Calling the lawsuit “appalling” California’s Insurance Commissioner Steven Poizner responded to the news that the California Life & Health Insurance Companies (ACLHIC) has sued to block the state from enforcing the new regulation against unfair recissions.
In a statement on the Insurance Department website, Commissioner Poizner said
“I find it unconscionable that insurers would sue to keep the Department from stopping the horrific practice of illegal rescissions. Sometimes I think representatives in this industry have their heads permanently stuck in the sand.
Illegal rescissions are a repugnant industry practice. In this current environment, this lawsuit is simply short-sighted and morally wrong.”
Regulations against unfair rescissions would have taken effect today
The lawsuit was filed in Sacramento Superior Court just two days before the new regulations would have become effective. The Association of California Life & Health Insurance Companies (ACLHIC) is a 45 year old trade association whose stated main purpose is “to advance the interests and well-being of the life and health insurance industry before legislative and administrative bodies.”
Commissioner Poizner had taken a number of steps to stop the practice of unfair rescissions since he took office in 2007. He targeted three of the states largest health insurers, Anthem Blue Cross, HealthNet and Blue Shield. Previously the Commissioner had announced settlements with these companies and the settlements are not affected by the lawsuit.
United Healthcare one of the largest insurers voluntarily announced that it would cease to use rescission except in the case of fraud. United’s announcement was intended to be nationwide.
Insurance industry wants the practice of rescissions to continue
A rescission of a health insurance policy is the retroactive cancellation of coverage based on some mistake or omission on the original application for insurance. Under the new California regulations, rescission would only be allowed in the case of actual fraud by the applicant.
Under the current somewhat ambiguous law, insurance companies often rescinded health insurance policies for minor errors or omissions and often when a policy holder became sick. Rescissions were especially common when a policy holder developed a medical conditions that was expensive to treat.
The new regulations would have required health insurance companies to complete their underwriting prior to accepting a person for health insurance. They would no longer be allowed to underwrite after the policy was issued except in cases of fraud on the application.
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