The Fight Over Rescissions

By Jeremy Herb

At an Energy and Commerce Committee hearing this summer, members heard the story of Robin Beaton, a 59-year-old whose insurance was revoked after she got breast cancer. The reason? She didn't disclose she once was treated for acne. Beaton isn't unique. Her story resonates with the thousands of Americans who each year fall victim to rescission, the practice of revoking insurance. Even Republican subcommittee chair Joe Barton, who voted against the final commerce-committee health-care bill, denounced rescissions, declaring he spoke for the committee "on both sides of the aisle." But when oversight subcommittee chair Rep. Bart Stupak asked the three insurance executives at a June hearing if they would stop the practice, all responded with a no.

Rescissions are unique to the individual insurance market, occurring when companies issue a policy, then revoke it after a claim is filed. The practice, also called postclaims underwriting, is designed to help insurers guard against fraud, stopping people from purchasing insurance after they get sick. But its use with people like Beaton, whose acne treatment had nothing to do with her breast cancer, drew the ire of the congressmen on the subcommittee. "It's a bigger issue than people think," Stupak says. "I think it took everybody by surprise, the extent that it goes on." The commerce-committee investigation released the first public data on the practice, finding that the three companies, WellPoint, UnitedHealth, and Assurant, rescinded nearly 20,000 policies from 2003 to 2007, saving $300 million. The committee found that at WellPoint, employees were rewarded for rescinding policies based on how much money they saved the company. (A WellPoint spokesman says the company has reformed its rescission practices.) "The nature of competition is kind of a race to the bottom," says Georgetown professor Karen Pollitz, who has studied postclaims underwriting and has testified before the committee. "It just doesn't pay to cover somebody when they have cancer if your competition won't."

A federal law passed in 1996 bans rescission except in cases of fraud. But the law goes unenforced because there's no regulation at the federal level and nearly all states have much weaker laws on rescission, says Pollitz. The commerce-committee investigation found that just four states tracked rescissions. More than one third of state commissioners couldn't supply the committee with a complete list of insurers that offered individual health policies in their state. H.R. 3200, the current house version of the health-care bill, clarifies the ban and creates a new office and commissioner for federal enforcement. Stupak says he also plans to introduce amendments limiting rescissions to 30 days after a policy is issued.

Representatives of the health-insurance industry say there's broad consensus in the industry about ending rescissions, but that appears contingent on the passage of  broader reforms that would ensure universal coverage. With everybody covered, the practice becomes virtually obsolete. Robert Zirkelbach, a spokesman for America's Health Insurance Plans (AHIP) says rescissions are already rare, occurring in less than 1 percent of policies. If all Americans had insurance, the incentives to drop people from insurance rolls would change, especially as increasing numbers of healthy, currently uninsured people buy into the system. "In the situation of health reform, you get more of this horse-trading aspect," says Hilary Haycock, who helped author a study on the practice for the Robert Wood Johnson Foundation, "where insurers would see it in their interest to trade guaranteed issue of coverage for promising not to drop people."

While AHIP sent a letter after the June hearing clarifying the executives' statements and reiterating the industry's support to stop rescissions, Stupak and the commerce committee will keep hammering away on the issue. A spokeswoman for Stupak said the industry statements at the hearing "made it clear that they have no intention of changing their policies." As Congress returns this month, Stupak plans to launch a second investigation into rescissions, increasing the inquiry to 10 companies from three and seeking more information about how companies choose to investigate claims. Stupak and committee chairman Rep. Henry Waxman also recently demanded salary and revenue information from 52 insurance companies, drawing sharp criticism from AHIP. On Monday, Waxman asked six insurers, including WellPoint and Aetna, to provide information about the practice of "purging" small businesses by raising their premiums to unaffordable levels after employees fall sick and, thus, claims increase.

In an increasingly explosive debate over health care, stories like Beaton's─and the possibility for more like hers to arise in further hearings─are easy ammunition for reform advocates. Michael Chernew, a health-care policy professor at Harvard, says that a topic like rescissions can vilify insurance companies to such an extent that the public perception of the industry is unrealistically negative. But with reform opponents threatening that the plug will be pulled on Grandma, how long will it be before we see ads about insurance companies pulling the plug on your insurance because you have acne? When it comes to health-care politics, playing dirty is nothing new.