Friday, March 30, 2007

California Fines Wellpoint $1 Million for "Unfairly" Rescinding Health Insurance Polices--Was Wellpoint Fair or Not?

The California Department of Managed Health Care has fined Wellpoint $1 million because it says Wellpoint "routinely" violated state law when it canceled (or rescinded) individual health insurance policies after the policyholders filed claims. The state said that Wellpoint made no attempt to determine whether the policyholders merited such "harsh" treatment when it canceled the policies.

From a recent LA Times story:
"The state investigation found that Blue Cross used computer programs and a dedicated department to systematically investigate and cancel the policies of pregnant women and the chronically ill regardless of whether they intentionally lied on their applications to cover up preexisting medical conditions — a standard required by state law for canceling individual policies.

"Regulators examined 90 randomly selected cases of policy cancellations — out of about 1,000 a year in California — and found violations in each one."

The standard provisions in health insurance policies, that enable an insurer to cancel a policy when the applicant is untruthful during the enrollment process about prior health history, are appropriate. No one has a right to commit fraud in filling out an insurance application.

But how many of us remember every single doctor appointment or minor illness we have had in the last five years?

California clearly believes Wellpoint has gone too far by canceling policies irregardless of whether the omission on the application was intentional or not.

But did Wellpoint go too far in the way it has rescinded these policies?

Wellpoint responded that they have not rescinded any individual health insurance policies just because the policyholder inadvertently overlooked prior health information:
"California law is clear that rescission generally does not require a showing of intent to deceive or willful misrepresentation," WellPoint spokeswoman Shannon Troughton said. "All that is required for misrepresentation to be 'intentional' is that the true facts be known to the applicant. If the applicant had no present knowledge of the facts sought or failed to appreciate the significance of information, an incorrect or incomplete response would not constitute grounds for rescission."

It's that last sentence that matters: "If the applicant had no present knowledge of the facts sought or failed to appreciate the significance of information, an incorrect or incomplete response would not constitute grounds for rescission."

If Wellpoint indeed did what it has said in their response, they were fair in their application of the policy provision. If Wellpoint has been canceling policies even when the applicant did not intentionally lie on the application, as the state charges, then shame on them.

Looking at both sides and trying to figure out the difference between "intentionally lied" and having "no present knowledge...or failed to appreciate the significance of information" is more than I can understand with what is on the table.

The California Department of Managed Health Care and Wellpoint will now battle this out.

But in the end, Wellpoint has a duty to be fair to its policyholders and not use this otherwise fair fraud provision to cancel people's policies who acted in good faith in filling out the application and now find themselves very sick--and without coverage.

Rescission of a health insurance policy--particularly when someone is going through the trauma and expense of a serious illness--is a harsh punishment even when it is justified by a fraudulent act.

If Wellpoint did what the state said they did it would also be very stupid--just as the country is about to enter a major debate over how we will deliver health care to our people and the place the private sector insurers have in that future.

When the fine points of these positions are sorted out, I hope we find that Wellpoint was as fair as they said they were.
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