Regulation May Bar Insurers From Dropping Policies

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Proposed state regulations announced Wednesday call on health insurers to provide clearer applications and proactively collect medical information before granting policies — a move designed to reduce the amount of policies dropped after customers make costly claims.

The proposal, which only affects individually purchased policies and not those often obtained through employers, follows a spate of fines, complaints and lawsuits in recent years that have accused health insurers of unfairly canceling policies.

"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," said Insurance Commissioner Steve Poizner, who unveiled the regulations at a press conference.

While it’s legal in California for insurers to drop a policy if applicants misrepresent their pre-existing conditions, some insurers have been accused of post-claims underwriting that aims to better their bottom line.

Poizner’s proposals call on health insurance companies to write their applications in plain English and take the responsibility to get any information they need on prospective customers. The new rules would also allow applicants to say they are "not sure" about their pre-existing medical conditions on applications.

Calls to the Association of California Life and Health Insurance Companies, a group that represents insurers affected by the proposal, were not returned Wednesday.

The regulation will be officially published June 5 and open to public comment for 45 days. Implementation could occur as soon as the end of 2009 unless Poizner changes his mind.

Similar laws have been enacted in Connecticut and Maryland — but the regulation only applies to about 5 million individual health insurance policies in California.

The new policies would not affect the 22 million managed-health care policies — typically obtained through employers — that are regulated by the Department of Managed Health Care, said Jerry Flanagan, health advocate for Consumer Watchdog, a Santa Monica-based consumer advocacy group.

"The problem is if the Department of Managed Health Care doesn’t act, then the insurers can discriminate based on what regulates their policy," Flanagan said.

DMHC spokeswoman Lynne Randolph said the department has not proposed a regulation similar to Poizner’s, but has achieved similar ends by reaching settlements with five health plans in 2008.

"The DMHC worked aggressively last year to protect consumers through enforcement actions with the health plans that offer similar protections, and in some cases, may go beyond those" proposed by Poizner, said Randolph.

Randolph said that the DMHC supports a statutory solution from Gov. Arnold Schwarzenegger’s office that would make the rules "permanent and consistent between the two regulators."

Last year’s effort to pass rescission legislation was vetoed by the governor, who said the bill didn’t contain enough consumer protections or call for a standardized insurance application. A similar bill is being considered this year.

Consumer Watchdog
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