State Targets Insurance Cancellations

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California’s move last week to fine Health Net Inc. (HNT) $1 million for failing to disclose a link between employee bonuses and the cancellation of individual insurance policies was the latest move by regulators there to stop health plans from dropping enrollees, Dow Jones reports.


California managed-care regulators are taking aim at what they consider an illegal industry practice: rescinding individual coverage, sometimes after members have become sick, based on inadvertent or insignificant omissions on enrollment applications.


Health plans say rescissions happen in a small fraction of cases and are necessary to stop fraud and protect other policy holders.


Investigations of five of the seven plans that offer individual health policies in the state have led to large fines and regulators anticipate more penalties. In addition, recently proposed regulations could severely limit health insurers’ ability to rescind policies.


Cindy Ehnes, director of the California Department of Managed Health Care, said in an interview that none of the five health plans her department has been investigating has had an adequately fair process for dropping members based on application-form discrepanices.


Ehnes considers rescission “the harshest penalty possible for a possibly innocent omission of information that may be unrelated to the claim because it leaves the patient, when they’re at their sickest, uninsured and uninsurable.”


Ehnes and California Insurance Commissioner Steve Poizner last month proposed joint regulations to protect consumers in the individual health-insurance market from illegal rescissions. Among other provisions, the regulations would specify that a health plan must determine that patients willfully misrepresented their medical histories before dropping or limiting a policy.


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