Nine years ago, at age 8, Nora Kenny was diagnosed with a deformity that
contributed to the need for braces. When her parents’ insurance company found
out about it two years ago, her coverage was rescinded.
That congenital deformity was an overbite. Now 17, Kenny again has coverage
after her parents successfully fought back with the help of state insurance
regulators — a battle that no longer will be necessary because a key
provision of the health care reform law bans rescission of insurance.
One of the most controversial issues related to health insurance has been
rescission, which is action taken by insurers to retroactively cancel a
customer’s coverage even if a policy is kept current, citing omissions or
errors in the application as grounds for breaking the contract. And Illinois
has had among the highest rescission rates in the country.
Starting in September, rescissions will no longer be allowed, except in the
case of fraud.
In the Kenny family’s case, Blue Cross and Blue Shield of Illinois said in
letters in late 2008 to the parents and their orthodontist that they uncovered
a 2001 diagnosis of mandibular hypoplasia during a phone call to their
daughter’s dentist’s office in November 2008.
The Kennys said the overbite was first diagnosed when Nora was 8. Her
father, Thomas Kenny, said doctors didn’t tell the family about it at the time
and Illinois Blue Cross never asked about it when he applied for coverage
several years after the diagnosis.
“We didn’t try to hide anything,” said Kenny, a Naperville attorney. “Our
orthodontist told us her mandibular hypoplasia was routine, and it was nothing
the insurance company even asked us about on our application. From our
perspective, they didn’t even ask for the names of any of our children’s
dentists or orthodontists.”
Because Kenny is self-employed at a small law firm, he purchases individual
coverage, in which insurance regulators say the practice is most common.
Rescissions do not occur to consumers who have employer-based health benefits,
insurers say.
Nora Kenny was forced off the family plan in late 2008 and her parents had
to buy a more expensive individual policy for just their daughter. Illinois
Blue Cross restored her coverage in January after an investigation by the
Illinois Insurance Department.
“It really put us in a vulnerable position,” Nora Kenny’s mother, Kathy,
said of the Blue Cross rescission. “You felt since we’re small potatoes, they
can peel you off one by one. We had no leverage of paying millions of dollars
in premiums like a General Electric.”
Blue Cross and Blue Shield of Illinois said it could not comment on Nora
Kenny’s case.
Under the health care law’s new regulations, insurance companies will be
prohibited from rescinding coverage for state-regulated individual and small
group coverage “except in cases involving fraud or an intentional
misrepresentation of material facts,” according to the federal government’s
Healthreform.gov Web site. If an insurer uncovers evidence of fraud, it must
provide the affected consumer at least 30 days’ notice for time to appeal.
Although most of the benefits intended to expand health insurance to 32
million Americans don’t kick in for another four years, certain aspects of the
health care reform law, including the rescission rule, will take effect in
late September. Some health plans already are working to bring an end to
rescissions. The bill was passed four months ago by Congress and signed into
law by President Barack Obama.
“There’s now a defined legal standard for when a rescission is
appropriate,” said Illinois Insurance Director Michael McRaith. “In Illinois,
our law was ambiguous, vague, and left wide latitude and discretion with the
insurance industry.”
There were more than 27,000 rescissions in the U.S. over a five-year period
that ended in 2008, according to a study by the National Association of
Insurance Commissioners. That’s an average 3.7 rescissions per 1,000 policies
written.
Illinois had the second-highest rescission rate in the country, at 12.9
rescissions per 1,000 policies written, just behind New Mexico’s nearly 19 per
1,000. The number has triggered an investigation by McRaith, who has pushed
for a consumer appeals process.
Insurance companies have long defended rescissions as a business practice
they exercise when people have misrepresented information provided to health
plans or lied on their applications about their medical histories. To keep the
cost of medical care from soaring, insurers said they needed the ability to
exclude consumers from coverage if pre-existing medical conditions were not
reported.
The insurance industry says rescissions affect no more than 7 percent of
the American population with private insurance who buy individual policies,
but that segment often is the most vulnerable. Individuals tend to pay the
highest rates because they are not part of a large pool of health plan
subscribers and, therefore, tend to have little leverage.
“Rescissions are very rare,” said Robert Zirkelbach, spokesman for
America’s Health Insurance Plans, the Washington-based lobby for the health
insurance industry. “They are only used as a last resort.”
Illinois Blue Cross spokeswoman Maryann Schultz said rescissions account
for less than one half of 1 percent of all of its policies. As of June 15, she
said, Illinois Blue Cross implemented a third-party review of its rescission
cases.
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Members of Congress say testimony about rescissions from consumers and
medical care providers often revealed business practices that were more
egregious than Nora Kenny’s.
“It was viewed by Congress as the tip of the spear,” U.S. Rep. Jan
Schakowsky, a north suburban Chicago Democrat influential in the health reform
debate, said of rescissions.
“It typifies the practices of the insurance industry to maximize their
profits that were so clearly anti-consumer and harmful to people who were
counting on their health insurance at the moment they needed it the most.”