Proposal Would Combat Rescissions of Health Insurance Policies In California

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Poizner, the state insurance chief, plans to unveil rules today that
would deter insurers from dropping policyholders who develop costly

California Insurance Commissioner Steve Poizner plans to unveil proposed regulations today to combat the health insurance industry practice of dropping members with costly illnesses.

Poizner’s draft regulations would require insurers to write
applications for coverage in plain English and allow applicants a "not
sure" answer to questions about their preexisting medical conditions.
In addition, they would bar insurers from dropping someone if the
companies failed to thoroughly investigate an applicant’s medical
history before issuing a policy.

Even if an insurer did all that, the rules would bar a
cancellation if the patient was unaware of the medical information
being sought on the application or failed to appreciate its

It is the latest effort to curb rescission, an industrywide
practice that has deprived thousands of Californians of healthcare
coverage when they were sick, left many with crushing medical bills and
saddled physicians and hospitals with uncollectible debt.

The once-hidden practice has drawn scrutiny since it was exposed in a series of Times articles over the last three years.

Consumer advocates said the rules would make it virtually
impossible for insurers to drop people over innocent mistakes,
omissions and misunderstandings. Insurers said they were reviewing the

Poizner said it would "deliver a dose of preventive medicine for rescissions."

"Consumers deserve to have their insurance companies hold up their
end of the deal, paying out claims and not canceling coverage when it’s
needed most," he said.

The proposed regulations "will give insurers the guidance they need to follow the law and help prevent illegal rescissions."

Poizner set a public hearing on the rules for July 20 in San
Francisco and may revise them based on testimony there and on written
comments. He is expected to issue a final set of rules sometime in the

William Shernoff, a Claremont lawyer who represents hundreds of
people who lost coverage, said the regulations "would be a great step

"These are very good, pro-consumer regulations that should be
enacted tomorrow," he said. "There is not one insurer in the past that
has even come close to complying with regulations like this. And if
they take effect, there would be very little rescission activity, very

But the effectiveness of the proposed rules, if they become law,
will depend on enforcement, said Bryan Liang, director of the Health
Law Studies Institute at California Western Law School in San Diego.

"If we don’t have real action, we’re just going to revisit this issue
over and over again," he said. "We really do need some significant
amount of guts on the part of the regulators to enforce."

The regulations would apply to individual health coverage sold by
Anthem Blue Cross Life & Health, Blue Shield Life & Health,
Health Net and other companies licensed by the Department of Insurance.

A second regulator, the Department of Managed Health Care, had said
more than two years ago that it would pursue rescission regulations in
response to a petition filed by Consumer Watchdog, a Santa Monica
advocacy group.

But such rules never came to pass. The Department of Managed
Health Care oversees all of the health maintenance organization
coverage and some of the preferred-provider-organization coverage in

In a statement Tuesday, the department confirmed that it was no longer
pursuing regulations and would rely instead on agreements it had
reached with five of the state’s largest health plans, including Anthem
Blue Cross, Kaiser Permanente and Blue Shield of California.

"We support statutory changes to make those protections permanent and
consistent between the two regulators," said Lynne Randolph,
spokeswoman for the department.

With that in mind, consumer advocates said they planned to keep
the pressure on Poizner, a Republican who is running for governor.

"The test for Poizner is not introducing a strong regulation but
finishing the process and standing up to the insurance companies," said
Jerry Flanagan, an advocate with Consumer Watchdog. "The public will be
watching to see if Poizner sticks to his guns."

The state Assembly is expected to vote soon on a bill that would
set a high bar on rescissions for people who purchase individual
insurance of all types, regardless of who regulates it.

The bill by Assemblyman Hector De La Torre (D-South Gate) would require insurers to clean up their applications.

And it would bar cancellations unless an insurer could prove that an
applicant willfully misrepresented his or her medical history on an

Lawmakers approved a similar bill last year, but it was vetoed by Gov. Arnold Schwarzenegger.

The governor has not said where he stands on the new bill.

Contact the author at: [email protected]

Consumer Watchdog
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