Insurers Move to Defer Retroactive Cancellation of Policies

The Wall Street Journal recently reported that several big insurers in California are considering plans to modify or eliminate the practice of retroactively cancelling some policyholders’ coverage once they begin treatment, often for costly procedures. The practice of voiding coverage, called rescission, had been employed by insurers when patients failed to disclose pre-existing conditions or had falsified application information. Insurance companies claimed that the practice helped to control the costs of coverage for all consumers.

But under pressure from advocacy group Consumers Union and industry association America’s Health Insurance Plans, several companies—Health Net and Blue Cross of California among them—have suspended rescissions at least until they can establish binding third-party review processes for intended policy cancellations. Health Net was recently slapped with a $9.4 million judgment against it for cancelling a patient’s coverage while she underwent treatment for breast cancer.

In addition to the monetary impact, the negative publicity generated by similar court rulings has increased the risk that state governments will act aggressively to regulate insurers’ cancellation practices.

As I see it, there are at least two contradictory implications for the ARM industry that may result from changes—voluntary or otherwise—to insurers’ rescission practices. The first, however unpleasant, is that fewer rescissions are likely to decrease the number of delinquent medical accounts. Additionally, that reduction will occur in a patient demographic—those with health insurance—that is better situated than self-pay populations to meet its financial obligations, even in a collections stream.

The second (and more benign) effect may be a general increase in the cost of healthcare coverage introduced by insurance companies to mitigate losses from patient policies that historically might have been voided. If that happens, insured consumers will face increased economic pressure that may lead to more medical account delinquencies.

Healthcare collection agencies: do you see changes to retroactive cancellation policies impacting your business?