The national health care legislation recently signed by President Obama is a mess of expensive reforms and overregulation. Nevertheless, some parts of it are undoubtedly popular. Unsurprisingly, the popular parts are characterized as consumer protection—few people would disagree with a law that prevents a health insurer from dropping a beneficiary after someone falls ill.
On March 26, two letters published in the Wall Street Journal enthused about this benefit. Todd Belkap of Chicago wrote insurers “won’t be able to cancel anyone’s health coverage when the policy holder gets sick,” which was echoed by Glen Gillette of Marion, Iowa.
In one sense, they are right. But in reality, the protections they are hailing already exist—and the inclusion of such prohibitions within “Obamacare” is merely an act of regulatory redundancy.
State-Level Prohibitions
In the final version of Obama’s health care legislation, H.R. 3590, section 2712 states an insurer “shall not rescind such plan or coverage with respect to an enrollee once an enrollee is covered under such plan or coverage involved, except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage.”
Such behavior is already illegal under state laws.
In my state of California, the law is found in both the Insurance Code § 10384 through 10384.17, and the Health & Safety Code § 1389.3.
For the benefit of Messrs. Belkap and Gillette, the relevant provisions for their states are in the Illinois Administrative Code Title 50 § 2005.40(d) through (f) and the Merged Iowa Code and Supplement Title XIII § 514A.3.1.b, respectively.
States Enforcing Prohibition
Without directly acknowledging the redundancy of this provision, the President appears to believe these state laws are not being enforced, repeatedly claiming “no one holds insurance companies accountable for these practices.”
That’s not true. State insurance commissioners are charged with enforcing good-faith execution of insurance contracts, exactly what Obama’s current Health Secretary, Kathleen Sebelius, did for eight years as Kansas state insurance commissioner.
Rescissions Remain Rare
Insurers must be confident applicants are being truthful about their health. Otherwise, an insurer will only attract applicants who wait until they become sick to buy health insurance, which could leave the insurer bankrupt.
Despite the scare stories, rescissions rarely occur. WellPoint, one of the country’s largest insurers, enrolled approximately 873,000 new customers in 2008. Less than 0.15 percent of those customers had their policies rescinded. Just 0.5 percent of those covered by Assurant Health experienced rescission.
Penalties for Insurers
When insurers have wrongfully rescinded policies, state insurance commissioners and courts have been ruthless about protecting consumers’ rights.
New York Times columnist Paul Krugman recently cited the case of a 17-year-old in South Carolina who had an individual policy issued by Assurant Health. After the young man was diagnosed with HIV, Assurant allegedly scoured his medical records and determined he had contracted HIV before he applied for the policy and had failed to disclose it.
The health insurer used this as grounds for rescinding his policy. The youth denied the charge and sued the health insurer. The result? A South Carolina jury awarded the youth $15 million in damages (subsequently rolled back to $10 million on appeal).
In my own state, similar examples abound. In September 2008 the California Department of Insurance ordered Health Net Inc. to reinstate 926 incorrectly rescinded policies and pay $3.6 million in fines and $14 million in medical claims. A California arbitrator ordered the insurer to pay $9 million to the holder of an improperly rescinded policy earlier that year. And in July 2008, Anthem Blue Cross agreed to pay $11 million in hospital claims derived from rescinded policies in California.
These cases confirm state law is more than competent to deal with bad-faith rescissions by health insurers. ObamaCare’s most important characteristic is overwhelming federal power. When it comes to protecting consumers from bad-faith actions by health insurers, such power is unnecessary.
John R. Graham ([email protected]) is director of health care studies at the Pacific Research Institute.
