Friday, January 5, 2007

Bravo Kaiser Permanente!--As the Insurance Industry Defends Screwing its Customers

I have always had the greatest respect for Kaiser Permanente (KP) and the way it has always conducted itself--in its operations and in the policy debate.

That confidence was reaffirmed this week when KP announced that it is working with the California Insurance Commissioner to craft new guidelines for an insurer's ability to cancel, or rescind, insurance coverage when the applicant made misstatements on their original application for coverage.

Traditionally, an insurer can cancel coverage (and refuse to cover a medical claim) when the insured misrepresented their medical history on their original application. The provision is designed to prevent someone from signing up for insurance after they learn they have a serious illness. This applies most often to individual policies and is a fair provision.

There has been a mini-scandal in California recently when it was learned that insurers are aggressively using that provision against people who had some sort of minor medical incident that later turned out to be the precursor of a serious illness but didn't mention that more minor problem on their application. The application generally calls for the insured to list everything with an open-ended request for any kind of medical attention over a period of years.

Most insurers in California are now arguing they can cancel (or rescind) a policy for any omission in the original application even if it was inadvertent (Can you remember absolutely every doctor visit you have had in the last five years?)

This practice is generally known as "post claim underwriting." In my experience it has historically been practiced by the less respected marginal carriers––not the cream of the industry.

The health insurance industry's position is sleazy!

The point of this very appropriate policy provision is to catch material omissions--people trying to cheat and get coverage after they find out they have a problem and lie about their preexisting condition on the application. It was never intended to catch the guy who went to the doctor two years ago with headaches, the doctor gave him a clean bill of health, and then a year after getting coverage finds out he has a brain tumor. But that's what most insurers in California are arguing.

Shame on them!!!!!

Kaiser is now suggesting that more of an examination of the situation is necessary to see if the omission was intentional or merely an over site because, for example, the insured appropriately didn't see the earlier visit as important and therefore overlooked it in a later application for insurance.

The right policy should be about what is material--not finding some detail to retroactively rescind coverage when a person acting in good faith becomes ill months or even years later.

Granted, KP did get themselves in trouble with the insurance commissioner on one of these issues and did pay a $100,000 fine.

But at least Kaiser Permanente has the smarts to know they need to change a bad policy instead of foolishly defending it like the rest of the insurance industry (now scoring astronomical profits) in California!

The same claim management garbage has also been going on in the disability insurance industry in recent years. You can read an earlier post on that.

What is going on in the executive suites in this industry? Have some people become so focused on their stock options that they need to figure out how to screw their customers??????

All this behavior ultimately produces is big fines, an embarrassing reversal in policy, and political ammunition for ambitious office seekers.

You there in the corner office, Wake Up!!!!!!!

A background piece on this issue.
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