Skip to content

Recissions and Denial of Care Under Obamacare

2010 April 22
by Ian Welsh

I had to go through this language for another purpose, so let’s see how HCR affects recissions and denial of care. (A recission is cancelling the policy, denial of care means denying a specific treatment.)

Here’s the recission language.

‘‘SEC. 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 covered under such plan or coverage involved, except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. Such plan or coverage may not be cancelled except with prior notice to the enrollee,

The denial of care and appeals language is as follows.

‘‘SEC. 2719. APPEALS PROCESS.

‘‘A group health plan and a health insurance issuer offering group or individual health insurance coverage shall implement an effective appeals process for appeals of coverage determinations and claims, under which the plan or issuer shall, at a minimum—

‘‘(1) have in effect an internal claims appeal process;

‘‘(2) provide notice to enrollees, in a culturally and linguistically appropriate manner, of available internal and external appeals processes, and the availability of any applicable office of health insurance consumer assistance or ombudsman established under section 2793 to assist such enrollees with the appeals processes;

‘‘(3) allow an enrollee to review their file, to present evidence and testimony as part of the appeals process, and to receive continued coverage pending the outcome of the appeals process; and

‘‘(4) provide an external review process for such plans and issuers that, at a minimum, includes the consumer protections set forth in the Uniform External Review Model Act promulgated
by the National Association of Insurance Commissioners and is binding on such plans.’’.

I’ve taken a look at the NAIC model reg referenced.  As I read it:

If company A denies care or rescinds:

a) the client must appeal to the company itself.

b) if that fails, the client may appeal to an external arbiter.  However, either the company has to agree to this or the insurance commissioner has to override the company’s decision.  (The criteria are pretty straightforward and making a false negative would be hard to do absent just lying.)

If care is urgent and the doctor agrees the client may skip the internal appeals process and go straight to external appeal, with the same caveat that the insurer must agree or the insurance company must override the decision of the insurer.

Actually, this is pretty decent.  The obvious ways to try and game it are:

1) to force as many non-urgent appeals to take the maximum time in the internal review (30 days), then kick them to external (between everything, 3 to 4 months).
2) Snow the external review organizations under by denying as much as possible, and forcing times up.  This won’t do squat on recissions, but on denial of care a certain # of people will die (or get better) and that will save some money.  You do pay for external reviews, but it’s unlikely to be more than the cost of really sick people’s care.
3) Game the insurance commissioner.  The insurance commissioner decides who does the external review.  Some reviewers will find for the companies/plaintiffs more than others.

Like any compliance based activity this bill requires the compliance agencies to do their jobs, but actually, this is written fairly tightly.  I think, from a strict bottom line perspective, it’ll probably turn out to be worth still trying to deny care to really sick people who aren’t mortally ill, to buy yourself 3 or 4 months worth of surcease from bills.  Also, the harder you make it to get care, the more likely they are to drop your company and find a new one, so hassling them into the ground might be good business practice.

In terms of recissions, it really is a matter of the definition of fraud.  If forgetting to put anything on the application form or getting something wrong on the form (say getting dates slightly wrong about some illness from 2 decades ago) is fraud, they can still get a lot of people rescinded.  If not, and if you can’t deny care due to prior conditions, then why would they be, then in fact it will be damn hard to rescind policies.

Another question is simply of  penalties.  If I, as a company, simply say “no, I don’t care what the law is I’m not going to obey it”, what is the penalty?  As with coal mining companies who simply accept fines as a cost of doing business, it may be worth breaking the law.

The final point is that much of this seems (if I’m reading this correctly) to be handled by the State Insurance commissioners.  Some of them are really good (New York, for example).  Some of them are captured by the industry or have very few resources.

Bottom Line: Recissions as such are probably a thing of the past once the bill goes into full effect, unless regulators completely fall down on the job.  Denial of care will probably still continue, though you’ll eventually be able to force them to give it to you, they can and probably will deny as often as they can to drive down costs and try and drive you to another company, if you’re an expensive (ie. very sick) customer.

12 Responses
  1. BDBlue permalink
    April 22, 2010

    Does it define fraud or misrepresentation? Because this, IMO, has always been a big hole. I was once involved in an insurance case where a guy who lost his job went for counseling briefly because losing his job depressed him. He went on his wife’s insurance because he lost his job. A few years of premium payments later, he got cancer. The insurance company okayed his treatment. They then went on a search of his medical records and found the counseling. They denied his coverage because he had said he had never had a mental illness/disease when he’d gone for that counseling for “depression” when he lost his job. The guy eventually got coverage, but he had to go to court to get it. The insurance company, of course, never reviewed the guy’s medical history until they got the large claim. Without that, he would’ve had the privilege of paying premiums for “coverage” for decades.

    Now, that was under state law, but still I think it shows that there’s a lot of potential for recission with the fraud/misrepresentation standard. In fact, most recission pre-HCR as I understand it was for fraud/misrepresentation so I’m not sure the bill changes very much. I would love to be wrong about that, however.

  2. April 23, 2010

    In terms of recissions, it really is a matter of the definition of fraud. If forgetting to put anything on the application form or getting something wrong on the form (say getting dates slightly wrong about some illness from 2 decades ago) is fraud, they can still get a lot of people rescinded. If not, and if you can’t deny care due to prior conditions, then why would they be, then in fact it will be damn hard to rescind policies.

