Check the scenario: Family gets health insurance coverage through wife’s employer, pay their premiums, and then husband gets into car accident. When the bills reached more than the annual premium, the insurance company canceled the policy. Why? They went back into the man’s health records and found that he failed to disclose previous conditions. It’s now a big court case in California.

This is a fairly typical scenario when it comes to private insurers. Insurers are in the business of making money–nothing wrong with that, I mean, who isn’t? But what makes this case important is a question of “good faith.” What that means is: Did the insurance company violate good faith practices by failing to check on the man’s health history before accepting him as an insured. That’s the main question that will determine this case.

According to the insurance company, and rightly so, the man withheld that he had been treated for complications related to obesity and a stomach condition two months prior to obtaining the Blue Shield coverage. This omission is legally cause for rescinding of an insurance policy. You lie, you lose–that’s fair. However, Blue Shield failed to carry out its due diligence, and according to the Health Insurance Access and Equity Act of 1993

“No health care service plan shall engage in the practice of postclaims underwriting. For purposes of this section, ‘postclaims underwriting’ means the rescinding, canceling, or limiting of a plan contract due to the plan’s failure to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with an application before issuing the plan contract. This section shall not limit a plan’s remedies upon a showing of willful misrepresentation.”

The last line is the important one, “a showing of willful misrepresentation.” The insurance company is trying to prove that the family willfully withheld the previous conditions. The family states they did not, they thought that only the wife’s information was required since the policy was under her name (from her employer).

This case will be very important as far as how insurance companies will be required to treat incoming clients. Why would an insurance company not carry out its due diligence to the tee before insuring someone? Cha-ching…premium dollars, that’s why. What are the chances one person will run up a $45,000 medical bill? Slim, most people don’t (sorry, universal health care groupies, despite the propaganda, this type of medical expensive is not as common as we are being Kool-Aid drugged into believing), so health insurers make a nice chunk of change from each underwritten premium. It’s not until they have to pay out that a foul is committed–at least in their eyes. But, this might just be a case of the health insurance industry’s game just coming back to bite them. Oh well.

Anyway, this type of shenanigan is not an isolated incidence when it comes to health insurance. Many people find themselves at the losing end of rescinding policies for “withholding medical information” which happen after an medical expense is incurred. In fact, health insurers have been shown to reward employees for rescinding policies (cutting coverage), an act described as “reprehensible” by a California arbitration judge in an earlier case. We’ll find out how this one turns out, but I think the insurance company will get nailed on this one.

Copyright © 2013 Dr. Nick Campos - All Rights Reserved.