Senator Eliot Shapleigh - El Paso, Texas

"Rescinding Your Health"

In recent months, the debate on national health care reform has brought certain insurance practices known as rescission and cancellation to the forefront.  And although there has been considerable disagreement on how best to reform our ailing health care system, substantial bipartisan support exists for prohibiting insurers from rescinding policies.

So what is rescission?  “Rescission” occurs when health care coverage is retroactively cancelled due to an insurer’s determination that the policy never should have existed.  The insurance company usually cites missing or incomplete information submitted by the applicant as the reason.

Rescission generally does not come up until a policyholder is diagnosed with a serious illness and begins to make claims on her policy.  The practice involves an insurer combing through the policyholder's initial application for coverage and medical records to look for any missing or incomplete information or discrepancy, which they then use as a reason to rescind or cancel the policyholder's existing coverage.  Insurers rescind coverage for conditions that the policyholder does not know about, for discrepancies that are not related to the medical condition for which a policyholder is seeking care, when the discrepancies are unintentional or caused by others, and even for family members who were not involved in the misrepresentation.  In the end, the policyholder is left with significant medical debt despite the fact that she has paid her premiums in full and on time.

Robin Beaton of Waxahachie, Texas faced such a nightmare.  Three days before Ms. Beaton was scheduled to have a double mastectomy due to an aggressive form of breast cancer, her health insurer informed her that they were putting her coverage on hold for three months while they reviewed her file.  Her policy was rescinded after the insurer found a minor discrepancy regarding a visit to a dermatologist for acne.  Ms. Beaton went without health insurance for five months, and she was forced to delay her surgery even though her tumor continued to grow.  After Ms. Beaton contacted her congressman, the insurer reinstated her policy and she was able to get her cancer treated.

Here a few more examples from Consumer Watchdog:

Blue Shield rescinded Ms. Ana Maria Simoes' policy when she needed gall bladder surgery.  The insurer's reason was that her husband did not disclose his high cholesterol despite the fact that he did not know he had high cholesterol at the time they applied for the health plan.

Blue Cross of California rescinded the Shaeffers' family coverage when their daughter needed treatment for a jaw tumor.  The insurer claimed that the family intentionally withheld this information although their daughter's tumor was not diagnosed until several months after they had applied for coverage with Blue Cross.

The California Department of Managed Health Care has been grappling with this issue since 2007 and recently negotiated settlements with the state's five largest insurers to reinstate coverage for patients whose policies were dropped.  In July 2008, the state had reached a $10 million settlement with Anthem Blue Cross and a $3 million settlement with Blue Shield of California over the insurers' rescission practices.  In total, the Department of Managed Health Care settlements with the largest insurers in California resulted in the reinstatement of 3,400 policies.

So how often does rescission happen in Texas?  We actually don't know because current Texas law does not require insurers to report rescission rates.  A bill that our office filed during last session, S.B. 206, would have required insurers to report their rescission rates to the Texas Department of Insurance (TDI) and make the information available to the public.  In addition, the bill would have required to TDI to create a toll-free hotline to provide information to consumers about health insurance rescissions and assist consumers with filling out an online complaint form.

In addition to S.B. 206, we also filed S.B. 207 and S.B. 350.  S.B. 207 would have penalized insurers under the state's deceptive trade practices act if they set rescission goals, quotas or targets or paid employees bonuses for rescinding policies. 

S.B. 350 would have protected consumers and increased transparency in the application process by prohibiting insurers from rescinding an entire family’s coverage based on misinformation from a single family member.  In cases where a policy is rescinded because of information inaccurately provided in an application, the bill would have required the insurer to issue a new policy to the family members who were covered prior to the rescission.  S.B. 350 would have also required insurance agents to assist the applicant in answering questions completely and accurately, explain the risks and potential consequences of not providing complete and accurate information, and confirm that the applicant understood these consequences.

Although all three of these bills passed the full Senate with broad bipartisan support, the bills did not pass the House in time.

Earlier this summer, the U.S. House Committee on Energy and Commerce held a hearing on the topic of rescissions.  The documents obtained by the committee showed that WellPoint, Inc., UnitedHealth Group and Assurant, Inc. rescinded over 20,000 policies over a five-year period during which the three insurers saved $300 million in claims payments.

In addition, the committee found that these insurers specifically targeted policyholders who were diagnosed with breast cancer, leukemia, high blood pressure, cystic fibrosis, schizophrenia, bronchitis, asthma, rheumatoid arthritis and 1,400 other serious medical conditions.  In fact, the documents showed that some employees of Blue Cross received high scores for "exceptional performance" in rescinding policies.

However, when asked by committee members to limit rescissions to policyholders who commit fraud or intentionally make misrepresentations on their applications, the CEOs of these three large insurers refused. 

And this is why President Obama and Congressional leaders have included ending the practice of rescission in health care reform.  Bills in both the U.S. House and Senate include provisions to prohibit rescission except for when the insurer can show fraud.