Wednesday, February 27, 2008

Health Insurance Industry "Racing to Defuse a Growing Furor Over Retroactive Policy Cancellations"

That was the lead line in a Wall Street Journal story on the recent health insurance policy rescission controversy. The controversy is over a health insurance company's right to cancel a health insurance policy when the insured made a misstatement on the original application.

Some insurers have held they can cancel a policy even when the misstatement was not material. For example, forgetting a physician visit for the flu and later being diagnosed with cancer as a legitimate reason for cancellation.

Sound like that sort of thing can't happen? Last week an arbitration judge awarded $9.4 million to a Health Net customer whose policy was canceled. The women's policy was canceled while she was being treated for breast cancer because she failed to accurately state her weight and a heart murmur problem. She claims that was all disclosed to her agent.

Earlier Health Net was found to be paying a performance bonus to the manager whose job it was to retroactively cancel policies.

The industry is now pushing a nationwide proposal to give policyholders the right to appeal retroactive policy cancellations to a third-party panel whose ruling would be binding. Some insurers aren't waiting for a deal with regulators and are doing it on their own.

The big question is why did it take so long and why did they take such a dumb position in the first place?

It was clear from day-one that this was one of the more stupid things the health insurance industry could do generally--and do specifically just as its fate is being debated in the presidential campaign.

But saying a third-party review is now needed is not enough.

The industry also needs to make it clear that health insurance policies will not be rescinded for things that were left off an application that were inadvertent and immaterial.

Related posts:

Report: "Health Insurer Tied Bonuses to Dropping Sick Policyholders"

California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy
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