HealthNet in CA has been ordered to pay $9 million to an insured who had her policy canceled midway through treatment for breast cancer. The bulk of the award – $8.4 million – was punitive damages, which should leave health insurance companies all over the country feeling a little nervous.
Patsy Bates got her HealthNet policy from a broker who apparently filled out the application for her. Some information was misrepresented on the application, including her weight and the fact that she had a pre-existing heart condition. I have to wonder about the circumstances under which the application was completed. I wonder whether Ms. Bates’ correct weight would have made her ineligible for a policy? Did she truly not know her weight and just guess? Did she deliberately give an incorrect figure? Or did the agent make up a number that would meet the underwriting guidelines? Since HealthNet has since concluded that the weight was misrepresented on the application, they must have found medical records that pre-date the application and have a significantly different weight recorded at a doctor’s office. The heart condition that was left off the application was apparently a possible heart murmur that was diagnosed years before when Ms. Bates went to the ER for an anxiety attack. A single anxiety attack years in the past would be an easy thing to forget on a health insurance application, and Ms. Bates may not have even realized that her medical records indicated a possible heart murmur. But at the end of the day, we have to look at how HealthNet would have underwritten the application if the correct weight and the anxiety attack/possible heart murmur been listed for review. Most health insurance companies here in Colorado would not be too concerned with the anxiety attack/heart murmur issue (assuming it really was several years in the past, with no recurrences), based on the years of underwriting actions that I’ve seen. The weight could be a different story – every company has height/weight or BMI tables that are used to determine eligibility. Most health insurance companies have weight ranges that will result in higher premiums, and a maximum weight for any given height, above which a person would not be considered for coverage. If Ms. Bates weighed more than the allowable limit set by HealthNet, they never should have given her a policy in the first place. But they did.
I’ve written before about health insurance carriers who rescind policies after claims are filed. I find this practice particularly troubling. And making it even more disturbing is that fact that some health insurance carriers – including HealthNet – pay bonuses to employees who meet policy cancellation quotas. Not application rejections – policy cancellations. There is a world of difference. Yes, people should be honest when they apply for health insurance. But the health insurance carriers should do their homework before they issue policies. They should pull whatever medical records they need or request a medical exam at the time of application. By the time the health insurance policy goes into effect, both parties should be sure of the binding nature of the contract. If the insurance company considers the applicant to be too great a risk, they should dig deeply enough to determine that fact before the policy is issued. Then the applicant can search further to find a better option (or in the case of Ms. Bates, just keep the policy she already had when HealthNet solicited her business).
Health insurance companies are very quick to take an applicant’s statements at face value when an application is on the table. But when claims arise – especially if they come up soon after the policy is issued – they’re willing to dig up any details they can possibly find to support a policy rescission. Since this practice normally goes on during large claims, it tends to be during a rough time in the insured’s life anyway. The last thing they need is to have their health insurance policy yanked out from underneath them.
I have no patience for people who lie or deliberately misrepresent themselves on health insurance applications. But most health insurance carriers are asking about ten years of medical history, and a lot of people don’t remember all the details from that long ago. These things tend to have a paper trail, so if it’s really important to the insurance companies to get an accurate medical history, they should take the responsibility to verify the applicant’s statements before a policy is issued.
I wonder if the judgement against HealthNet will have an impact on how health insurance carriers look at underwriting, policy rescission, and the practice of awarding bonuses to employees who rescind the most policies?