Regulators need to step up enforcement to protect consumers
Peter Harbage, of the DC-based health policy firm that bears his name, writes that federal and state regulators must do more to enforce the law, if proposed new consumer protections are to be effective. We published another post on this topic, by Hilary Haycock of Harbage Consulting, which can be found here.
In the current health reform debate, President Barack Obama as well as many Senators and Members of Congress have repeatedly promised to end rescissions, the practice of insurance companies cancelling coverage for policyholders who get sick. While this is a line guaranteed to generate applause from audiences fired up about insurance company bad acts, little attention has been paid to the federal law that should have been protecting consumers from such practices since 1996. A recent report we released with the support of the Robert Wood Johnson Foundation aims to understand why that law has failed to change the individual insurance market, and what lawmakers can do to ensure that any new regulations created by health reform are more effective.
Rescissions occur because private health insurers have a strong financial incentive to sell their product to a healthy population. The better the risk pool, the better the profit. This leads insurers to underwrite their products—that is to evaluate the risk of the person or family purchasing insurance and issue or price the product accordingly. In the case of a high risk applicant, the insurer will likely refuse sale of the product. Once covered, if an individual subsequently becomes sick, the insurer may re-review the original application to find any preexisting conditions that may have been missed during underwriting. If this process of post-claims underwriting finds new information, the insurer can rescind—or take back—coverage leaving the individual uninsured. While it is believed that rescission happens on a limited basis, it can be financially and physically devastating to those who lose their coverage.