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NAIC to Explore Extent of U.S. Health Insurance Rescissions
(BestWire Services Via Acquire Media NewsEdge) California in recent months has put a spotlight on the alleged improper rescission practices of health insurers. Now, a committee of the National Association of Insurance Commissioners wants to determine if the practice extends beyond the Golden State. Problems stemmed from the practice of post-claims underwriting, where a health insurer illegally cancels coverage after a policyholder submits a medical claim, usually a costly one. A California law states health insurers cannot cancel an individual policy unless a person willfully misrepresents health status or commits fraud when filling out an application. Insurers also must underwrite a policy before they issue the policy (BestWire, Feb. 8, 2007).
Post-claims underwriting and the resulting rescissions in the individual market seem to be isolated to California, said Oklahoma Insurance Commissioner Kim Holland, vice chairwoman of the NAIC's health and managed care committee. But to see what's happening in other states, a committee task force is preparing a survey that will be sent out to insurance departments and health insurers, she said.
The questions will determine the extent of rescissions, the reasons a health insurer provides for a rescission and why a consumer asserts a rescission isn't appropriate, Holland said.
The individual market provides coverage to 18 million people who don't have access to employer-sponsored insurance and aren't eligible for public programs, according to America's Health Insurance Plans. It's a key market, as several proposals at the state and federal level are seeking to expand access to coverage to people who no longer have employer-provided coverage.
"The individual market is absolutely an insane place," said Samuel Fleet, president and chief executive officer of AmWins Group Benefits, a wholesale broker. "You get a combination unscrupulous buyers with unscrupulous sellers, and that?s really a bad combo.? People misrepresent their medical histories or health status on applications "all the time," Fleet said.
Jessica Waltman, vice president of policy and state affairs for the National Association of Health Underwriters, said not all states allow for medical underwriting in the individual market so not all states will have the up-front underwriting requirement.
"Even in states that do allow for it, the up-front language may not be included," she said. "However, that is standard industry practice that underwriting occurs at the time of the individual application. But so is post-claim review of applications to detect any fraud because of the adverse selection potential in the individual market."
More recently, under a bill that cleared the California legislature, health insurers' ability to rescind policies would be strictly limited. The move came in the aftermath of a series of multimillion dollar settlements between state regulators and insurers over alleged improper rescissions of policies. The measure establishes a member's coverage cannot be rescinded unless the policyholder intentionally misrepresented or omitted health information on the application for coverage (BestWire, Sept. 2, 2008).
Some critics of California's health insurers contended the rescission problem was due to complex and confusing applications.
Mistakes about medical history due to complex applications can happen, said Jay Cook, president and CEO of MIB Group Inc., a provider of information used to detect omissions and material misrepresentations on insurance applications. "Misrepresentation can be an innocent misinterpretation of the question."
The NAIC wants to make applications less complex to eliminate any possibility of an inadvertent error, such as failure to disclose a health condition because a question wasn't clear, Holland said. Some applications can be four-pages long, with questions such as "have you ever" had a certain health condition? she said. A 50-year-old probably can't remember "every single time" they've been to a doctor during their lifetime.
Health insurers must do a better job on the initial underwriting, at the "front-end," or the time an application is filed, instead of waiting until claim is filed, Cook said. "Our goal is to help the underwriters really assess risk at the time that application comes in so they can make that best initial judgment."
Robert Zirkelbach, an AHIP spokesman, said that under AHIP's individual market reform proposal put forth last December, "we advocate for states to provide consumers with access to a third-party review process for rescission decisions. The data in the report show that rescissions "are very rare" and occur in about 0.15% of policies, he said.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
Copyright ? 2008 A.M. Best Company, Inc.
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