CA Legislature’s “Reform” of Health Insurance Cancellations Resembles Insurance Industry’s Own Plan

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Insurers, Satisfied With Getting a Legal Edge Against Patients, Drop Opposition to the Bill

Santa Monica, CA — Consumer Watchdog warned today that a new bill to be voted on tomorrow would make it more difficult for patients to recover unpaid medical bills resulting from cancellations of coverage, even when the cancellations were illegal and unwarranted.  The legislation and recent settlements with regulators are part of an industry lobbying effort to shield themselves from legal liability under the guise of reform.

AB 1945 by Assemblyman Hector De La Torre, before the Senate Judiciary Committee tomorrow, would allow regulators to outsource oversight of policy cancellations to private companies, even though such companies operate under financial incentives that favor health insurers.  Last Wednesday, all health insurers and health plans removed their opposition to the bill.  Consumer Watchdog said the bill should be amended to limit rescission to instances where a patient lied about a past medical condition and regulators, not third-party reviewers, should assist patients prior to the rescission being carried out.

Following several years of public and media scrutiny over retroactive policy cancellations — so called "rescissions" — that often leave patients uninsured and hundreds of thousands of dollars in medical debt, insurers proposed a model policy solution designed to shield them from future legal liability. That plan closely resembles the De La Torre bill.  

The insurer proposal, announced in a white paper in late 2007, would require cancelled patients to appeal to an independent panel without help from an attorney.

Under both the De La Torre bill and health insurer proposals, patients would have to interpret and even try to make complex legal arguments, said Consumer Watchdog. The industrywide strategy is to promote "reforms" containing complex proposals that favor them in legal proceedings.

"Insurers are lobbying hard in the Legislature and at regulatory agencies for a ‘get out jail free’ card that allows their financially captive third-party agents to play judge and jury over rescission reviews," said Jerry Flanagan of Consumer Watchdog. “California patients who’ve lost their health, their credit ratings, even their homes after illegal cancellations of their insurance need tough new rules and criminal prosecutions of insurance executives whose companies boost profits by cutting loose anyone who dares to get sick. Instead, insurers are getting industry-friendly legislation and capitulation by regulators. The industry-backed ‘reforms’ and settlements give lip service to allowing patients to recover unpaid medical bills and other damages caused by illegal policy cancellations, but actually foist big legal burdens burdens on patients."

A settlement announced Friday by the Department of Managed Health Care (DMHC) would allow insurers in many cases to evade any payment of unpaid medical bills resulting from policy cancellations.  Under the settlement, insurers could use closed-door arbitration proceedings where patients would likely not be able to afford legal representation to evade paying up tens of thousands of dollars in medical bills racked up by patients both before and after the policy rescission, no  matter how illegal it was. Patients would also be fighting the insurer about the necessity of their medical care in front of arbitration judges with financial ties to the health insurers, not before doctors or medical experts.

Though under the current De La Torre bill, patients who submit to the third-party review could still sue their insurer to recover past medical bills, insurers could use favorable results made by captive third-party reviewers as evidence against patients in subsequent court cases.  It was only civil lawsuits that forced regulators to act in the first place. Prior to a wave of lawsuits in 2006, 289 policyholders complained to the DMHC that their insurance was improperly canceled. The agency ruled against policyholders in all but 10 to 20 cases.

The proposal by America’s Health Insurance Plans (AHIP) may be downloaded here.

Read Consumer Watchdog’s letter on AB 1945 here.

Consumer Watchdog raised the following concerns with the De La Torre proposal:

* Without a clear standard for retroactive health insurance cancellations, AB 1945 would play into the insurers’ hands. Under insurers conception of the law, even if a patient reported all health conditions she knew of when applying, but omitted a detail of her record that she was not aware of, the plan could still later rescind the policy.

* Even the most independent and well-run review will not return fair and consistent results if health plans and insurers are allowed to rescind coverage without a showing of a patient’s “willful misrepresentation” before a rescission is carried out.

* If companies are required to prove a patient committed fraud before rescinding, then the problem of wrongful rescissions would be largely self-regulating.  Insurers and health plans would no longer bring “gotcha” actions against patients who never knew of, failed to appreciate the significance of, or forget some detail of, a past medical problem.

* The insurer-favored proposals fail to forbid rescission if omitted patient information being used as the grounds for cancellation would not have been grounds for refusing coverage in the first place. Such usually minor omissions also not be grounds for defending a rescission.  For a rescission to be rightful, an insurer must prove a patient misrepresented a health fact that materially affected the insurer’s decision to grant coverage.

* Even if a third party panel includes laypersons and legal experts, it is not good policy to have a company — whether for-profit or nonprofit — with financial interest in retaining its contract with the state replace a judge and jury.

* The “facts” of a rescission review – whether a patient lied – require an exhaustive review of the rescinded patient’s actions, unlike existing third-party medical reviews that consider the particulars of a diagnosed medical condition and do not require an interaction with the patient. The two situations cannot be compared.

* The existing third-party independent medical review has come under increased scrutiny and criticism for failing to observe the appropriate statutory requirements when conducting reviews, and the Department has been lax in its oversight.

* Insurers may at any time bring pressure to bear on the regulators and seek termination of a contract if a reviewer too often returns unfavorable results.  In fact, the IMR review process under a company known as Maximus sides with health plans in 70% of the cases it reviews. That’s why the insurance companies have publicly supported the same system for rescission.

* The great majority of rescissions involve the actions of  insurance brokers who often counsel patients about how to fill out the complex applications of the individual insurance – recommendations that are often colored by the insurance agent’s financial incentives in selling coverage.  Who would review the agent’s action in the third-party review? Who would judge the weight of that evidence?

* Under a third party review, a patient would be at a significant disadvantage to make her case because she would not have an attorney to represent her.
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Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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