New Rescission Regs Will Hurt

It's been a while since the topic of "rescission" of individual health-insurance policies hit the headlines in California. Los Angeles Times reporter Lisa Girion and colleagues took credit for a previous regulatory flurry against health plans' rescissions, which peaked in February 2008.

Both health-insurance regulators (Insurance Commissioner Steve Poizner and Cindy Ehnes of the Department of Managed Health Care), as well as Los Angeles City Attorney Rocky Delgadillo, went on a tear against health insurers who had rescinded policies previously issued to individuals, whom the insurers alleged had materially misrepresented their health status when they applied for coverage.

Because the rescissions occurred after the individuals had submitted expensive claims, the over-seers figured that the insurers had engaged in the illegal practice of "post-claims underwriting". It was really much ado about very little (if not exactly nothing), as I wrote in a series of posts from October 24, 2007 through September 12, 2008. (You can hyperlink back through the series from the latest one.)

But Commissioner Poizner is in election mode - for governor this time - so he has obliged Ms. Girion and the LaLa Times with some new proposed regulations against the health insurers' practices.

The proposed regulations are a bonanza for trial lawyers, and will reduce Californians' ability to find inexpensive health insurance in the individual market. For example, in order to reduce ambiguity, the proposed regs state that: "Whenever possible, information from a PHR (Personal Health Record).....shall be relied upon in addition to, or if sufficient, instead of health history questionnaires."

Hang on: Are Personal Health Records now tools that relieve applicants from truthfully answering applications? Is "PHR" even a regulated term? In court, will a PHR, of whatever quality, over-ride an applicant's hand-written application? This is a Pandora's box.
Furthermore, if the applicant does not answer questions clearly, which are important for underwriting, the new regs oblige the insurer to "pursue alternative methods of obtaining such information, including but not limited to telephone interviews, medical records, or other sources of information."

Whoa again: Does this mean that if I caught some infection from a yak during my time in the Peace Corps in Mongolia, and fail to disclose it on my application, then the regulator will prevent the insurer from rescinding my policy because it failed to make inquiries to the Mongolian Ministry of Health?

It looks like all the burden of proof lies on the health insurer (which has no previous information about the applicant) and none lies on the individual (who has all the information). This makes responsible underwriting impossible.

Industry sources have told me that last year's regulatory rampage has already made them gun-shy about issuing individual policies in California, and they are rejecting many more applications. These proposed regulations will likely make the situation worse.