The Devil in the Details, Part VII

Can insurers still dump you when you get sick?

Health reform is now the law of the land, and the 2,000 or so pages of the legislation contain lots of clauses and fine print that lobbyists had managed to insert as the bill wound its way along its tortuous path to reality. These affect nearly everyone who has insurance, whether from an employer or purchased in the perilous individual market. In the first six parts of this series, Campaign Desk reported on a number of provisions that were under serious discuss by the pols. We will continue the series from time to time explaining the details that have now become law. The entire series is archived here.

Early on in the presidential campaign, Campaign Desk began looking at Los Angeles Times reporter Lisa Girion’s influential coverage of rescission—the insurance company practice of rescinding coverage of people who may have been in the midst of medical treatment. Girion told of the practices of California insurers, including Health Net, Blue Shield, and Blue Cross. She unearthed a letter Blue Cross sent to doctors asking them to look for undisclosed conditions patients might have had that it could use to cancel their coverage. She also discovered that Health Net had been paying bonuses to employees who could successfully weed out policyholders who might have lied on their applications.

Last summer, insurance officials testifying before Congress said they would not stop the practice of rescission. Girion reported that representatives from three companies—WellPoint, the parent of Anthem Blue Cross; UnitedHealth Care’s Golden Rule Insurance, noted for its cherry picking prowess; and Assurant Health, the company that insured Jennifer Latham, whose ordeal was recently described in a superb piece from the Denver alt-weekly Westword—politely refused to limit rescissions only to policyholders who intentionally lie or commit fraud to get coverage.

That rubbed members of Congress the wrong way, Girion reported, and in the new law, they crafted language that says insurers cannot rescind a policy in either the group or the individual health insurance market unless the policyholder engages in fraud or makes an intentional, rather than accidental, misrepresentation of a material fact. In some states, this language offers more protections for policyholders than existing laws offer; in others, it is not much different. Bottom line: a profit-hungry insurer could still aggressively go after unwanted policyholders, claiming that they had intentionally misrepresented their medical conditions. For some companies, getting out from under a costly claim might be worth a potential lawsuit. Imagine all that court time spent arguing over whether an omission was intentional, accidental, or material. This provision takes effect on September 23, for any policy issued or renewed after that date.

Rescission will be less important in 2014 ,when insurers will have to take all comers, sick or well. It won’t matter whether someone forgot he had appendicitis at age fourteen; a carrier will have to issue a policy to him and everyone else. That doesn’t mean you won’t be asked some health questions on an application. Washington and Lee University legal expert Timothy Jost told me that companies could still ask about tobacco use and age. He said he had known of women who misrepresented their age on insurance applications. The new law permits carriers to charge people more if they smoke or are older.

The rescission provisions have confused some in the media and in advocacy organizations, so it’s not surprising that the public may be confused as well. A doctor writing a column for said that the law “ends the process known as rescission, where insurance companies review and nullify benefits after someone makes a claim.” The Tennessee Health Care Campaign issued a release a few days before the House passed the bill, saying “On Day One, rescissions—the insurance practice of dumping sick people even if they have paid their premiums—would be eliminated.”

Some press accounts have also used confusing shorthand, reporting that insurers can’t drop coverage if you are sick. That confuses another tactic insurers use if they have a lot of consumers, holding the same policy (a block of business, in insurance jargon), who have filed a lot of expensive claims. The Health Insurance Portability and Accountability Act (HIPAA) now prohibits companies from dropping people if they file these claims. But insurers have found a way around that; now, they simply jack up premiums so high that policyholders decide to drop their coverage and find something cheaper—a tough thing to do, since they are sick. People trapped in those “death spirals” won’t get help until 2014, when companies will be forced to insure everyone.

Aside from getting the facts right, the press could begin doing some good consumer stories that offer some old-fashioned caveats. Congress gave insurers a pass on long-term care insurance. The new law governing rescissions does not apply here. But the practices in this market have been just as unsavory. Some insurers were notorious for a practice called post claims underwriting, which allowed them to go back and investigate policyholders’ health history after they filed claims for long-term care. They later rescinded policies just as they did for regular health insurance.

Because insurers can still rescind regular health policies for fraud and intentional misrepresentation, it’s worth offering advice about the risks of misrepresenting crucial health or lifestyle info on your insurance application, whether for long-term care coverage or traditional health insurance. The best advice is this: don’t lie or misrepresent anything, including age, even if an agent implies that you can. Yes, sometimes they do that to clinch the sale. Some basic consumer advice bears repeating, especially in the context of what the new law will and won’t do.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.