More in the unfolding litigation in California dealing with Blue Cross of California’s practices of rescinding health insurance policies is reported by Lisa Girion in the L. A. Times. You can find the story here. I’ve discussed challenges to Blue Cross’s rescission practices often in the past year or so. The latest twist is that Bill Shernoff has filed suit on behalf of one of his clients seeking an injunction to put an end to the Blue Cross company-wide practice of rescinding coverage without any effort to investigate whether the applicant intended to misstate his or her health history on their applications for coverage. Blue Cross contends that any omission or misstatement of past medical history on an insurance application justifies rescission, even if the error is unintentional or innocently made. Shernoff argues this violates California law. For what it’s worth, the new California State Insurance Commissioner, Steve Poizner, agrees with Shernoff, at least to the degree that the misstatements are “small, inadvertent and innocent.”
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It's a funny thing about rescissions and health insurers. You generally don't see them cancelling policies until claims come through the door! On the other hand, they argue that until a claim comes is made, there is no reason for them to even suspect any misreps on an application. But that also illustrates the core problem: the time to perform a competent underwriting is when the application is presented. It is fundamentally unfair for an insurer to get the application, stamp it "approved," collect the premium and than perform a reasonable underwriting of the policy only if signficant claims come in within the first year or two of coverage. This is the precise practice, retrospective underwriting, that Shernoff and others are complaining about.
by Brian S. King November 17, 2008 at 01:47 PM
Brian: What about small, inadvertent and innocent misstatements on policies that had no claims? I guess BCBS is okay with that. By the way, my family's individual BCBS policy (my wife and 3 kids, not me) has had pretty substantial premium increases over the years. In 1995, we paid $550 a quarter. Twelve years later, we're at $2,400 a quarter. I wonder what kind of "protection" we're receiving from BCBS justifying its remewal premiums? Don Levit
by Don Levit November 17, 2008 at 01:47 PM
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