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Health Insurance Coverage in Times of Need

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In May, I wrote about problems with health insurance companies in California. Specifically, an insured with Blue Cross and Blue Shield of California sued the company alleging bad faith arising out of the company’s decision to rescind a health insurance policy based on high claims expenses. In the lawsuit, the plaintiffs alleged that the carrier accused the insureds of misrepresenting responses to questions contained in the application for health insurance only when it became clear the company would have to pay over $450,000 in medical expenses.

Across the country, health insurance companies make decisions to take away health insurance policies which have become too expensive based upon allegedly false statements contained in policy applications. If an insured truly misled an insurance company in the insurance policy application and in reliance on material misrepresentations, the carrier issued a health insurance policy, Arizona law allows the carrier to rescind the policy. I am curious whether carriers are using minor variations in application questions which have been prepared in good faith as a basis for decisions to rescind unprofitable health insurance policies.

Imagine diligently preparing an application for health insurance answering all questions as best as you can. You timely pay premiums believing that your carrier will provide benefits when needed. Suddenly, you suffer injuries in an accident and require costly medical care. When you or your medical providers submit these medical bills to the carrier for payment, the company decides that your claims expenses are just too costly. As a result, the insurance company undertakes a review of your policy application to see if you made any material misstatements in it. Why? The insurance company entered into a contract with you and promised to pay your medical expenses according to the terms of its policy. However, if a policy has become unprofitable, the company may decide to investigate to determine whether it may properly rescind your health insurance policy and eliminate claims payouts on this money-losing policy if you made false statements on your application for coverage. If you made a false statement of a material fact on your insurance application, the insurance company will likely attempt to deny your medical expense claims and rescind your insurance policy.

As I mentioned earlier, under Arizona law, an insurance company has the right to rescind a policy. A carrier may rightfully rescind your insurance policy if you intentionally misrepresented various opinion responses or provided materially incorrect factual responses on your insurance application. The inaccurate responses must have been material to the company’s underwriting decisions and the insurance company must show that it would not in good faith have issued the policy had it not been for the misrepresentation.

Disputes often occur over whether insureds actually misrepresented responses on an insurance application, whether such alleged misrepresentation amounted to a material misstatement justifying a carrier’s decision to take away an insurance policy and whether the carrier would not have in good faith issued the insurance policy if the alleged misrepresentation not occurred. Plaintiffs such as those in the Blue Cross case in California often argue that the decision to rescind a policy amounts to nothing more than a pretext used by the company to eliminate claims payments for money-losing health insurance policies rather than a good faith decision not to issue a policy based upon alleged misrepresentation.

If you have a dispute with your insurance company and your dispute involves refusal to pay a claim rather than rescission of a policy, Consumer’s Union, the publisher of Consumer Reports Magazine, published A Consumer Guide to Handling Disputes with your Employer or Private Health Plan containing details about applicable policies and laws governing claims disputes. Also, the Arizona Department of Insurance web site contains various consumer friendly resources to assist you in working through disputes with health insurance carriers. Additionally, the National Federation of Insurance Commissioners (NAIC) provides a database showing some information about consumer complaints. Please note, however, that consumer complaints tracked by this database only include those voluntarily reported to the NAIC by Insurance Departments throughout the country. The database does not include complaints consumers have not filed with a state department of insurance, complaints resolved in litigation, or informally resolved before litigation.

Have you had a bad experience with a health insurance carrier that rescinded your policy based on alleged misrepresentations? Describe your experiences. Were you able to resolve your dispute? How were you able to resolve the dispute. Did you file a complaint with the Arizona Department of Insurance? After a health insurance carrier rescinded your policy, were you able to find other health insurance coverage elsewhere? I’d like to hear from you and thank you in advance for sharing your stories.