Health insurers refuse to limit rescission of coverage

Lawmakers ask three executives if they'll stop dropping customers except where they can show "intentional fraud." All say no.

By Lisa Girion

June 17, 2009

Executives of three of the nation's largest health insurers told federal lawmakers in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive.

The hearing on the controversial action known as rescission, which has left thousands of Americans burdened with costly medical bills despite paying insurance premiums, began a day after President Obama outlined his proposals for revamping the nation's healthcare system.

An investigation by the House Subcommittee on Oversight and Investigations showed that health insurers WellPoint Inc., UnitedHealth Group and Assurant Inc. canceled the coverage of more than 20,000 people, allowing the companies to avoid paying more than $300 million in medical claims over a five-year period.

It also found that policyholders with breast cancer, lymphoma and more than 1,000 other conditions were targeted for rescission and that employees were praised in performance reviews for terminating the policies of customers with expensive illnesses.

"No one can defend, and I certainly cannot defend, the practice of canceling coverage after the fact," said Rep. Michael C. Burgess (R-Tex.), a member of the committee. "There is no acceptable minimum to denying coverage after the fact."

The executives -- Richard A. Collins, chief executive of UnitedHealth's Golden Rule Insurance Co.; Don Hamm, chief executive of Assurant Health and Brian Sassi, president of consumer business for WellPoint Inc., parent of Blue Cross of California -- were courteous and matter-of-fact in their testimony.

But they would not commit to limiting rescissions to only policyholders who intentionally lie or commit fraud to obtain coverage, a refusal that met with dismay from legislators on both sides of the political aisle.

Experts said it could undermine the industry's efforts to influence healthcare-overhaul plans working their way toward the White House.

"Talk about tone deaf," said Robert Laszewski, a former health insurance executive who now counsels companies as a consultant.

Democratic strategist Paul Begala said the hearing could hurt the industry's efforts to position itself in the debate.

"The industry has tried very hard in this current effort not to be the bad guy, not to wear the black hat," Begala said. "The trouble is all that hard work and goodwill is at risk if in fact they are pursuing" such practices.

Rescission was largely hidden until three years ago, when The Times launched a series of stories disclosing that insurers routinely canceled the medical coverage of individual policyholders who required expensive medical care.

Sassi said rescissions are necessary to prevent people who lie about preexisting conditions from obtaining coverage and driving up costs for others.

"I want to emphasize that rescission is about stopping fraud and material misrepresentations that contribute to spiraling healthcare costs," Sassi told the committee.

But rescission victims testified that their policies were canceled for inadvertent omissions or honest mistakes about medical history on their applications. Rescission, they said, was about improving corporate profits rather than rooting out fraud.

"It's about the money," said Jennifer Wittney Horton, a Los Angeles woman whose policy was rescinded after failure to report a weight-loss medication she was no longer taking and irregular menstruation.

"Insurers ignore the law, and when they find a discrepancy or omission, they rescind the policy and refuse to pay any of your medical bills -- even for routine treatment or treatment they previously authorized," Horton said.

She and others from around the country accused insurers in testimony of gaming anti-fraud laws to take policyholders' premiums, only to drop people who developed serious illnesses. They testified that they or a deceased loved one had had policies canceled over innocent mistakes and inadvertent omissions on their applications.

A Texas nurse said she lost her coverage, after she was diagnosed with aggressive breast cancer, for failing to disclose a visit to a dermatologist for acne.

The sister of an Illinois man who died of lymphoma said his policy was rescinded for the failure to report a possible aneurysm and gallstones that his physician noted in his chart but did not discuss with him.

The committee's investigation found that WellPoint's Blue Cross targeted individuals with more than 1,400 conditions, including breast cancer, lymphoma, pregnancy and high blood pressure. And the committee obtained documents that showed Blue Cross supervisors praised employees in performance reviews for rescinding policies.

One employee, for instance, received a perfect 5 for "exceptional performance" on an evaluation that noted the employee's role in dropping thousands of policyholders and avoiding nearly $10 million worth of medical care.

Committee members took turns, alternating Democrats and Republicans, condemning such practices.

"When times are good, the insurance company is happy to sign you up and take your money in the form of premiums," said Rep. Bart Stupak (D-Mich.). "But when times are bad . . . some insurance companies use a technicality to justify breaking its promise, at a time when most patients are too weak to fight back."

"I think a company does have a right to make sure there's no fraudulent information," said Rep. Joe Barton (R-Tex.). "But if a citizen acts in good faith, we should expect the insurance company that takes their money to act in good faith also."

Late in the hearing, Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show "intentional fraud."

The answer from all three executives:

"No."

Rep. John Dingell (D-Mich.) said that a public insurance plan should be a part of any overhaul because it would force private companies to treat consumers fairly or risk losing them.

"This is precisely why we need a public option," Dingell said.

Proponents of a public plan seized upon the hearing, saying it showed why access to healthcare cannot be left to private insurance companies.

"This could reshape the debate," said Jerry Flanagan, a patient advocate with Santa Monica-based Consumer Watchdog.

"When insurance companies go under oath and admit they are canceling innocent patients when they get sick, it makes it very difficult for lawmakers to pass a law that requires every American to buy a policy or face a tax fine. It opens the way for a public option to hold the companies in check."

Rescission has fueled consumer outrage, particularly in California, where lawmakers are considering legislation to limit the practice to cases of intentional misrepresentation. It has also led to a flurry of lawsuits.

In November 2007, The Times reported that insurer Health Net Inc. paid bonuses to employees based in part on their involvement in rescinding policies. According to internal corporate documents disclosed through litigation, Health Net saved $35 million over six years by rescinding policies.

The disclosures in part led an arbitration judge to levy $9 million in damages against Health Net in a case involving the company's rescission of the policy of a woman diagnosed with breast cancer.

At the time, Blue Cross told The Times that it did not link employee performance reviews to rescission. Blue Cross also said at the time that it had conducted audits to ensure that claims reviewers were not given any "carrots" for canceling coverage.

The company reiterated that position Tuesday in spite of the committee's disclosure of two employee performance evaluations from 2003 discussing rescission levels and savings.

In a statement, WellPoint spokesman Jerry Slowey said the company had "no policy to factor either the number of rescissions or the value of claims not paid in the evaluation of employee performance or when calculating employee salary or bonuses."

Last year, while reviewing documents for the committee, two employee reviews from 2003 were discovered "that made reference to savings in a section of the review that contains many other factors," Slowey said.

"Once we discovered this reference, more than 100 other individuals' reviews were reviewed, and no other such references were found."

"The fact that two out of more than 100 individuals handling possible rescissions points to the fact that this was just two associates in the same area recognizing the work done that year to uncover fraud and abuse," he said.