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Insurers to End Practice of Dropping Customers Who Become Sick

Major health insurers announced this week that they will end the controversial practice of dropping customers who become sick. The practice, called rescission, had come under fire by health care reform advocates during the year-long reform debate, and was outlawed under the law signed last month.

The ban on rescissions wasn’t set to go into effect until September, but on Wednesday, the industry trade group America’s Health Insurance Plans said that companies would stop rescissions next month, several months ahead of schedule. The move came at the request of the Obama administration and some Democrats in Congress.

“Our community is committed to implementing the new standard in May 2010 to ensure that individuals and families will have greater peace of mind when purchasing coverage on their own,” AHIP CEO Karen Ignagni said in a letter to House Democrats.

NPR health policy reporter Julie Rovner discusses the move [answers have been edited for space and clarity]:

NewsHour: Why is AHIP, which opposed the health care reform law, now agreeing to implement parts of it early?

Julie Rovner: I think a lot of the companies really didn’t like to do [rescissions] but they felt like if other companies did it then they had to do it too […] for competitive reasons.

Rescissions are when a company retroactively cancels a policy after someone makes a claim. They go back and find some technicality on the application to say, “you failed to report thus and such” — sometimes it’s a very minor detail that was left out — and use this as a pretext to say “therefore we’re not going to pay any of your current medical bills.” And that can leave the patient hanging with tens or even hundreds of thousands of dollars in medical bills.

So there have been a lot of stories about this, and a lot of really angry consumers and angry regulators.

[The new law] didn’t start for six months. […] But on the other hand, there was a letter that went out from members of Congress asking companies to please vow not to do any more rescissions starting now.

And they basically went along. There was a conference call with AHIP, the trade group of insurers, and all the big insurers said “you know what, we’re just going to go ahead and all together we’re going to stop doing this pretty much as of now.”

One thing that will still be allowed under the law is that if there is actual fraud [the company] can go ahead and rescind a policy. But there’s no more of this “you forgot to say that you went to the doctor for acne when you were 17.”

NewsHour: How big a deal is this for insurers? How much will it cost them?

Julie Rovner: I don’t think it will cost them a whole lot — I don’t think they were doing it very often. And as I said, it really was a lot of bad publicity. […] I think every company was anxious to make their competitors stop doing it, so they could stop doing it too.

NewsHour: Insurers also agreed this month to implement another part of the new law early — allowing young adults up to age 26 to stay on their parents’ plans. Can you talk about that?

Julie Rovner: This is an effort really to pick up this year’s crop of graduating college seniors. It just seems bureaucratically impractical to take these kids off of the plans, and then put them back on starting in September [when this aspect of the law was set to go into effect]. It would probably be more expensive to do that than just to cover them for the three or four months.

So a lot of the companies said “we’re just going to go ahead and cover them” either now or starting in May or June.

NewsHour: Are there any other parts of the new law that insurers might decide to implement early?

Julie Rovner: There’s the ban on limits on coverage — that’s something that I think a lot of the companies might go ahead and do early. […] That would be another one that is not terribly expensive. Because again, a lot of these plans are reaping goodwill, and good publicity […] It looks good for them to go ahead and just do it, because these are changes that they’re going to have to make.

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