Seven Ways to Avoid a Health Insurance Rescission
Health insurance rescission has been heavily politicized in the ongoing health care reform debate. Rescission is the term used when an insurance company issues a policy, and then later finds out that the applicant was not eligible for coverage. The insurance company then returns the premiums paid and voids the health insurance contract.
There are typically two different causes for insurance rescission:
- Fraud or intentional misstatement
- Unintentional material misstatement
Rescission and the Health Care Reform Debate
Current insurance laws restrict recession to the first two years of a new policy. The health insurance reform proposal being considered by Congress in 2010 only addresses a small number of rescission; policy rescission due to unintentional material misstatements.
Because only a small percentage of rescinded health insurance policies are likely to be affected, the rescission problem is likely to persist even after health care reform. In fact, we predict that the individual insurance mandate provision, contained in the reform bill, may increase consumer misrepresentation to obtain the required insurance at a lower price.
Political leaders attacked the rescission problem early in the legislative reform process, and it may have result in an easy entry into a bipartisan agreement. No one opposes restraining insurance companies that use the rescission provision over-aggressively to avoid paying claims. Measures that restrict rescission may be destined to be included in the reform law.
Is Legislation Necessary?
Rescission is not a widespread problem. Less than 0.5% of newly issued policies are rescinded. The percentage would be much lower if we considered all in-force policies, rather than just newly issued health insurance policies. This may indicate that rescission risk is limited to a small part of the overall insured population.
According to Congressional testimony during the summer of 2009, the majority of rescission cases are clearly instances of fraud or intentional misstatement. Yet some rescission, perhaps more than 1,000 per year, are the result of unfair action by an insurance company.
A person with a rescinded health insurance policy can be financially devastated. There is almost always a gap in insurance coverage, and sometimes a gap in treatment until the former policyholder's assets are exhausted and Medicaid takes over payment of medical claims.
How to Avoid Rescission
There are several ways that a person can avoid the risk of insurance policy rescission:
- Opt for Group Health Coverage. Rescission is only a risk with individual health insurance, and not applicable to group insurance. Opting for group coverage, when available, avoids this risk altogether
- Avoid Changing Insurers If You Have a Medical Condition. If you have an older insurance policy and have serious medical conditions, think twice before changing insurance. If a change is necessary, get personal help from a professional health insurance representative
- Short Term Medical Insurance. Use a short term major medical policy to bridge gaps in permanent coverage. This type of policy should preserve maximum "takeover benefits" rights under the law. While it is impossible to predict what health insurance options we may have in the future, it makes sense to position yourself to qualify for the best possible coverage
- Be Truthful. Answer the questions on an insurance application completely and honestly. For example, someone being treated for cancer, who answers health questions falsely and does not provide a medical history, may be at risk of rescission. On the other hand, an applicant who reveals a history of visits to a physician, to address symptoms that later turn out to be cancer, is not at risk of rescission
- Reveal Only Necessary Information. Read the insurance application questions carefully, and provide the specific information requested. Do not provide more information than is requested, and do not provide less than is requested
- Consult a Professional. When in doubt, find a health insurance professional. These independent advisers are paid by insurance companies as agents or brokers, but have additional industry training and carry professional errors and omissions (E&0) insurance. E&O insurance is specifically for thorny issues when helping clients find the best health insurance
If you have the misfortune of having a policy rescinded, get professional help immediately. Stop communication with the insurance company until your next move is clear.
An independent insurance adviser, or an attorney, can provide an opinion as to whether the rescission is likely to be successfully contested. State insurance regulators can help in the event that the insurance company has acted unfairly. If a large medical claim is looming, a financial adviser may be able to help preserve some financial assets.
Realize that only an attorney can provide legal advice, but that many attorneys are not familiar with health insurance rescission issues. As a result, it may take a team approach to build a consensus opinion on how to best address the crisis.