Rescissions, Rescissions: How often does it happen?

If you have health insurance, how likely are you to be hurt by rescission?

As you probably know, insurance companies who don't want to pay your doctor bills resort to a simple trick: Before forking over a dollar, the insurer scrutinizes ever jot, tittle and phoneme of your policy application to make sure that everything on it is correct. You are also held responsible for things you allegedly should have known but did not.

In one infamous case, an insurer refused to pay for a woman's breast cancer surgery because she had not mentioned on her form that she once had acne. (Supposedly, acne is a "precancerous" condition.) Another man was denied lymphoma treatment because a CT scan revealed unrelated gall stones.

Pretty much everyone is vulnerable to this gimmick. Your application probably contains a small mistake that could, if revealed under hyper-scrutiny, result in the loss of your claim. You are even held responsible for mistakes that were put down by the insurance agent helping you fill out the form.

In 2007, a court found that Blue Cross was guilty of this practice:

After concluding that it would lose money based on costly claims, the company allegedly undertook a campaign to find the slightest misrepresentations on the application for insurance and rescind the policy leaving individuals without coverage and with thousands of dollars in unpaid medical claims.

Blue Cross agreed to make the forms more readable and (supposedly) now rescinds a policy only if it can be proven that a claimant lied deliberately.

Nevertheless, the practice of rescission continues to be widespread. Some states are worse than others; Michigan and Ohio allow companies to rescind a claim for even the most innocent of mistakes. Insurance companies pay bonuses to employees who deny coverage:

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

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.

Our major media did not see fit to take note of the following encounter during those congressional hearings:

The subcommittee's chairman, Democrat Bart Stupak of Michigan, called the hearing to highlight the obnoxious and unethical practice called rescission. His researchers produced performance reviews of insurance company bureaucrats who were praised and rewarded for kicking people off their coverage.

Then Stupak asked three health insurance executives the big question: Will your company pledge to end the practice of rescission except in cases of intentional fraud?

All three health insurance executives said no.

It could happen to you. Over the years, you pay and pay. You do so in the expectation that the big cash will be there if and when you really need it. But when that dread day comes, the insurance company -- which was very happy to take your money -- gifts you with a pie in the face.

You should be able to sue to get back the money you paid into the system. Should, but won't.

The insurance industry says that the chances that you will face rescission are very, very small -- but they're lying. Lying with statistics.

The insurers claim that rescission is very rare; at the Congressional hearing, two of three industry representatives said it happens to less than 0.5% of policies per year. But that is a deeply misleading number. That means that if you are in the individual market for twenty years, you have a 10% chance of your policy being rescinded; 30 years, and it goes up to 14%. There is a big difference between health insurance and a 90% chance of having health insurance.

But even that 90% figure is misleading, since rescission kicks in only if you get really sick. We thus should not look at the larger universe of people paying for insurance. We should restrict our focus only to those who become so ill as to make a major health claim.

So the question then comes down to this: In any given group of (say) one thousand insurees, how many will make a major health claim within that twenty year period? Because that smaller group is the only group we need to look at if we want to compile accurate stats.

Alas, that's a very hard number to find. I'm now wondering: Are one quarter of the people who make major claims hit by rescission? Half? 100%?

On a related note:

The other day, I linked to this Paul Krugman column, which argues that the free market, by its nature, cannot provide adequate health care coverage. One of the replies deserves wider attention:

And, yet, you continue to push Obama-Care, which is little more than national Romney-Care, which is indeed a private, for-profit, employer-based, free market health payer system. Unbelievable. Perhaps you should pay a little more attention to the details of the health deforms Congress is crafting, and not the rhetoric. I live under the MA system, and it’s horrible. Yes, more people are covered, because by law, they have to buy insurance, but the price of the insurance product is awful. A couple making a middle class income has to pay 8k to get an insurance product that doesn’t start proving care until you’ve paid 2k in deductibles. Our premiums have risen here faster than the national average! And, why not? The free market insurers have a captive customer base.