Coverage: Reassessing Rescissions in California

New Health Dialogue is pleased to welcome, Leif Wellington Haase, the Director of New America’s California Program, to share his insights on the recent debate on insurance rescissions in California.

Few things have given California insurers a blacker eye than the practice of rescission, the retroactive cancellation of individual health insurance policies. Critics charge that insurers find supposed errors and discrepancies in customers' original applications and disenroll them after they have racked up large medical bills, leaving them unexpectedly with tens or hundreds of thousands of dollars in unpaid claims. (Rescissions are a standard part of the insurance business; plans have a right to protect themselves if someone commits fraud or omits essential relevant health information. The controversy that has been grabbing headlines in California involves insurers allegedly cutting off coverage for minor mistakes on insurance applications only after the applicants incur expensive medical services).

Last Friday, in a remarkable press conference in Sacramento, Cindy Ehnes, director of California's Department of Managed Care, found that twenty-six patients had been wrongfully dropped from insurance coverage. She ordered them immediately reinstated and their past claims paid. Ehnes also announced a review of several thousand other rescissions made by the state's five largest health plans.

This decision gave a boost to a bill, currently making its way through committees in California's Assembly and Senate, which would establish an independent panel to review rescinded policies and move toward standardizing the application process for individual coverage.

It prods insurers to clean up their act on their own, which they have pledged to do. They are getting considerable heat over rescissions. For instance, Rocky Delgadillo, the ambitious City Attorney of Los Angeles, has sued Anthem Blue Cross, the state's largest insurer, for what he contends is a deliberate pattern of false advertising and intent to disenroll patients who incur high medical costs. Anthem (which recently changed its name from Blue Cross of California) disputes the charges and has mounted an effort to repair its public image through a massive print, radio, and television campaign.

The dust-up over rescissions demonstrates the almost intractable problems with individual health insurance markets (which cover only about 2.8 million of around 28 million insured Californians) and the need to expand group coverage and to broaden risk pools through large-scale reform. It shows, in strong relief, the need for guaranteed issue (selling insurance to all comers regardless of prior health conditions) and a requirement to purchase insurance (so not just the sick seek to enroll) as part of comprehensive health reform. That gives everybody insurance that will still be there when they need it.