Karen Knee's insurance problems began with her 2005 New Year's resolution: addressing her nagging health concerns. First on her list was to get those little benign cysts on her scalp removed. Blue Cross pre-approved the procedure, and it went off without a hitch -- at first.
But then the insurer retroactively canceled her policy, claiming that Knee (at right), of Orange County, Calif., had failed to disclose a pre-existing condition, and saddled her with a $30,000 medical bill.
Knee was stunned. Four years earlier, she had applied for coverage online and included everything she could recall about her health history -- doctors' names, prescriptions taken, the test results of her latest pap smear. She never thought to mention that her back sometimes felt sore after playing soccer, or that she had once taken pain pills after a muscle spasm. "You think of a pre-existing condition as diabetes or cancer treatment, not a onetime little back spasm," she says. "I played soccer three days a week and was always being knocked down. Yes, my back was sore, but so were my knees and ankles. Big deal."
In fact, it was a big deal. After scouring her medical records, Blue Cross cited Knee's occasional sore back as justification to rescind her insurance coverage. (Blue Cross says it does not comment on individual incidents in litigation.)
The practice is "rescission": an insurance-industry procedure of retroactively canceling approved health-insurance policies obtained in the individual market after the policyholders get sick and file large medical claims.
Rescissions are often used to stop fraud on the part of enrollees who have misrepresented their health histories to obtain coverage. But consumer advocates say that insurance companies are driven by profit to revoke coverage based on even inconsequential discrepancies between the application and the medical record. Many insurers even pay employee bonuses for meeting a cancellation quota and for the amount of money saved.
"This amounts to post-claims underwriting," says healthcare advocate Jerry Flannagan of Consumer Watchdog, a nonprofit consumer education and advocacy group. "They're supposed to look at your medical records ahead of time -- but once they offer the coverage, you should be able to rely on it."
That's what Heidi Bleazard (right) thought. Bleazard, 41, of Logan, Utah, had believed she could rely on the policy that she and her husband, Keith, 40, purchased from Regence Blue Cross & Blue Shield of Utah in 2005. But five months later, she suffered a pulmonary contusion, three broken ribs, and a brain injury in a devastating mountain-biking accident. At that point, Regence pulled the plug on her coverage -- because Keith had injured his back 10 years earlier.
The Bleazards appealed, arguing that they had disclosed Keith's injury to the insurance agent and the nurse who completed the paperwork, and mentioned it on the initial application. Regence refused to budge (and also declines to comment on this case).
As more and more policyholders are forced to purchase private insurance, they could easily find themselves encountering the same problem. Rescission cases have drawn increased scrutiny from state health regulators who have levied million-dollar fines against insurers. Courts had recently begun siding with patients who filled out their applications in good faith and paid their premiums for years, only to be dumped when they needed insurance most.
This issue has also drawn the attention of Congress, where witnesses testified that state protections against the practice are often weak and insufficient. Witnesses asked the federal government to step in to fill the breach. The healthcare reform bills proposed in Congress would end this practice of rescission.
In the meantime, Knee is slowly paying off the hospital bills, and the Bleazards have spent three years battling a series of financial and medical problems. In addition to the $150,000 in hospital bills, they must also pay for Heidi's physical therapy and medication for her brain injury. Both Knee and the Bleazards are suing their insurers.
"Since this happened, no insurer will touch us," Keith Bleazard says. "So we just try to stay out of trouble."
Think you've got health insurance? Rescission could leave you broke and sick