Health-Insurance Firms Promise to Stop Punishing Sick People -- Which Is Great, If They Mean It

Score an early point for the new healthcare-reform law: The two largest health-insurance companies in the U.S. - WellPoint (WLP) and UnitedHealth Group (UNH) -- have declared that they'll immediately stop revoking the policies of people who become seriously ill. Bully for them. Of course, they're reacting to political pressure from HHS Secretary Kathleen Sebelius among others, but they're still taking this step several months before the Affordable Care Act forbids the odious practice, known technically as rescission.

As with anything involving insurance, though, it's a good idea to read the fine print before breaking out the champagne.

One odd aspect of the insurers' story -- although, to be sure, not a surprising one -- is that they don't admit having done anything wrong in the first place. WellPoint, for example, has denied the accuracy of a recent Reuters piece that accused the insurer of targeting women who developed breast cancer and then finding flimsy reasons to revoke their insurance. This article triggered Sebelius' public rebuke of WellPoint.

United came closer to admitting its past misdeeds. "In the spirit of the recently passed health reform legislation, UnitedHealthcare moved quickly to eliminate the practice of rescission, except in cases of fraud or intentional misrepresentation of material fact," UnitedHealthcare President Gail Boudreaux said in a statement. While that is the letter of the new law, it also suggests that United might have previously canceled policies of patients who had not engaged in fraud.

That was also the implication in the congressional testimony of insurance executives who stoutly defended their rescission policies in Washington last year. The executives -- who included representatives of United, WellPoint, and Assurant -- told a House committee that rescission was designed to fight fraud, but still wouldn't pledge to limit rescissions to policyholders who intentionally lie or commit fraud to obtain coverage.

There's no doubt that these and other insurance firms did cancel policies of people who had made honest mistakes on their applications or had done something else that did not amount to fraud. That's why a California judge in 2008 ordered Health Net (HNT), another big carrier, to pay more than $9 million to a breast cancer patient whom it had dropped in the middle of chemotherapy.

The big question is how the government will police the insurers to prevent them from returning to their bad old ways. A provision to mandate third-party review of insurance cancellations was dropped from the healthcare reform legislation after the insurance industry objected. WellPoint says it now uses independent third-party reviewers, and United is in the process of retaining them. Aetna's use of third-party review has shown some positive results, according to a Connecticut insurance department official. But you can't help wondering how independent the reviewers will be and whether consumers will have any recourse if the reviewers decide they committed fraud.

In any case, the history of rescission proves that many insurance companies do put profits before people. It's up to federal regulators to scrutinize these firms and make sure they keep their promises.

Image supplied courtesy of dOOd at Flickr.