Consumer Watchdog – California Health Rescissions Bill Vetoed

SACRAMENTO, CA -- California Gov. Arnold Schwarzenegger vetoed a bill that would have barred health insurers from rescinding a policy unless the policyholder intentionally misrepresented or omitted health information on the application for coverage.

Consumer advocates called the veto a betrayal of a prior pledge, while opponents of the legislation maintained it would have been a boon to trial lawyers, not policyholders. The bill would have established a process for those rescinded to appeal the action to an independent review panel and mandates that coverage be continued until when and if the panel rules that a patient acted improperly (BestWire, Sept. 2, 2008).

In a statement, California Association of Health Plans President and Chief Executive Officer Christopher Ohman welcomed the veto.

"We are pleased that Gov. Schwarzenegger recognized that A.B. 1945 was a bill that missed its mark. Rather than offer consumers real legal protections from unfair rescission or cancellation, it would have invited dishonesty on applications and lead to price increases and reduced coverage in the individual market," Ohman said. "This bill would have undermined 100 years of contract law that allows contracts to be rescinded for failure to disclose a material fact regardless of intent."

But Jerry Flanagan, health policy director of the advocacy group Consumer Watchdog, said the governor's veto "betrays" a pledge in his 2008 State of the State address to protect patients whose policies are unfairly cancelled.

"This veto will mean that health insurers who have given more than $1 million to the governor will continue to rescind innocent patients when they fall [ill] and need coverage the most, forcing consumers into court to challenge unfair policy cancellations," he said.

The veto came against a backdrop of millions of dollars in fines paid by health insurers to settle investigations into their rescission practices. Anthem Blue Cross and Blue Shield of California, recently agreed to pay a combined $13 million to $15 million in fines and to offer new health coverage to consumers whose policies they canceled, under separate agreements with state regulators. Anthem will pay $10 million and restore coverage to 1,770 former policyholders. In recent months, the DMHC has also reached agreements with PacifiCare of California, Kaiser Permanente and Health Net (BestWire, July 18, 2008).

In late September, Aetna announced a new nationwide policy to allow an independent panel of physicians to review its rescission decisions involving individual health insurance plans (BestWire, Sept. 29, 2008). The reviews will be conducted at no cost to policyholders and decisions will be binding on the company.

Schwarzenegger previously signed a bill that clarified existing law banning health insurance companies from rewarding employees for rescinding a policyholder's insurance (BestWire, July 24, 2008). In November 2007, the state Department of Managed Health Care fined Health Net $1 million for not disclosing information about a bonus program for employees based on cancellations of individual health insurance policies (BestWire, Nov. 16, 2007).

Contact the author, Sean P. Carr, senior associate editor, BestWeek at: Sean.Carr@ambest.com