Health Insurer Rescissions Creating Backlash

Not only are health insurers rejecting individuals through medical underwriting upfront, but they are also rejecting policy holders retroactively when it's time to pay claims. The process is called rescission. Insurance providers claim that if any information on the application is omitted or false (whether intentional by the applicant or not), the insurer can rescind the policy. The insurer voids the policy and returns the premiums.

The Wall Street Journal's "Health Insurers Address Issue Of Nixed Policies" cites that a strong backlash is developing over rescissions. A California judge awarded $9.4 million to a hairdresser whose policy whose was voided after she started treatments for breast cancer. Health Net (HNT) said she falsified her weight and did not reveal that she was short of breath during exercise. The judge called Health Net's action "reprehensible". The WSJ continues with other outrageous examples.

The insurers are acting to forestall pending state regulations forbidding rescissions. They are calling for the states to establish independent arbitration boards which would have final say on rescission requests. Some insurers are setting up an internal appeal process for policy holders as a start. WellPoint's (WLP) California Blue Cross has agreed to stop soliciting doctors to identify policy holder's pre-existing conditions.

Pressure is mounting as more employees have to purchase insurance in the individual market, where little or no protections are offered. Politicians are seeing a large enough middle class constituency to "feel the pain".

The game changing event for the individual marker occurred when the non-profit Blue Cross organizations converted to for-profit corporations. At that point America lost its insurer of last resort. The Blue Cross organizations previously filled the roll in America that national healthcare does in other countries. No one was rejected upfront or retroactively. Now America needs to fill the void.

America's health insurers realize for the first time that the political pressure is becoming real and they will have to act in the nation's best interest to survive. On the positive side, the WSJ says: "The industry would ultimately like to see guaranteed issue married to laws that require everyone to purchase insurance, creating a larger financial pot for claims payouts." With guaranteed issue and full participation, the whole rescission issue disappears.

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