A bill that may become the strongest legislation in the nation to prevent health plans from dropping coverage to members who become ill passed the California Senate recently and may soon be headed for the governor’s desk.
If signed by Gov. Arnold Schwarzenegger, as its sponsors anticipate, the legislation would set up an independent board, managed by two state agencies, which would have to approve any health plan’s cancellation of an enrollee’s plan. Only when insurers prove the applicant intentionally misrepresented his or her health on the questionnaire would cancellation be approved. If an insurer tried to cancel a policy without getting approval, the state Department of Managed Health Care and the Department of Insurance would impose administrative penalties.
“This legislation will ensure that health plans and insurers do not act as ‘judge and jury’ whenever they want to rescind or cancel a policy,” the bill’s author, state Assemblyman Hector De La Torre, said in a statement.
The California Association of Health Plans (CAHP) in Sacramento, which represents 39 health insurance companies, is strongly opposed to the bill not because of the requirement for panel review, but because of the difficulty of proving someone intentionally withheld health information in an attempt to deceive.
“It’s hard to prove because it’s virtually impossible to prove what was in a person’s mind or heart,” says Nicole Kasabian Evans, spokesperson for CAHP. “Setting the standard to be based on what information was known or available at the time a person applied for coverage is a more reasonable standard.”
“ Unfortunately, there are some cases where enrollees are not accurately disclosing their health status, and it drives up the cost of insurance for everybody else. It is important to note that health plans rarely rescind policies,” says Charles Bacchi, CAHP executive vice president. “Only one-tenth of 1%—a tiny fraction—of individual policies are rescinded. However, with just 5% of beneficiaries accounting for more than half of healthcare costs, it only takes a few people misrepresenting their health status to make everyone else have to pay more.”
The bill would also standardize the set of health history questions all insurance plans doing business in California are allowed to ask and require plans and insurers to complete medical underwriting prior to issuing a contract. That’s because in many cases, applicants may not know or remember what is in their medical record with enough detail to be honest about it on the application. Such cancellation practices have become increasingly common, with health insurers dumping their members on grounds that they were not forthcoming in their applications about previous health issues, regardless of whether they remembered them and whether they have any bearing on their current illnesses.
Unlike similar language in some of the national health reform bills that call for a guaranteed issue, which would not take effect until 2013, the California legislation would take effect in January 2011. De La Torre of South Gate, who sponsored the bill with the California Medical Association (CMA), says studies of such rescission practices estimate that 1,000 people in the state annually now have their insurance policies cancelled by their health plans because of such practices. Under this new law, they would have no interruption in their care.
“For example, there was a gentleman in his 50s who forgot to mention on his application for health insurance that he had knee surgery when he was 18,” De La Torre says. “They held him accountable and cancelled him after he got cancer, even though there was no connection between the surgery and the cancer. They were happy to take peoples’ insurance premiums as long as they are healthy, but not after they got sick.”
Texas and Connecticut have new rules barring rescissions, but without the teeth of the independent agency that would be required to approve any insurance plan’s petition to cancel a person’s coverage, De La Torre says.
“Insurance companies in California have a long track record of rescinding health coverage after people get sick,” says Dev GnanaDev, MD, president of the CMA in Sacramento, which helped sponsor the Assembly Bill 2 (AB 2). “The practice of rescission puts patients at risk, leading to increasing medical costs for the patient, doctor, and hospital, while the insurer makes a profit.
“Unfortunately, fines and lawsuits have not deterred such practices, and settlements amount to a slap on the wrist after the damage is already done,” GnanaDev says. “Assembly Bill 2 would protect patients when they need it most, making certain that health plans and insurers do not act as judge and jury whenever they want to rescind or cancel a policy.”
Enactment of the bill into law is not a slam dunk. Schwarzenegger vetoed similar legislation last year. However, after that veto, he and his staff worked with the governor’s office to make certain changes in the bill that resolved Schwarzenegger’s objections, De La Torre says.
“We have to hold him to his word that was why he vetoed,” De La Torre says. “Now he should not have any excuse for not signing this. And for all the health reform debate going on now about this same practice, people are all the more sure they want to protect those who have health insurance” from such arbitrary cancellations.
Current law prohibits insurers from post-claims underwriting, which includes rescinding, canceling, or limiting a plan contract due to the plan’s failure to complete medical underwriting and resolve all reasonable questions arising from the application, De La Torre said in a statement.
“It is well publicized that health plans and insurers have paid large bonuses to their employees for rescission of policies, practice illegal rescission, and put patients in harm’s way by rescinding their health coverage when they need it most.”
Last year, the state Department of Managed Health Care reached settlement agreements with some of the state’s largest health plans that were accused of illegally cancelling the health policies of some 3,400 Californians after they became ill. The agency ordered the plans to restore coverage and pay back all medical expenses the cancelled policyholders incurred in their efforts to receive treatment.
Consumer Watchdog, a Santa Monica–based advocacy group, has collected numerous stories of patients whose policies were cancelled, such as the case of Selah Shaeffer, age 4. Blue Cross allegedly cancelled her parents’ Blue Cross policy, stating that they had intentionally withheld information about her jaw tumor on their application. “However, the family doctor did not diagnose the tumor until months after the policy had taken effect,” the advocacy group said.
Another is the story of Ana Maria Simoes, who needed gall bladder surgery. Blue Shield said her husband failed to disclose his own high cholesterol on their policy and denied her gall bladder coverage on those grounds, even though her husband, a Portuguese immigrant with limited English skills, did not know he had high cholesterol at the time. “His doctor simply told him that he was prescribing Lipitor because men his age often needed it,” the advocacy group said.
“Without AB 2, insurers will continue to rescind coverage even if patients honestly filled out their applications for coverage,” says Consumer Watchdog spokesperson Jerry Flanigan.