Health Insurance Rules Aim to Restrict Rescissions in CA

California regulators will have a lot more power to both prohibit health insurance plan rescissions and control questions that plans may ask applicants when rules governing individual policies take effect Aug. 18.

"Keeping your health insurance can literally be a matter of life and death, and I have zero tolerance for insurers who use pretexts to illegally rescind policies," says Steve Poizoner, state Insurance Commissioner, who pushed for the new rules. "These tough regulations embody my commitment to enforce the law and to protect consumers who buy medically underwritten insurance coverage."

The change will, for the first time, allow a health plan applicant to indicate when he or she is unsure of or cannot remember the answer to a particular health history question. That rule also shifts more of the burden to insurers to not rely solely on an applicant's self-reported health history in making a decision about whether to sell the applicant a policy.

"To the extent that such response choices impede the insurer's ability to apply its medical underwriting guidelines, the insurer shall pursue alternative methods of obtaining such information, including, but not limited to telephone interviews, medical records or other sources of information," the regulations state.

HMO plans, held by 22 million Californians, won't be affected by the new rules but individual policies, now held by 2.6 million, will be. California has the largest individual health insurance market in the nation.

The regulations will set up specific steps insurers must take before they can rescind health policies. Insurers also must file revised health history questionnaires that comply with the new regulations, questionnaires that first must be approved by Poizner's office.

Anne Eowan, vice president of the Association of California Life and Health Insurers, (ACLHIC) says the industry is not happy with the regulations saying they are "unnecessary and will impose new costs and additional medical underwriting requirements on consumers."

"Federal health care reform, effective in a month, limits any rescission to instances of fraud or material intentional misrepresentation.  Health insurers in the individual market have already instituted new standards and procedures that include understandable and clear application, accurate and complete underwriting, and independent, external reviews of any rescission decision," she adds.      

With the changes, insurers will be prohibited from:

• Rescinding policies when they are not in compliance with new underwriting practice regulations
• Requiring applicants to answer health condition and history questions that are not necessary for medical underwriting.
• Asking applicants questions that are unclear, lack specificity or not understandable, or which use confusing phrases, double negatives and certain compound questions.
• Asking applicants any question which solicits or is reasonably calculated to solicit information regarding an HIV test result
• Conducting certain rescission-focused investigations long after becoming aware of a possible misrepresentation or omission by the applicant, and seeking information about a policyholder outside the scope of such an investigation.

Insurers will be required to give each applicant for an individual plan, such as spouses, answer separate health history questionnaires "in which each question calls for a separate, identifiable response from each applicant."

Additionally, insurance agents must attest that they helped applicants with their applications.

In the last three years, Poizner has accused numerous health plans of illegally cancelling consumers' policies and reached settlement agreements with companies that represent 85% of the individual market. His office was able to reinstate coverage for 4,000 consumers whose policies were allegedly rescinded illegally, and required that consumers who paid out-of-pocket medical costs during that period be reimbursed.

Anthony Wright, executive director of the consumer group Health Access California, says he prefers that all health plans industry-wide be required to submit the same questionnaire of applicants, "but this would at least allow questionnaires to be vetted for confusing questions or those that would be more of a trap than a legitimate inquiry."

Also, he says, the rules would require health insurance companies to "do some underwriting in the front end, rather than waiting for people to get sick and then doing it on the back end."

Wright says that it's not surprising the state Department of Insurance Commission has taken such action. "Because we have the biggest individual market by far in the country, California has the biggest opportunity for abuse, and we have had the greatest abuse with some of these (insurance company) practices."

For example, two California plans several years ago were accused of launching major investigations of people who got sick and made medical claims, to see if they had lied on their applications, he says.

Since the publicity in recent years regarding unorthodox insurance company practices, Wright continues, rescissions have almost come to a complete halt. In recent testimony in the state Legislature, health plan representatives and others say that there have been only nine in the last year.

But the pressure may eventually die down without these new regulations, Wright says.