The insurance industry’s ongoing practice of rescinding health insurance policies continuously makes headlines. State regulators, judges and juries have shown their disapproval of these practices by slapping insurers with heavy fines and multi million dollar damage awards. Consumers who have had their health insurance policies rescinded may soon be able to appeal that decision to an external panel if a new proposal is approved.

The proposal

According to an article in the Wall Street Journal (WSJ), the proposal was instituted by the insurance industry group America’s Health Insurance Plans (AHIP). It would essentially create an external independent panel, consisting health care professionals and attorneys, who would review an insurance company’s decision to rescind a health care insurance policy. Basically, a policyholder whose insurance has been rescinded would be able to appeal the cancellation to this panel instead of fighting it out with the insurer itself. The panel’s decision would be binding on both parties. At this point, the proposal is still preliminary. The AHIP said that it is meeting with the National Association of Insurance Commissioners in March to discuss the plan further.

Insurers back proposal

Insurance companies generally back the proposal. Although this may be surprising to some, the truth of the matter is that insurers are seeing more and more multi-million judgments from judges and juries and increasingly heavy fines from state regulators over their rescission practices.

Insurance companies are allowed to rescind policies in cases where they discover that policyholders materially misrepresented health conditions on their applications in order to obtain insurance. While valid in theory, too many insurers started using this “loophole” to avoid paying claims altogether. In other words, they would take a policyholder’s insurance premiums, never review the application and hope that policyholders would never make a claim. If they did, only then would the insurer review the application, find something out of whack and rescind the policy – leaving policyholders without any coverage at a time when they needed it most.

Case in point: Health Net

Health Net was recently slammed with a $9.4 million penalty after it rescinded a California woman’s insurance while she was going through chemotherapy for breast cancer. The woman was literally in the hospital awaiting treatment when Health Net pulled the plug – forcing her daughter to pay for the treatment using advances on her credit card.

Health Net actually got slammed twice on this case – and rightfully so according to industry experts. During an initial meeting with the arbitrator, it was discovered that Health Net had a secret bonus program where it paid bonuses to its employees to actively find ways to rescind policies – a practice that is strictly against the law. What’s worse is that it lied to state regulators at California’s Department of Managed Health Care (DMHC) about the existence of the program – twice.

When the DMHC discovered the lie, they fined Health Net $1 million. The insurer has said that it supports the proposal, but is planning on creating a similar panel of its own that would allow patients to appeal policy cancellations. The WSJ reported that Health Net claims that it won’t rescind any policies until an appeal program is in place.

If your valid insurance claim has been denied, your insurer may be acting in bad faith. It’s important to realize that you have rights. To contact an attorney whose practices focuses in this area of law, please click here. The consultation is free, without obligation and strictly confidential.