In May I blogged about Blue Cross of California's change of direction as to when it will rescind individual policyholder's coverage. Until recently, Blue Cross claimed the right to rescind an individual's health insurance policy if it later determined the insured had made any misstatements in the application, regardless of whether the misstatement was made innocently or with the intent to deceive the insurer. Under pressure from various California state regulators and plaintiffs in civil suits, Blue Cross' new position is that it will investigate the state of mind of the applicant before rescinding coverage on the basis of false statements. The latest article by the indefatigable Lisa Girion in the L.A. Times yesterday reports on the results of a California Department of Insurance investigation of Blue Cross of California. A couple of highlights: of the 83 cases surveyed by the CDI, more than half, 49 of them, were improperly handled by Blue Cross. CDI issued 67 violations of the California fair claims handling laws. Finally, the CDI is also investigating Health Net, Blue Shield CIGNA and Aetna for whether those companies are likewise violating California state law in how they handle rescissions. When large medical claims come into a health insurer shortly after coverage for an individual policy goes into effect, insurers very commonly go back and comb through the insured's application and health history looking for discrepancies that may form the basis for rescission. If the applicant has knowingly failed to disclose information that, had it been disclosed on the application, would have caused the insurer to not provide coverage in the first place, I have no problem with rescission. But the experience of California insureds dealing with Blue Cross of California accords with my own experience in dealing with insurers in other parts of the country. If rescinding coverage allows insurers to get out of paying large claims, often times any discrepancy between information on the application for coverage and the applicant's health history, no matter how insignificant or irrelevant, is sufficient in the insurer's mind to justify cancelling coverage.
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