WASHINGTON/NEW YORK (Reuters) - U.S. health insurers are avoiding the controversial but rare practice of canceling coverage when a customer gets sick, but it is unclear how regulators will enforce the ban, which could affect thousands of policyholders.
Sweeping healthcare reforms passed in March give companies such as WellPoint Inc WLP.N and UnitedHealth Group Inc (UNH.N) until September to implement several big changes, including an end to terminating policies, known as rescission.
Under intense pressure from Democrats following revelations about the practice, however, health insurance companies agreed this week to start abiding by the new law voluntarily for the next four months.
The federal law will standardize the rules and allow insurance companies to cancel coverage only if they can prove fraud or intentional misrepresentation. Companies had already been limited in their ability to cancel healthcare coverage, but rules have varied state by state.
“What’s significant is the direct federal oversight and not having to wait for the states to enforce,” said Gary Claxton, head of the Kaiser Family Foundation’s Healthcare Marketplace Project. “Practically, what’s happened is the attention is going to require these people to clean up their act.”
Previously, in some states an insurer could have canceled a policy by proving someone made a mistake when applying for coverage — even a nonintentional one, a senior health official in the Obama administration told Reuters.
“The big difference under the bill is that insurers must prove the policyholder knew they made a misstatement,” the official said.
Still, it is not yet clear how federal or state health officials plan to enforce the ban. The U.S. Department of Health and Human Services (HHS) is drafting regulations to lay out details for the law but has given no timetable.
“You can’t accept it and assume it will happen,” said Judy Feder, a senior fellow at the left-leaning Center for American Progress who backed the reform effort. “You can welcome it as recognition of good behavior ... but you need enforcement to verify.”
Democratic leaders called for insurers to move more quickly in light of a Reuters report last week that WellPoint used computer algorithms to target women with breast cancer for an investigation, with the intent of canceling their healthcare policies.
WellPoint called the report inaccurate, but Reuters has stood by its report.
Late Wednesday, the America’s Health Insurance Plans lobby group said the industry agreed to implement the new rescission ban in May “to ensure that individuals and families will have greater peace of mind when purchasing coverage on their own.”
Other insurers, including Cigna Corp (CI.N), made separate announcements about implementing the law early.
While the practice has evoked outcry among consumer advocates and other critics, experts say it is not widespread and affects mostly those forced to buy their own health insurance rather than rely on a large employer as most do.
“The impact on the industry will be fairly limited ... but it will be an enormously positive step for the few people who are affected,” Stuart Altman, a professor of National Health Policy at Brandeis University, told Reuters.
“There are a few companies out there who are small and feed on this individual market, and they’ve been the bad apples,” said Altman, who sits on the board of insurer Emblem Health.
Still, the move could save thousands of people from losing their coverage at a critical time when they need care.
According to the National Association of Insurance Commissioners, rescissions occur at the average rate of 3.7 for every 1,000 policies from 2004 to 2008. They peaked in 2005 and dipped in 2008, it found.
Of 1.16 million individual policies in 2005, nearly 2,700 policies were rescinded, according to a separate AHIP survey.
The importance of companies acting early is “more a demonstration of goodwill than any major impact on how many people have coverage,” said Jack Meyer, a principal with consultancy Health Management Associates.
Health insurers had fought hard against the healthcare reform bill that passed in March without a single Republican vote and bans other practices, such as refusing to cover people with pre-existing illnesses and capping lifetime payouts.
Despite the move toward early implementation, Republicans and others have pledged to work to repeal it. Democrats pounced on the industry’s decision in an attempt to thwart such calls.
“These companies have seen the writing on the wall and decided to align their practices with the law of the land even before they are required to do so,” said House Ways and Means Committee Chairman Sander Levin, adding that implementing reforms “seamlessly and in good faith is the best course going forward.”
HHS’s regulations, however, won’t tell states how to enforce the ban, the administration official said. Federal officials can also help step in when needed, the official added.
Nancy-Ann DeParle, director of the White House Office of Health Reform, said in a statement late on Wednesday that it was “heartening to see that the insurance companies who employed these terrible practices — and fought reform — are coming around doing the right thing.”
“We’ll be watching closely and holding them to their word,” she said.
Reporting by Susan Heavey in Washington and Lewis Krauskopf in New York, editing by Matthew Lewis