WellPoint, Sebelius Spar Over Breast Cancer Rescissions

A Reuters article claiming that WellPoint subsidiaries used a computer algorithm to cancel the insurance policies of breast cancer patients sparked a sharp rebuke from the Secretary of Health and Human Services last Friday, and left the insurance giant aggressively defending its public image.

The original report alleged that WellPoint software targeted breast cancer patients for fraud investigations in order to find a pretext for dropping their policies. Although Reuters provided three examples of women who had lost their insurance shortly after a breast cancer diagnosis, the article was later corrected when it was revealed that one of the patients wasn't a WellPoint customer.

Based on the Reuters revelations, House Speaker Nancy Pelosi quickly released a statement highlighting the rescissions as "exactly the kind of health insurance company abuse our new healthcare law prohibits," and HHS Secretary Kathleen Sebelius wrote a letter to WellPoint CEO Angela Braly saying she was "surprised and disappointed" to learn of the practice.

"WellPoint should not wait to end the unconscionable practice of deliberately working to deny health insurance coverage to women diagnosed with breast cancer," Sebelius wrote. "I urge you to immediately cease these practices and abandon your efforts to rescind health insurance coverage from patients who need it most."

However, Braly responded with her own letter, arguing that the Reuters report was inaccurate. WellPoint claims its algorithm never targeted breast cancer patients specifically for coverage cancellation, saying "such software is used to look at a series of diagnostic codes meant to capture conditions that applicants would likely have known about at the time they applied for coverage."

The insurer also pointed out that in the last year only one-tenth of 1% of its more than 33 million individual members' policies were rescinded.

The dust-up comes on the heels of similar controversy over Assurant Health's computer algorithm that targeted HIV policyholders for rescission, which led to a court verdict awarding $10 million to one policyholder whose coverage had been revoked.

Although the recently passed healthcare reform legislation will eventually ban rescissions, it remains to be seen how the ban will be enforced, and the recent bad press could affect the ultimate outcome. While insurers will still be able to defend against legitimate cases of fraud, some reform proponents are concerned that the loophole will allow insurers to effectively skirt the ban by liberally applying the fraud label.

The challenge for both insurers and regulators will be establishing a system for fairly detecting and proving fraud, but the more bad press insurers get about targeted rescissions—whether the practice is widespread or not—the more likely it is that regulators will opt for stricter enforcement and possibly additional regulations.