News: 2009 Press Release

Insurance Commissioner Steve Poizner today introduced historic regulations to prevent the practice of unfair rescissions in the individual health insurance industry. These regulations mark California's first-ever regulatory steps to clarify rescission laws, preventing the industry practice of unfairly rescinding health insurance policies.

"Since taking office, I have made it clear to insurance companies that improperly rescinding health insurance policies will not be tolerated in California," said Commissioner Poizner. "Consumers deserve to have their insurance companies hold up their end of the deal, paying out claims and not canceling coverage when it's needed most. Today I am pleased to introduce regulations that will give insurers the guidance they need to follow the law and help prevent illegal rescissions in the first place."

Insurance companies have previously taken advantage of ambiguity in existing laws to inappropriately rescind health insurance policies for individuals when they need health insurance coverage the most - after filing claims for medical treatment. By introducing these regulations, Commissioner Poizner is making it clear to insurance companies that the Department of Insurance will make sure they do all their underwriting before they accept a policyholder and stop the insurer practice of reviewing policy applications for incriminating data once the policyholder becomes sick.

"These regulations deliver a dose of preventive medicine for rescissions," Commissioner Poizner added. "Coupled with our previous enforcement actions, we now have powerful and continuing legal standards in place that will protect consumers from the ills of unlawful rescissions and force insurers to honor commitments to policyholders." 

Commissioner Poizner has taken decisive action against improper rescissions since taking office in 2007, cracking down on the three largest individual health insurance companies in the state for engaging in the practice. The Commissioner established requirements within each settlement to ensure that these companies would not illegally rescind policies in the future. Poizner also worked to get offers of reinstated coverage for 4,000 customers whose policies CDI alleges were illegally rescinded.

The settlement provisions covered the 85 percent of the market represented by the three companies - Health Net, Blue Cross and Blue Shield.  The new regulations announced today will cover the remaining 15 percent of the market by preventing improper rescissions from happening in the first place.  The regulations will also provide additional protections that supplement and strengthen the existing settlements.  By presenting these common-sense regulations, the Commissioner is taking bold steps to protect the entire private health insurance market.

The new regulations will do the following:

• Set clear and rigorous standards that insurers must meet before they issue a health insurance policy. Insurers must do their underwriting job before they issue the policy.
• Put insurers on notice that they must prove that they have met ALL of the underwriting standards before they can consider rescission.
• Put an end to lightweight sloppy underwriting if insurers want to keep the right to rescind.
• Put insurers on notice that they must be 100% sure that an individual knew the answer to a health history question and failed to provide it before considering rescinding that person.
• Require insurers to make sure that health insurance applications are accurate and complete.
• Require insurers to ask clear and unambiguous health history questions and avoid confusing applicants.
• Require agents who assist applicants with their questions to attest to the insurer regarding their assistance, at every stage of the application process.
• Encourage insurers to use Personal Health Records instead of potentially confusing health history questionnaires to underwrite applicants.
• Provide fair due process protections for consumers who are being investigated for possible rescission including early notice, opportunity to provide input to the insurers, and the chance to clarify their application. No hidden rescission investigations are allowed under the new rules and this encourages insurers to work with their insureds to resolve questions about the accuracy of their responses.
• Require insurers to share documentation used during rescission investigations with the insured under investigation.  

The notice of the regulations will be officially published by the Office of Administrative Law on Friday, June 5. Implementation of the regulations is expected by the end of 2009, following a public hearing, public comment and regulation finalization period.

A copy of the regulations can be found by selecting this link.