Rescission Scandal Hits Home for Insurers

One of insurers’ uglier tactics — so-called rescission, or the practice of revoking the policies of people who start racking up big medical bills, often on technicalities — is finally coming back to bite the health plans that pushed the envelope on this front.

Late last week, California regulators won agreement from Kaiser Permanente and Health Net to restore health coverage to 1,200 people whose policies they’d unfairly dropped. The state is pursuing similar agreements with Anthem Blue Cross, Blue Shield and PacifiCarethat would affect another 4,000 Californians.

The rescission scandal presents a major challenge for embattled insurers, many of whom have promised Wall Street that they’ll boost earnings by hiking premiums and restricting claims payments. Given the black eye they’ve suffered so far, most of these health plans will have to figure out how to cut their medical expenses without reliance on one of their most potent — if unfair and probably illegal — tools.

It’s also a big deal because it exposes the shakiness of the individual-insurance market (people in employer-sponsored health plans can’t have their coverage revoked this way). Given the speed with which employer-based insurance is unraveling, increasing numbers of people basically face the choice of braving the individual-insurance market or going without. And some reform ideas would just make that dynamic worse — John McCain’s health plan, for instance, essentially amounts to forcing most people to buy individual coverage, with all the additional risk and expense that entails.

As Matthew Holt notes over at the Health Care Blog:

Do you think that at some point the Democratic attack machine will wake up and put a few of the individuals with canceled policies on TV to warn about Americans about the individual market that McCain wants everyone to join?

My sources point to yes.

What’s more, the recission scandal almost certainly isn’t over. The California regulators in question only have jurisdiction over HMO-style health plans, so investigations into more traditional insurers continue. Plaintiff lawyers are also still lining up cases against the insurers — Health Net already faces a $9 million judgment won by a woman whose coverage was cancelled while she was undergoing chemotherapy for breast cancer.

In other words, it’s hard to see how the insurance industry could have suffered a more serious self-inflicted wound had it tried. I guess that’s one of the major downsides of an industry that basically can’t talk honestly about exactly how it really conducts its business.

Photo by Flickr user TheeErin, CC 2.0