“As soon as I sign this bill,” President Obama promised in his prime-time address to Congress, “it will be against the law for insurance companies to drop your coverage when you get sick.” Thunderous applause followed. It’s easy to understand why – no one wants to lose their insurance coverage when they need it most.
But here’s a news flash: It’s already illegal for insurance companies to drop patients once they become ill. It has been for over a decade. The American people should take note, as President Obama is using this non-existent crisis to justify massive federal intervention in America’s health sector.
Since 1997, federal regulations have prohibited insurance companies from raising a person’s rates if he develops an illness. And no matter how sick a customer gets, an insurer can’t drop him or refuse to renew his policy – provided he didn’t lie on his application or move out of the state where his policy was issued.
Perhaps the President thinks this law isn’t being enforced. He has repeatedly claimed that “no one holds these companies accountable for these practices.” But that’s not true. State insurance commissioners are charged with enforcing good-faith execution of insurance contracts. In fact, that’s exactly what Obama’s current Health Secretary, Kathleen Sebelius, did for eight years as Kansas state insurance commissioner. Occasionally, insurers identify customers whom they believe have lied about their health status on their applications and rescind their coverage. Rescission is an infrequently used but important tool for rooting out fraud. Health insurers rely on applicants submitting correct information so that their actuaries can estimate what risk they will add to the pool of people covered by the insurer.
Insurers must be confident that applicants are being truthful about their health. Otherwise, the health insurer will attract only applicants who wait until they become sick to buy health insurance, which could leave it bankrupt. The alternative to recission, investigating an applicant’s complete medical history, would be extremely time-consuming and expensive. It would also make insurance less affordable and less available. And despite the scare stories we’ve been hearing, rescissions rarely occur. WellPoint, one of the country’s largest insurers, enrolled approximately 873,000 new customers in 2008. Less than 0.15% of those customers had their policies rescinded. Just 0.5% of those covered by Assurant, another health insurer, experienced rescission. The figure is similar for Blue Cross of California.
When insurers have wrongfully rescinded policies, state insurance commissioners have been ruthless about protecting consumers’ rights. Last September, for instance, the California Department of Insurance ordered Health Net Inc. to reinstate 926 policies that had been incorrectly rescinded. The company also paid $3.6 million in fines and another $14 million in medical claims. In July 2008, Anthem Blue Cross agreed to pay $11 million in hospital claims derived from rescinded policies in California. Americans know that health reform is needed. Insurance coverage and medical services get more expensive every year. And the rising costs make patients feel powerless.
But these problems stem from the illogical structure of our health system, not the actions of supposedly heartless insurers. Because third parties – like insurance companies or the government – pay for just about everything, Americans have no idea how much doctor visits or medical procedures cost.
Returning health-care dollars to individual patients would spur competition and bring down costs. But President Obama has no interest in this style of reform. He’s interested in putting the government in charge.
And so, with health-care dollars flowing through either insurers or the government, the President only has two potential villains. He obviously can’t malign the government as he attempts to put it in charge of American health care. So that leaves insurance companies as the target for his ire.
If Americans buy into Obama’s crisis-mongering and the myths on which it is based, they may be forced to accept more government interference in their health decisions and a precipitous decline in the level of choice, competition and quality of care available to them.
Graham is Director of Health Care Studies at the Pacific Research Institute.