    So let’s say you have a major illness or injury and end up disabled. If (like most people) you haven’t purchased a private disability policy then you will be depending on Social Security Disability for your income. This means you will have a drastic reduction in your income.

    Let’s say your medical bills for just the first month after the illness/injury total over $100,000 and the meter is still running.

    Then you get a notice from your medical insurance provider stating that they have reviewed your account and are rescinding your coverage based on fraud because you got the dates slightly wrong about some illness from 2 decades ago.

    Then you begin receiving bills from every doctor, hospital, lab, ambulance company, pharmacy and/or other medical service provider that participated in your care and treatment. Each of those bills states that your insurance company has rejected the provider’s claim for services rendered and refused payment and therefore you are liable and they want their money right now.

    You’re broke and disabled. Any attorney willing to represent you will want a retainer up front – they don’t take contingency fees on cases like this.

    What are you gonna do about it?

  3. Pepe permalink
    April 23, 2010

    unless regulators completely fall down on the job

    don’t you mean “until” not “unless”?

  4. par4 permalink
    April 23, 2010

    Pepe beat me to it. Or maybe when instead of until.

  5. Martin Bento permalink
    April 23, 2010

    Hi Ian. It seems the me the crux of the matter is “material fact”. If that is interpreted as I believe it normally is, it means the patient must have made a misrepresentation either about something plausibly related to the condition for which he is seeking treatment, or about his eligibility for the insurance coverage that he got. I would say insurance commissioners need to implement some summary procedures so they can rule against companies with no evident case without a cost in red tape, but still with a considerable fee to the company for the service. In other words, the fee for review would not be reduced for a summary dismissal.

  6. April 23, 2010

    I think the other commenters get to the heart of the issue here – first, that the regulators will fail (because they’re the same group of people, the state level commissioners, who by and large have failed spectacularly to date). Second, that even if they didn’t, sick and vulnerable people would be broken under the system waiting on appeals to get care.

    Even if it’s not ‘urgent’, it could still be debilitating. You lose your job, your family has to take care of you, all while you wait an extra few months (on top of the wait times the system already imposes) to get your care.

    And the kicker is, even if, hypothetically, the insurance company loses its appeals and a few months later you’re finally treated, when the next insurance rollover period comes up they can (and will) jack your premiums through the ceiling, because there is absolutely zero authority in this bill to control premium costs. None. Zippo. Instead, they rely on the same system that has imploded in MA, where you can deny an insurance company permission to sell policies on the exchange if they’re too pricey or want to raise rates too high. The catch being, of course, that the companies still have their anti-trust exemption, so to get around this, all they have to do is raise their prices together as a group. Solidarity for scumbags.

    (Which they did in MA. And the state’s desperately fighting them in court, because, unlike the national exchanges, in MA they actually do have some limited authority to control premiums. When this comes up on the Obama exchanges we’ll lose automatically. They get to charge the premiums they want, or they can take their ball and go home.)

  7. Ian Welsh permalink*
    April 23, 2010

    Oh yes, cost is going to explode, agreed.

    Martin: what they do now is go through the application for initial coverage, say “fact X is incorrect or not mentioned (we know from 3rd party reports) and even though it’s not material to your current condition, we would not have insured you if we knew you left something out or said something wrong.

  8. BDBlue permalink
    April 23, 2010

    And I think, Ian, that they’ll still be able to do that. Why wouldn’t they be? They’ll argue that it’s material to the issue of coverage (not a particular claim).

  9. S Brennan permalink
    April 23, 2010

    Been there…Done that

    Enforcement Rule

    On February 16, 2006, HHS issued the Final Rule regarding HIPAA enforcement. It became effective on March 16, 2006. The Enforcement Rule sets civil money penalties for violating HIPAA rules and establishes procedures for investigations and hearings for HIPAA violations; however, its deterrent effects seem to be negligible with few prosecutions for violations.

    http://en.wikipedia.org/wiki/Health_Insurance_Portability_and_Accountability_Act

  10. April 23, 2010

    Yeah, one of the things that irritates me most about this bill’s proponents is their harping on ‘guaranteed issue’.

    Yes, the insurance companies have to offer you a policy. No, it doesn’t have to be affordable. If they all offer you the same rate (and they will, at least roughly, since the anti-trust exemption remains in place), what can the Exchange do about it? Nothing.

    So you might get one chance to have a major illness covered with an Exchange plan. Then, next rollover, you’ll have no affordable options. From a strictly actuarial perspective it makes sense, and they can argue to regulators that they’re merely covering their expected losses (from covering a very sick person, ie, you). Naturally, when their expected costs are very low, they’re still free to charge whatever they want. Heads they win, tails we lose.

  11. Martin Bento permalink
    April 25, 2010

    Ian, yes, that’s true, but I don’t believe the “material fact” language is currently there in most states, so they can take you out for any misstatement. What I meant by how it’s usually done, is how “material fact” would usually be interpreted in law, not how the health insurance industry usually works. Of course, IANAL, so I could be wrong on this.

  12. April 27, 2010

    “shall not rescind such plan or coverage with respect to an enrollee once the enrollee is covered under such plan or coverage involved, except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage”

    Well, this is pretty much what they do now. The crux of it all is establishing fraud or misrepresentation, which we know ins. companies will twist in all manner of ways to rescind the policy.

    About the only thing I expect to ramp up with HCR will be medical bankruptcies.

Comments are closed.