Health Insurance Changes Come Too Late For Some

The six-month anniversary of the new health law marks the official effective date of a raft of new consumer protections, including a ban on most so-called rescissions. That's the insurance industry practice of revoking an insurance policy retroactively, after a policyholder has racked up hefty medical bills.

Chris Peterson is all too familiar with the practice. The Clear Lake, Iowa, hog farmer not only had his health insurance policy rescinded in 2007, but several months later, his wife's policy was rescinded as well.

Other New Protections Take Effect

In addition to banning the "rescission" of health insurance policies, here are some of the other key provisions that take effect as of Sept. 23, the six-month anniversary of the signing of the Patient Protection and Affordable Care Act. One important caveat: Most of the benefits that apply to insurance policies actually apply to policies that are sold or renewed for the first time after the effective date. So if an existing policy doesn't renew until Jan. 1, 2011, the new provision would take effect, then, not on Sept. 23.

  • Coverage for Young Adults: Allows young adults to remain on their parents' insurance policies until they reach their 26th birthday. Young adults do not have to be dependents, do not have to live with their parents, and may even be married and still qualify. But the young adults may not have access to health insurance coverage at their own job.
  • No Discrimination against Children with Pre-Existing Conditions: Bars insurance companies from denying coverage or benefits to children under age 19 with pre-existing health conditions.
  • No More Lifetime Limits on Benefits: Bars all insurance companies from imposing lifetime caps on the amount of coverage provided under a health insurance policy.
  • Restrictions and Phase-Out of Annual Coverage Limits: Phases out the ability of insurance companies to impose annual benefits limits provided under a health insurance policy. For the first year, the annual limit can be no less than $750,000. That rises to $1.25 million in September 2011, $2 million in 2010, and — by 2014 — annual limits will no longer be allowed.
  • Preventive Care with No Co-Pays or Deductibles. Requires most insurance plans to offer a wide range of preventive health services at no out-of-pocket cost to the patient.

Peterson said it began when his insurance agent told him he could get a cheaper policy. He jumped at the chance. And he didn't try to withhold any information as he and his agent filled out the lengthy application.

Rescinding Coverage

"He sat right here at the table, and I said, 'Let me go get my pills,'" Peterson says. "And some of them were controlling your blood sugar; keeping it down. He wrote stuff right down in the application."

Peterson didn't think much more about it until more than a year later, when he had surgery to repair a small hernia — surgery for which he got insurance company preapproval in writing.

But he began to worry when the hospital kept sending him bills. He wondered why the insurance company wasn't paying them. Months later, he got his answer, in the form of a letter from his insurer, American Community Mutual Insurance, "stating that they were rescinding my insurance, and that oh, by the way, all these bills are now yours."

The company said Peterson had failed to disclose his blood sugar problem.

At first, it allowed his wife to keep her policy, but about eight months later, Peterson says, after she sought treatment for a minor heart problem, it rescinded her policy, too. The reason: "There was an inch variance in height," he said. "And then she had a variance of 5 pounds in weight. And at the end of the letter, they claimed she lied on the application."

Attempts to contact the company for comment were unsuccessful: It has been put into receivership by the state of Michigan, where its headquarters are located.

Practice In California

In some ways the Petersons were lucky. They both managed to get insurance through Iowa's high-risk pool for people who can no longer get insurance through the private market. But Peterson says he doesn't feel that well-off.

"Between the two of us, we pay approximately 1,300 bucks a month for coverage, plus we're paying down a $14,000 medical debt," for his surgery that wasn't covered, he says. "It's a prime example of how messed up this whole system is."

But Jamie Court, who heads the California-based advocacy group Consumer Watchdog, says he's seen much worse. In California, he says, typically insurers would "cancel [policyholders] when they're at their weakest and their worst. When they're in a hospital bed or just out of a hospital bed and racked up a couple hundred thousand dollars of hospital costs."

Court cases filed in California uncovered the fact that insurance companies had entire divisions devoted to delving into the medical records of people in order to find reasons to rescind their coverage after they had become sick and threatened to cost the company large amounts of money.

'Not A Panacea'

At a congressional hearing last year, however, the CEOs of several insurance firms said they had basically no choice but to rescind some policies, at least until everyone is required to have health insurance.

"I have a lot of empathy and concern for the people and it is my hope that there will be changes made," Don Hamm, CEO of Assurant Health, told the House Subcommittee on Oversight and Investigations, after hearing several stories similar to Chris Peterson's. "It is just that today when we have a voluntary system of insurance where people choose, we have to collect information upfront to underwrite, and if we didn't have that process, then people would wait until they had a health condition before applying for coverage and the rates would be much, much, much higher than they are today."

Court, the consumer advocate, says he's happy the law now says policies can't be rescinded unless companies can prove that a policyholder lied on his or her application, but that until 2014, when the requirement for everyone to have insurance kicks in, he's still worried that rescissions could continue.

"It's a great thing, but it's not a panacea," he said. "Words in a bill don't mean enough to insurance companies until they're backed up by a lot of big verdicts or the wrath of a regulator."

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