Health Insurance: Watch for Rescission
September 13, 2009 by Miranda Marquit
Filed under Finance
As the health care reform “debate” heats up (or devolves into loud screaming), we hear a lot about so-called “death panels” that won’t exist and complete “government takeover” which won’t happen. But what we’re not hearing much about is the increasingly common practice of rescission. With a substantial chunk of your monthly income likely going toward health insurance and other related health care costs, this is something you should be aware of.
What is rescission?
Basically, rescission is when a health insurance company retroactively cancels your coverage. This can even happen after you have pre-approval for a specific treatment. Can you imagine getting pre-approval for a $20,000 procedure, and then, after it’s done, being told that your coverage is being retroactively canceled from a date before your treatment. And this happens after you’ve been paying premiums for years. Talk about financial devastation. No wonder the leading cause of bankruptcy in the U.S. is actually medical bills.
The health care reform bill being considered right now would end this practice, along with other questionable health insurance practices. It’s no wonder that companies are taking the idea of an affordable option offered by the government (it’s an option, so if you want to keep your present insurer, you can) and turning it into something else. Because the last thing health insurance companies want is meaningful health care reform.
Let’s set the record straight on at least part of this misleading article.
Insurance companies are one of the most heavily regulated business in the US. But they do have the power to unilaterally rescind a health insurance policy after issuance when an applicant either lies on their application or materially misrepresents their condition by hiding or withholding information. Some states require the insurance company to prove fraud in order to rescind. Some states require that the insured not only intend to deceive but also know that the deception is material to the risk. The burden is on the insurance company to ask clear, unambiguous questions. The insured will win on this issue if the carrier asks vague and confusing questions. Questions that assume medical knowledge on your part (by using medical terminology) and questions that ask for your opinion of your health (like, Are you in good health? or Are you in sound physical condition?) are common examples. Ambiguity is always construed by the courts against the insurer and in favor of the insured. The contestable period is the time period within which an insurance provider can retroactively cancel (rescind) your policy. In most states the contestable period is two years from the date of application.
Am I saying the insurance companies don’t try to rescind policies without just cause? Not hardly. They aren’t girl scouts anymore than the IRS are girl scouts. But there plenty of lawyers out there drooling to stick it to them for a large settlement provided the insured has been honest.
Saying that insurance companies are heavily regulated is, in my mind, a lot like pointing out that Bernie Madoff’s setup was being overseen by the SEC. Well-connected people and companies with vast resources (and large lobbies) always find ways to get around such “regulations.” Rescission is a good example. While the practice is only supposed to be used in cases of deliberate fraud, it has become increasingly common even for those with good intentions. If you forget a small incident, it is used against you. For example, here in my state of residence, there is a battle raging in which a woman disclosed a past knee problem. She did it on the initial application, then reiterated the issue to the nurse that came to do the health exam. She was granted coverage, faithfully paid her premiums and then had an accident that required some knee work. She was pre-approved for the procedure, had it done and then had her insurance policy rescinded retroactively, leaving her with devastating bills. The insurance company isn’t having any of it, even though she followed all of their rules with regard to disclosure, and is using the nurse’s report as part of her case.
The courts are only just now starting to really become outraged at this practice, and it really does vary by state. And while there is, of course, some fraud with regard to insurance, most of the people that are stuck with these types of issues are those who acted in good faith. But, apparently, the large settlements that people are supposedly getting left and right are not large enough yet to deter the insurance companies from this and other practices. They still have the profits to more than cover it and still send their lobbyists to Washington to wine and dine the folks that are supposed to be working on health reform.
If you tell the whole story, you’ll get no quarrel from me.
I have no love for health insurance companies or their practices. Or the regulators who routinely fail to regulate and are in bed with those they regulate at both the state and federal levels. Long live regulation!
If the insurance companies are rescinding contracts illegally, then let the lawyers have at them. The burden of proof is on the insurance company.
The burden of proof SHOULD be on the insurance company. However, practically speaking, it is not. Usually, the system forces the burden of proof on individuals who do not have the connections or the know-how to navigate the system. That is one of the biggest issues I have with things right now. Most of it helps the insurance companies, and provides very little real protection for consumers who are just trying their best.
Dear “Biz”
“when an applicant either lies on their application or materially misrepresents their condition by hiding or withholding information”.
It is my understanding, that outside of the FEW states where the insurance company must prove fraud in order to rescind that what you said above isn’t necessary — that is to say, the insurance company does NOT have to show that the so-called hiding or withholding is material. ANY error or omission is legal grounds for the recisssion.