Much has been said about the health insurance industry practice of rescission over the years. It is a powerful tool for insurers to fight fraud, but it has also been a bit of a PR nightmare for the insurance industry, and has resulted in fines from insurance commissioners. Throughout the past year of health care reform debate, I’ve heard politicians mention numerous times that the health care reform bill would do away with the practice of rescission in the individual market (it’s really only a factor in the individual market, since group policies don’t have the same sort of medical underwriting that individual policies have).
The Patient Protection And Affordable Care Act was signed into law by President Obama earlier this week, and several times since then I’ve heard people talking about how insurance companies will no longer be able to rescind policies, starting this year. But in reading through the text of the bill, I’m seeing a slightly different picture. Starting on page 16, and continuing onto page 17, is section 2712, titled “prohibition on rescissions.” It states that policies shall not be rescinded “except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional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.” So it would appear that rescission will still be legal in cases of fraud or intentional misrepresentation. Which is of course very subjective, since nobody other than the applicant really knows what the applicant’s intentions are.
Starting in 2014, pre-existing conditions will no longer be an issue when applying for individual health insurance, and one would assume that the practice of rescissions will also disappear at that time. But between now and then, applicants still have to be honest when completing applications for individual health insurance, as rescission will continue be allowed if it is deemed that the applicant committed fraud or intentional misrepresentation when applying for a policy, so there is still a risk.