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What is health insurance rescission?

October 23, 2010

Question: What Is Rescission?

Answer:  Rescission is a legal action that voids a contract. In a medical insurance contract, rescission is the retroactive cancellation of a policy because the policyholder did not reveal a pre-existing condition at the time of application or enrollment.

Why is rescission controversial?

Rescission is controversial because it appears as though health insurance companies may have abused the practice to avoid paying for costly medical procedures. For instance, it has been argued that health insurance companies may substantially increase their scrutiny of those policyholders who are diagnosed with potentially costly illnesses, such as breast cancer. In some cases, health insurance companies may have cancelled coverage immediately before or after a policyholder received expensive treatment.

When is rescission permitted?

Health insurance companies argue that rescission is necessary to control fraud and to keep down the premium costs of other customers. In order to keep costs down, health insurance companies claim they must cancel the policies of those who fail to reveal pre-existing conditions because a revelation of an adverse health condition might have resulted in increased insurance premiums, or even rejection of the insurance application entirely.

The 2010 Patient Protection and Affordable Care Act (PPACA) makes rescission illegal beginning in September 2010--except in cases where fraud or misrepresentation is involved. In a display of good faith, the health insurance industry agreed to comply with the mandate four months early, starting in May 2010.

What if your coverage is rescinded?

If your health insurance company rescinds your policy, contact its claims department and request a written explanation. If you believe the rescission was unwarranted, contact your state's Department of Insurance. Professionals there can advise you on the best course of action; some may even help you file a complaint.

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