State Policy Network, May 14, 2007

California Department of Managed Health Care Imposes Guaranteed Issue by Regulatory Diktat

Lisa Girion, an excellent reporter at the Los Angeles Times, updates us on the "rescission" of health insurance by Blue Cross of California, which caused an unprecedented audit by the state's bureaucrats and resulted in Blue Cross of California attempting  a settlement out of court.

Note that none of the reporting to date claims that the insured applications were accurate: none challenge that the applicants failed to submit required information, or misrepresented it.  Rather, the regulator has changed the standard, and Blue Cross seems to have accepted it.

From now on, insurance an insurance applicant's fraud must be "obvious"!  Fraud is by definition not obvious, because obvious frauds do not occur. For a fraud to take place it must be, well I suppose the right word is: "confounding." All insurance markets are susceptible to fraud by their beneficiaries. Reason demands that insurance contracts, above all other contracts, must be scoured for malfeasance.

In a world where grown-ups sign contracts, the signator is responsible for "oversights" that create false information in the contract, not the counter-party.  What is the new rule, that insurers have to hire clairevoyants to read the minds of applicants to determine whether their mistakes are "oversight" or "fraud"?  This unprecedented nonsense appears to be little more than guaranteed issue by regulatory diktat. Man I wish my homeowner's insurance worked like that: set fire to the house, and buy insurance the next day!

This regulatory over-reach, and California Blue Cross' caving in, will increase individual health insurance premiums, one area of health policy where California has not fared too badly to date.

(Plug: we will discuss this topic at a panel discussion on May 31 in Sacramento, Vital Signs & Side Effects: The Likely Consequences of California Health Reform, to which all are invited!)