California insurance regulators Thursday said they will fight a lawsuit filed this week by a group of 38 insurance companies who seek to invalidate new rules to prevent health policy rescissions.
"These regulations are unnecessary and will impose new costs, inconvenience and privacy intrusions on consumers," said Richard Wiebe, spokesperson for the Association of California Life and Health Insurance Companies, which filed the lawsuit in Sacramento Superior Court.
"Federal healthcare reform, effective on September 23, limits rescission to instances of fraud or intentional material misrepresentation. Health insurers in the individual market have already instituted new standards, which include a clear explanation of underwriting requirements and independent, external reviews of rescissions."
But California Insurance Commissioner Steve Poizner Thursday vowed to fight the association's complaint. He said the insurance industry's lawsuit is "unconscionable" and accused its leaders of having "their heads permanently stuck in the sand. Illegal rescissions are a repugnant industry practice. In this current environment this lawsuit is simply short-sighted and morally wrong."
"Previously, insurance companies took advantage of ambiguity in existing laws to inappropriately rescind health insurance policies for individuals when they need health insurance coverage the most—after filing claims for medical treatment," Poizner said in a statement.
The association's lawsuit alleges, in part, that the state acted outside of its jurisdiction and that the state has "attempted to create new law. This is the province of the Legislature, not of an administrative agency such as the CDI (California Department of Insurance)."
A key portion of the new rules, which took effect Wednesday, seeks to put more of the burden of determining the health status and history of a health policy applicant on the insurance underwriter.
"For example," the lawsuit reads, "under the (new) regulations if an underwriter made any error when evaluating whether to offer coverage to an applicant, the insurer is prohibited from later seeking to rescind the policy if it learns that the insured misrepresented or concealed significant aspects of his medical history when applying for coverage."
The lawsuits adds that the new regulations, in contrast with the existing state statute, "are in conflict, and favor an insured who has acquired his policy through insurance fraud over an insurer who made a minor and unrelated mistake in underwriting coverage."
Poizner disagrees. He said the new regulations would ensure that insurance companies do more work themselves in the process of underwriting before accepting a policyholder and receiving premiums. And, he emphasized, the new regulations do not prohibit insurers from addressing fraud by health insurance applicants so long as the insurer has done its work in reviewing the application prior to issuing the policy.
Wiebe, however, said the insurance industry only filed the lawsuit as a next step after the negotiation process with the department failed. "The decision to file this lawsuit was made after careful consideration by ACLHIC member companies," he said. "Every issue raised in the lawsuit was discussed with the Department at various stages of the rulemaking process and in good faith discussions with Department staff. ACLHIC took this action when the regulations failed to address those concerns."
The state's new regulations go further than federal anti-rescission laws.
For example, they 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.
They also will:
- Restrict health condition and history questions on applications to those that are necessary for medical underwriting.
- Require all questions on health insurance applications be clear, specific and understandable.
- Require use of new and improved health history questionnaires that are approved by the Department of Insurance before the insurer can rescind.
- Require that agents attest if they help applicants with a health insurance application.
- Prohibit confusing phrasing of application questions like double-negatives and certain compound questions.
- Require that consumers be given a copy of their application to check for discrepancies.
- Require insurers to not rely solely on self-reported health history when possible.
- Prohibit insurers from conducting certain rescission-focused investigations long after becoming aware of a possible misrepresentation or omission by the applicant. The rules also prohibit insurers from seeking information outside the scope of such an investigation.
- Require that insurers give consumers the opportunity to respond during rescission investigations, and require insurers to listen to consumer-provided information.
- Require insurers to identify and resolve any reasonable questions arising from the application.
The rules that took effect Aug. 18 are the latest in a series of regulatory actions that seek to protect consumers who buy health policies in California.