Patient Power

Rescission of health insurance no rationale for government control

Economist Scott Harrington makes some excellent points about health insurance rescission in the Wall Street Journal.  Here’s the take home point:

If existing laws and litigation governing rescission are inadequate, there clearly are a variety of ways that the states or federal government could target abuses without adopting the president’s agenda for federal control of health insurance, or the creation of a government health insurer.

This is a matter of enforcing contracts, which is a proper role of government.  And as I’ve written before, insurers would have less incentive to mistreat customers if laws did not shield them from competition.  For example, you cannot buy more affordable policies in other states.

Some more background on rescission:

… the president’s examples of people “dropped” by their insurance companies involve the rescission of policies based on misrepresentation or concealment of information in applications for coverage. Private health insurance cannot function if people buy insurance only after they become seriously ill, or if they knowingly conceal health conditions that might affect their policy.

Traditional practice, governed by decades of common law, statute and regulation is for insurers to rely in underwriting and pricing on the truthfulness of the information provided by applicants about their health, without conducting a costly investigation of each applicant’s health history. Instead, companies engage in a certain degree of ex post auditing—conducting more detailed and costly reviews of a subset of applications following policy issue—including when expensive treatment is sought soon after a policy is issued.

This practice offers substantial cost savings and lower premiums compared to trying to verify every application before issuing a policy, or simply paying all claims, regardless of the accuracy and completeness of the applicant’s disclosure. Some states restrict insurer rescission rights to instances where the misrepresented or concealed information is directly related to the illness that produced the claim. Most states do not.

Harrington also summarizes how president Obama misrepresented two cased of rescission in his speech.

Read the whole article: Obama and health insurance rescission.

(HT, Richard Miller of Boulder)

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