Three Health Insurers Were Asked to Rescind Only for Intentional Fraud. All Three Said No.

On June 16, 2009, a House subcommittee sat three health insurance executives at one table and asked each of them the same short question. Would the company promise to cancel a customer’s policy only when the customer had lied on purpose?

All three declined. The transcript keeps every word of it.

The practice under review is called rescission. It means voiding a policy after the fact, as if it had never existed.

In the case files the committee reviewed, the trigger was a claim. Bart Stupak of Michigan, the subcommittee chairman, opened by describing companies “conducting investigation with an eye toward rescission in every case in which a policyholder submits a claim relating to leukemia, breast cancer or any of a list of 1,400 serious or costly medical conditions.”

If the review finds an omission on the application, the coverage can vanish and the bills land back on the household.

What the committee counted

The Subcommittee on Oversight and Investigations of the House Energy and Commerce Committee opened with numbers pulled from the companies’ own files.

“Over the past 5 years almost 20,000 individual insurance policyholders have had their policies rescinded by three insurance companies who will testify today,” Stupak said in the same opening statement.

NPR, reporting on the hearing six days later, gave the committee investigators’ exact count: 19,776 rescissions from the three insurers over five years.

Henry Waxman, chairman of the full committee, put a dollar figure on the same stack of files: “these three companies saved more than $300 million over the past 5 years as a result of rescissions.”

The three companies were Assurant Health, Golden Rule Insurance Company, which UnitedHealth Group owned, and the consumer business of WellPoint.

Their leaders were seated together: Don Hamm, chief executive of Assurant Health; Richard Collins, chief executive of Golden Rule; and Brian A. Sassi, president and chief executive of WellPoint’s consumer business.

Before any executive spoke, three policyholders did. Wittney Horton of Los Angeles. Peggy Raddatz of La Grange, Illinois, who appeared on behalf of her brother Otto. Robin Beaton of Waxahachie, Texas.

The hearing had one hinge, and it was a yes-or-no

Stupak did not argue with the executives about any single file.

He asked each of them for one commitment, in turn, on the record.

The request was narrow. Keep the power to cancel, but use it only against people who had committed an intentional fraudulent misrepresentation.

That standard would have left every deliberate liar exposed. It would also have protected anyone whose application had an honest error in it.

Three men were asked.

The three answers

“Let me ask each of our CEOs this question, starting with you, Mr. Hamm,” Stupak said. “Would you commit today that your company will never rescind another policy unless there was intentional fraudulent misrepresentation in the application?”

Hamm answered: “I would not commit to that.”

“How about you, Mr. Collins? Would you commit not to rescind any policy unless there is intentional fraudulent misrepresentation?”

Collins answered: “No, sir. We follow the State laws and regulations and we would not stipulate to that. That is not consistent with each State’s laws.”

“How about you, Mr. Sassi? Would you commit that your company will never rescind another policy unless it was intentional fraudulent misrepresentation?”

Sassi answered: “No, I can’t commit to that. The intentional standard is not the law of the land in the majority of States.”

Stupak’s next question was shorter: “Well, do you think it is fair to rescind somebody for an innocent mistake?”

Three questions. Three refusals. In public, under the lights, with the transcript running.

Why a no was the only answer that protected the practice

A yes would have surrendered something specific.

Sassi said what it was. “The intentional standard is not the law of the land in the majority of States.” Karen Pollitz of Georgetown University, testifying at the same hearing, described how that worked inside a state contestability window: “if any, even unintentional, material misstatement or omission is discovered, consumers may lose their health insurance.”

Agreeing to the intentional-fraud line would have retired that. Every rescission would then have needed a finding about what the applicant intended, not just what the applicant wrote.

None of the three would give that up in that room, on that day.

NPR’s report on June 22 compressed the exchange to two sentences: “Rep. Bart Stupak (D-MI), who chaired the hearing, asked all three CEOs if they would agree to stop rescinding policies except in cases of fraud. All three said no.”

Congress wrote the answer into the United States Code

Nine months later, on March 23, 2010, the Affordable Care Act was signed into law.

Section 1001 of that statute added a provision now sitting at 42 U.S.C. 300gg-12. Its heading is three words: Prohibition on rescissions.

The text reads: “A group health plan and a health insurance issuer offering group or individual health insurance coverage shall not rescind such plan or coverage with respect to an enrollee once the enrollee is covered under such plan or coverage involved, except that this section shall not apply to a covered individual who has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage.”

The exception names two things. Fraud, or an intentional misrepresentation of material fact.

That is the same line Stupak had offered the three executives. It is close to word for word.

The statute also closed the quiet door. Coverage “may not be cancelled except with prior notice to the enrollee.”

The provision applied to plan years beginning six months after enactment, which put it in force from September 23, 2010.

The shape of the thing

Congress asked three companies to give up a power voluntarily. Three companies said no.

Congress then took the power by statute and set the standard at the exact place the executives had refused to set it themselves.

The hearing is the reason the record shows both halves. A voluntary refusal in June 2009. A federal prohibition in March 2010.

The full hearing, including the exchange quoted above, is filed on govinfo as CHRG-111hhrg73743.