insurancerescissionpowerpoint

8/7/2019 InsuranceRescissionPowerpoint

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Health Insurance

RescissionStrategies for Navigating, Shaping and Succeeding within Federal and StateLegislation and Regulation

, LLCApril 2011


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Rescission Overview

In the health insurance context, a termination of a policydue to a misrepresentation by the policyholder on theapplication

Premiums returned to the insured, but insurer does not haveto pay for often expensive treatment


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How Rescission Benefits

InsurersIndividual applies for health

insurance and theapplication is approved by

the Insurer

Insured Individual receivesmedical treatment

Treatment Provider files aclaim with the insurer for

reimbursement

Insurer underwrites thepolicy, check for

discrepancies between theinsureds medical record

and application

If a discrepancy is found,the insurer rescinds the

policy and does not pay theprovider

Unable to collect from theinsurer, the provider bills

the individual

The Individual must pay for the treatments received out-

of-pocket or file for bankruptcy

If the Individual files for bankruptcy, the hospital

will be unable to collect for services rendered

In either case, the insurer will be able to avoid a

payment, or to bereimbursed for paymentsmade under a rescinded

policy


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The Insurers Perspective

Rescission is a necessary tool in combating fraudulent or inaccurate applications

Underwriting post-claim allows applications to be processedfaster and keeps overall system costs to a minimum

Controls and oversight are already in place, as well as judicial review, to prevent abuses


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Criticism of Rescissions

Can lead to seemingly unfair results:Coverage pulled shortly before an operationCoverage rescinded due to relatively minor/immaterial discrepanciesLack of oversightJudicial process can be unavailing due to time and cost

Allows the insurer to keep the benefit of premiums(including those based on inaccurate applications) andselectively choose which policies to rescind

Method has been termed cherry picking


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Rescissions by the Numbers

Source: 2009 Rescission Data Call, National Association of Insurance Commissioners


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Rescissions by the Numbers, 2

Source: 2009 Rescission Data Call, National Association of Insurance Commissioners


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Rescissions by the Numbers, 3

While rescission may not be numerous, they are costeffective

The19,776 rescission reported to Congress saved insurers atleast $300,000,000


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Congressional Investigation

Found several controversial practices where coverage wasrescinded:Even though mistakes on the application were unintentional or caused by othersFor conditions the policyholder did not know about

For a condition unrelated to the one for which the patient wasseeking careFor family members who were not involved inmisrepresentations

House Committee on Energy and CommerceMemorandum and Hearings


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Congressional Investigation, 2

Certain conditions or dollar amounts trigger automaticinvestigations of a claimants medical history

At least one company, WellPoint, based employeeperformance evaluations on the amount an employee savedthe company through rescinding policies


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Congressional Investigation, 3

Number of Rescissions may be higher than previouslythoughtWellPoint, UnitedHealth and Assurant Health Aloneaccounted for at least 19,776 between 2003 and 2007These three companies saved more than $300 million as a

result of these rescissions during that timeAt a June 19, 2009 hearing, officers at each of the threecompanies refused to promise the committee that they wouldlimit rescissions to cases where the insured had made afraudulent or material misrepresentation


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Before PPACA: A Disparate

Regulatory Framework

HIPAA already provided that [A] health insurer [providingcoverage] to an individual shall renew or continue in forcesuch coverage at the option of the individual

Exception, however, if the insured committed fraud or anintentional misrepresentation of material fact

Majority of states, however, do not require a showing of fraud or intent


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Federal Government Response

PPACA 2712. PROHIBITION ON RESCISSIONS.

A group health plan and a health insurance issuer offering group or individual health insurance coverage shall not rescind such plan or coverage with respect to an enrollee once the enrollee is coveredunder such plan or coverage involved, except that this section shallnot apply to a covered individual who has performed an act or

practice that constitutes fraud or makes an intentionalmisrepresentation of material fact as prohibited by the terms of theplan or coverage. Such plan or coverage may not be cancelled exceptwith prior notice to the enrollee, and only as permitted under section2702(c) or 2742(b).


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Interim Final Rules

Issuers cannot rescind coverage unless an individual was involved in fraud or made an intentional misrepresentation of material fact.

Defines rescission as a cancellation or discontinuation that has retroactiveeffect

Applies to individual and group plans, as well as grandfathered plans

30 days notice must be given beforehandMust be a written notice and given to all individual affected by the rescission

Provides a federal floor that allows states to impose greater restrictions onrescissions

Departments of HHS, Treasury, & Labor 26 CFR 54.9815-2712T


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Pure Administrative Law Issues

Interim Final means Final, i.e. Enforceable.

No notice and comment before the adoption of the regulationsException under APA 553 The Secretaries have determinedthat it would be impracticable and contrary to the public interestto delay putting the provisions in these interim final regulations in

placeSpecific authority granted by section 9833 of the Code, section734 of ERISA, and section 2792 of the PHS Act

Source: IRS Bulletin T.D. 9489


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Comments on the Regulations

Terms such as material need a clearer definitionMore examples are necessary

Potentially strict/impracticable reporting requirements for employers

Potential inconsistency with COBRA reportingrequirements


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Other Admin Issues

Sen. Orin Hatchs letter to Sec. SebeliusConstitutionality of the Act/ Authority of the Depts toissue the regulations


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Recommendations to the Board

Focus efforts on state levelEfforts at federal level may not have much tractionStates have started crafting more stringent requirementsAdvocacy at the state level has met some successStates will be relied on heavily to enforce regulations

Perform a more complete pre-issuance underwritingCreate an application with specific questions about each individualpreexisting condition in laymens terms.Contact applicant for specific information when an response on the formis unclear The easier the application is to understand and the more through theunderwriting, the more likely a court will find a misrepresentation or omission to be fraudulent


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Recommendations, 2

Most major health insurers have already complied to themajor provisions of the rescission regulations even beforethe regulations effective date

Courts have sustained the enforceability of rulespromulgated without notice and comment

Continued opposition has the potential for negativepublicity

However opposition to PPACA public option provision

Limited Efforts at the Federal Level


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Recommendations, 3

States can and have crafted requirements that are moredifficult on insurers

Advocacy and lobbying in state legislatures- focus on accessand costs

Challenges to state regulations have had some successCA holding that the DOI lacked authority to implementcertain restrictions on insurers

Efforts at the State Level


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Conclusion

Barring the repeal of PPACA, compliance with theprohibition on rescissions established by 2712 will beunavoidable

Until 2014, a through pre-issuance underwriting systemshould be in place to prevent fraudulent claims

Lobbying on the state-level to keep state laws identical to 2712 will keep the financial burden on insurers to aminimum


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Q uestions?

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