Updated: Some answers to questions about individual health insurance

My Aug. 24 story on “Individual policies: the subbasement of health insurance” generated a number of comments and questions from readers.

As I was gathering answers to some of these questions, it occurred to me that readers at-large also might be interested in rescission, the rate of insurance denial in Minnesota and policy cancellations in the individual market.

Before I go further, the Minnesota Department of Commerce’s Consumer Response Team encourages policyholders with questions to call 651-296-2488 or 1-800-657-3602. They are the regulation experts and can help you sort out what your policies provide, what state law says, and whether a complaint warrants investigation.

But here’s what I learned this week:

16 percent denial rate
Eileen Smith, spokeswoman for the Minnesota Council of Health Plans, says the insurance denial rate is 16 percent in the state based on information she received from Blue Cross and Blue Shield of Minnesota and other plans.

Neither the council nor Commerce had a statistic on the rate of health-insurance rescission in Minnesota. Rescission deals with post-underwriting practices that lead to cancellation of a health insurance policy. A brief about rescission (PDF) came out this week from the Robert Wood Johnson Foundation in light of some publicized cases in Texas and California where policies were canceled after the insured became sick.

Minnesota uses the “Objective Standard,” according to the RWJF study, which means that “only conditions for which an individual has received actual medical care qualifies as a preexisting condition.” The Commerce Department also offers a consumer-appeals process for those who are denied insurance or dropped after they were covered.

John Gross, Commerce’s health-care policy director, says that “rescissions are rare in Minnesota” and “we have very few complaints on this.” Furthermore, “Statutes prohibit an insurer from rescinding a policy after two years unless they can prove fraud. MN Statute 62A.04, subd.2(2)-Time Limit on Certain Defenses requires that the health policy be incontestable after two years, unless the applicant commits fraud.”

Rescissions rare in Minnesota
Adds Smith of the Council of Health Plans: “Rescissions are rare because health plans do a pretty thorough job of underwriting and because once you’re accepted for coverage they can’t kick you out like they can in other parts in country. … Rescissions only happen in Minnesota if it [the application] was fraudulent and the plan can prove it.”

Updated: I now have a cancellation rate for policies during the first two years in Minnesota. “Less than one-tenth of 1 percent of individual policies were rescinded within two years,” Smith writes in an email.
 
Those two years occasionally prove problematic for an individual policyholder. Says Robert Commodore, head of Commerce’s Consumer Response Team: “Typically, a health policy, once issued, cannot be canceled for any reason except non-payment. The exception is within the two-year period of contestability and it’s only predicated on an illness being a pre-existing condition or something that the insured failed to notify the insurance company about in the application. But it doesn’t always have to be fraud. …

“Unfortunately, what happens is there are some cases where the patient may not even know the doctor has made some notation like ‘we need to check so-and-so down the line.’ … Typically what happens is the notation is not seen until you’re in line for some surgery within the first two years and the insurer does a more detailed check of the medical records and they see that notation and see that you didn’t say anything on your application. They may deny that upcoming surgery.

“It doesn’t happen that often,” says Commodore. “Most of the doctors err on the side of judgment and tell you everything, but there are some things they may not tell you. There are a lot of little variables.”

After COBRA, a right to convert
Commodore also wanted to address some readers’ comments about receiving denials of insurance after being on COBRA (which allows former employees to stay on their employer policies for 18 months as long as they pay the full cost).

“A lot of people are now moving to single coverage,” Commodore says. “If they’re coming through a group policy, after the COBRA extension is over, they get the right to convert the policy (with the same insurer) without any pre-existing conditions being considered.”
 
Employers are required by law to notify COBRA beneficiaries of their conversion rights toward the end of the 18-month period, he says. The premium rate is not based on the individual’s health history but on the employer pool’s history. However, if the insured want a different policy from the employer’s, they could be denied a policy based on their pre-existing conditions.

One more point: “You may get turned down because of your health history, but you can’t be canceled because of your health history once you’re on a policy. [Health insurers] can’t cancel your policy for claims like they can on a homeowners or an auto policy.”

I didn’t mention this in my original story, but it’s useful information. The nonprofit Minnesota Comprehensive Health Association offers coverage for residents “who have been turned down for individual health insurance in the private market due to pre-existing conditions,” according to the MCHA website. “Circumstances include: Individuals who exhaust COBRA benefits. Individuals working for employers who do not offer health insurance. Individuals who have exceeded lifetime maximum limits, or their previous coverage. Former employees of bankrupt companies.”