Prevent Illegal Health Insurance Cancellations

California Strengthening Laws to Prevent Illegal Health Insurance Cancellations

On August 18, new regulations go into effect in California that are aimed at preventing illegal cancellations of health insurance policies.

Rescission, which is the practice of canceling health insurance policies for mistakes on the health insurance applications, even minor mistakes, is targeted in the new regulations. According to the government, rescission is estimated to add $300 million in profits to the health insurance industry.

The new regulations require questions on a health insurance application to be clear, specific and understandable. The applications are not allowed to use double-negatives or some types of compound questions. Insurance companies will be required to take into account the level of knowledge an average individual with no medical training may have when formulating the questionnaires. Questions on the application must be relevant to the underwriting process. In addition, applicants must be allowed to check that they are unsure or cannot remember to questions on the application. Consumers must also have the right to respond during rescission investigations.

The California Department of Insurance is going to publish a new approved questionnaire for insurance companies to use in obtaining applicants medical history. Insurance companies that decide not to use the pre-approved questionnaire cannot use unapproved questionnaires as the basis of a rescission later.