By John Reichard, CQ HealthBeat Editor
July 17, 2008 -- The industry practice of retroactively canceling approved health insurance policies obtained in the individual market after their holders get sick and file large medical claims came under sharp scrutiny at a House committee hearing Thursday.
Witnesses testified that state protections against the practice are often weak and that the federal government hasn't stepped in to fill the breach despite its authority to do so in some cases under the Health Insurance Portability and Accountability Act (HIPAA).
House Oversight and Government Reform Committee Chairman Henry A. Waxman, D-Calif., said he plans to open a broader investigation of insurance industry practices in the individual market, which he noted is increasingly the focus of proposals to expand health insurance coverage.
At issue Thursday were "rescissions," a term for a practice that goes beyond canceling a policy. Cancellations, a California official explained, leave the individual without coverage going forward while rescissions treat the coverage as if it had never been approved and leave the policy holder liable for all medical bills paid by the plan dating back to the start of the policy.
Waxman said he hopes that wider public attention to rescissions would lead state officials to crack down on them and insurers to abandon the tactic. He credited Los Angeles Times coverage of the issue with helping to prompt a crackdown by California regulators.
The California Democrat said it's too soon to say whether legislation is needed at the federal level. "We'll do an investigation first and then we'll see if it makes sense," Waxman said. "For the most part this has been a state issue. Maybe it ought to be a federal responsibility," he observed.
Republicans joined Waxman and other Democrats at the hearing in condemning the rescissions, and an insurance industry official spent no time defending it. But a state official noted that those already harmed are sometimes left with huge medical bills to pay and in some cases, face bankruptcy. They also face difficulty finding coverage.
State regulatory agencies "are limited in what they can do for these now relatively uninsurable consumers who are back in the marketplace with new preexisting conditions they didn't have before and a policy rescission in their underwriting history," said Kevin P. Lembo, the head of a Connecticut state agency that advocates for consumers in their dealings with the health insurance industry.
Much of the focus of the hearing was on the case of a Logan, Utah couple, Keith and Heidi Bleazard, whose testimony highlighted the issue. Heidi Bleazard testified that the couple sought individual coverage in February 2005 and filled out the needed applications with the help of friends who were health insurance agents and a nurse who came out to complete more detailed paperwork.
Keith Bleazard's application referenced a slipped disc followed by surgery in 1996 and a full recovery. He had no trouble for three years after the surgery, then pulled a muscle in his back playing basketball and saw a doctor who prescribed medicine for the pain. After that, he resumed routine, rigorous physical activity, Heidi Bleazard testified.
In August of 2005, Heidi Bleazard said she suffered a mountain bike accident in which she fractured her neck, sustained a brain injury, and broke three ribs. "Several hours of neurosurgery were performed to save my spine." Her medical bills topped $100,000, Bleazard said.
When the bills reached a peak, the couple's insurer, Regence Blue Cross Blue Shield of Utah informed the Bleazards that it would review their medical records. "Then, in a letter dated Jan. 17, 2006, Regence notified Keith and I that they were rescinding our health insurance policy retroactively. They claimed that Keith failed to provide information in the application about his medical history relating to his back. Regence did not respond to our attempts to talk with them to find out where the misunderstanding came from.
"Later we learned they had not received the nurse's report detailing Keith's pain medicine and doctor visits, and that these things should have been included on the form [an insurance agent] helped us fill out. Regence did not try to talk to either me or our agents before they rescinded the policy. If they had, we would have told Regence that our agent and the nurse knew all of Keith's medical history, including the fact that he took pain medication for his back."
"I believe that Regence has taken advantage of this situation to get out of paying the large medical bills that are associated with my biking accident," Heidi Bleazard testified.
Crackdowns in Two States
Waxman asserted that the case is not an isolated one, and that in California over 1,000 individuals have had their policies inappropriately rescinded.
Dale Bonner, a California state official whose office oversees managed care plans in the state, said that rescissions are proper if used to stop fraud on the part of enrollees who have misrepresented their health histories to obtain coverage. But the problem with rescission arises when plans engage in "post-claims underwriting," when they reevaluate an enrollee's coverage provisions after filing a medical claim and in some cases issue a rescission. "One of the things that is most troubling is that these actions are usually taken because enrollees are using health services," Bonner said.
"This public policy debate is not about consumers who intentionally misrepresent their health status," said Lembo, the Connecticut state official. "That is a red herring that is utilized as a distraction for those who rather we not have this conversation."
Bonner said that in California, the state in 2006 launched "the largest investigation of wrongful rescissions ever undertaken in the nation" following numerous consumer complaints. Rescissions dropped 81 percent in the year after the investigation, he said.
In April of this year, regulators said they'd review each and every rescission case involving the state's largest plans—Anthem Blue Cross, Blue Shield of California, Kaiser, PacifiCare, and Health Net—dating back to 2004, he added. Kaiser, Health Net, and PacifiCare announced settlements guaranteeing that rescinded enrollees would be issued coverage and that pre-rescission out-of-pocket medical costs would be paid by the plan.
Lembo said Connecticut regulators saw a spike in 2003 in consumer complaints about rescissions or policies that were limited in some other way.
