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Health Insurance Changes Come Too Late For Some

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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hog farmer not only had his health insurance policy rescinded in 2007,
but several months later, his wife's policy was rescinded as well.

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problem, it rescinded her policy, too.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."

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.