Gov. Arnold Schwarzenegger vetoed a similar bill by De La Torre last year, offering a conflicting jumble of complaints. The Legislature has given him a chance to redeem himself, and he should take it.

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