In one case, a company denied a woman's claims for treating lymphoma on the grounds that she had the disease before getting her coverage and should have sought treatment leading to its diagnosis before the policy was issued, Lembo said.
In another case, a company rejected the claims of a 34-year-old woman diagnosed with lymphoma a month after her policy began, Lembo said. The reason? In a medical visit after enrolling she recalled shortness of breath while exercising six months before and the insurer said the symptom constituted a preexisting condition that should have caused her to seek treatment before enrolling.
One case involved a man diagnosed with multiple sclerosis after receiving coverage who saw his policy rescinded on the grounds that he should have known that headaches disclosed on his application would have led to the multiple sclerosis diagnosis, Lembo said.
Connecticut responded by passing a law requiring insurers to obtain state approval before they rescind, cancel, or limit a policy an existing policy in any way, he said. Since the law was passed the state has received no requests to modify or rescind a policy, he said.
But Connecticut is the only state in the nation that has such a requirement, Lembo said, citing data from a Families USA survey. And 20 states lack laws giving consumers the right to appeal rescissions, he added.
"It is my hope that legislatures across the country, with your encouragement, will take the steps" needed to protect consumers such as standard insurance applications, and limiting rescissions without state approval, Lembo said in his testimony before Waxman.
Questions About CMS
Waxman noted that under HIPAA, consumers are guaranteed the right to renew their individual health insurance policies unless they have defrauded the insurers or intentionally misrepresented their medical condition. But only four employees at the Centers for Medicare and Medicaid Services administer HIPAA and the agency has never taken any action against insurers for post-claims underwriting that violates a consumer's HIPAA rights, Waxman said.
Abby L. Block, director of the CMS Center for Drug and Health Plan Choice, said she shares Waxman's concern about reports that insurers may be using rescission as a way to circumvent HIPAA renewability requirements. HIPAA is very clear that with limited exceptions an insurer must renew or continue in force an individual's existing coverage, Block said.
States have primary responsibility to enforce guaranteed renewability and CMS "can only act if it determines that a state fails to substantially enforce the requirement," she said. But if there were any indications that rescissions may be occurring contrary to HIPAA standards "that would be a red flag" and CMS could investigate and depending on the outcome take over enforcement of guaranteed renewability in a state, she said.
Block said CMS hasn't taken any enforcement action because it hasn't received any specific complaints about states not enforcing protections against rescissions. If cases were brought to her attention about states failing to take action she would look into them, Block said.
That led to criticism of Block by Rep. Jackie Speier, D-Calif., for not following up on reports in the national media about individual cases or rescission.
"It is not my responsibility to do that, it is my responsibility only to determine if in fact a state is substantially enforcing HIPAA rules if a case is brought to my attention," Block said when pressed about whether she had inquired about a case in South Carolina.
Block's point seemed to be that individual cases of rescission are the responsibility of state regulators to oversee and that CMS steps in only when it receives evidence that a state isn't meeting its enforcement duties. "I can't really act simply on information which is never full and complete in a news media report," she said.
"With all due respect, if it is in the national media it is brought to your attention," Speier said, her voice rising. "And if you don't believe that that's brought to your attention ... then there's about $400,000 we can cut from the budget right now," Speier said, referring to the costs of staffing the four positions at CMS cited as the extent of the agency's HIPAA oversight resources.
Rep. Elijah Cummings , D- Md., then asked Block "if right this second, Mr. and Mrs. Bleazard wrote on a piece of paper, Dear Mrs. Block, we believe the state of Utah hasn't done what it needs to do in this regard, would that trigger an investigation from you?"
Block indicated that she would respond to such a request, reiterating after the hearing that the request would have to come from the couple in writing. The couple and their attorney indicated they would make a written request.
Waxman asserted in an interview that proper federal enforcement under HIPAA "could stop a lot of the kind of practices that we're hearing about today, because HIPAA says you have to have a clear intent to defraud" an insurer before your policy in the individual market can be canceled.
Stephanie Kanwit, an attorney with America's Health Insurance Plans, spoke out strongly on behalf of the Bleazards, saying her association's board has endorsed a set of principles to prevent improper rescissions.
A key aspect of the principles is that health plans should clearly inform consumers about their right to appeal rescissions and the review should be handled by an entity outside the insurance company, she said. "We hope to make what happened to these people ... a never event," she said. "We're trying to fix it. We're trying to make sure that what happened to them does not happen again."
Asked by Cummings whether AHIP would contact the Bleazards' insurer to try to resolve the matter, Kanwit assured him it would.
But a spokeswoman for Regence Blue Cross Blue Shield of Utah said in an e-mail the insurer is sticking to its position on the Bleazard's case.
"As health care costs continue to rise, we have an obligation to be good stewards of our members' health care dollars," she said. "Health care fraud costs the system and consumers more than $170 billion each year, and we have a responsibility to ensure that these kinds of activities do not further impact costs for our members. We trust people to tell the truth when they fill out an application. This is an instance of Mr. Bleazard providing misinformation, and absolutely not a case of post-claims underwriting."