In the past couple of years a great deal of fear mongering has taken place by politicians relating stories about people who had their health insurance canceled after they had started treatment. The fancy name for the practice is “RESCISSION.”
In the past, I have been asked if insurance companies were allowed to cancel a policy just because someone got sick. In this post I want to allay fears.
If you told the truth during your application and underwriting phase for individual health insurance your policy cannot be canceled on you just because you got sick.
The PPACA of 2010 went so far as to insert section 2712 on page 14 of the legislation to ensure that could not happen in any state. It reads as follows,
SEC. 2712. PROHIBITION ON RESCISSIONS
‘‘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. Such plan or coverage may not be cancelled except with prior notice to the enrollee, and only as permitted under section 2702(c) or 2742(b).”
In Texas, where I live and have practiced insurance since 1987, the question was settled in 2005 by the 78th Legislature. The Texas Insurance Code, which governs everything to do with insurance the only circumstances which an insurance company may legally cancel a health insurance policy. It reads as follows.
Sec. 1202.051. RENEWABILITY AND CONTINUATION OF INDIVIDUAL HEALTH INSURANCE POLICIES.
(a) This section applies only to an individual health insurance policy that provides benefits for medical care under a hospital, medical, or surgical policy.
(b) Except as provided by Subsection (c), an insurer shall renew or continue an individual health insurance policy at the option of the individual.
(c) An insurer may decline to renew or continue an individual health insurance policy:
(1) for failure to pay a premium or contribution in accordance with the terms of the policy;
(2) for fraud or intentional misrepresentation;
(3) because the insurer is ceasing to offer coverage in the individual market in accordance with rules adopted by the commissioner;
(4) because an individual no longer resides, lives, or works in an area in which the insurer is authorized to provide coverage, but only if all policies are not renewed or not continued under this subdivision uniformly without regard to any health-status related factor of covered individuals; or
(5) in accordance with federal law, including regulations.
(d) The commissioner shall adopt rules necessary to:
(1)implement this section; and
(2)meet the minimum requirements of federal law, including regulations.
On January 25 I addressed this issue for people on Medicare in my post, “Can My Medigap Insurance Company Drop Me?” Today I want to calm the fears of people who are not yet on Medicare.
You can control 3 of the 5 reasons a policy can be canceled and the last one is in the hands of the politicians in D.C. Other than paying attention to their activities like any other conscientious voter would, there is nothing that you can do, anyway.
If you follow 4 basic rules you cannot experience a policy canceling on you after you get sick.
1. Pay Your Premium
The first reason why a health insurance policy may legally be cancelled in Texas is because an insured did not pay his/her premium in a timely manner.
All health insurance policies in Texas have a “grace period.” A grace period is a period of time after the premium due date in which the insured may still pay his/her premium without the policy being canceled. The insurance company is required to pay all medical claims that occurred during the grace period provided the premium is eventually received.
If the premium is not received during the grace period, the insurance company must cancel or “lapse” the policy.
A lapsed policy may or may not be renewed, at the discretion of the insurance company. It may require the insured to submit a new application and clear underwriting again.
2. Be Honest
Don’t lie or be deceptive on your application or underwriting interview. You may deceive the insurance company into approving a policy for you but you also run the risk of being charged with obtaining the policy trough fraud.
If you don’t know something they ask, don’t make up information. Be honest and say you do not know and give them the contact information for your doctor to allow them to verify information.
It is better for you to receive a premium sur-charge than it is for your policy to be canceled after you are diagnosed with something because of fraud or misrepresentation.
3. Pay Attention
Health insurance companies are privately owned and not run by the government. They are currently allowed to pick what states they will operate in and which ones they wish to avoid. That may or may not change is the future but it is the case now.
Generally, if an insurance company elects to cease operations in a state a larger insurance company will buy their contracts and assume liability for their customers. That is what happened during the last quarter of 2009 when Unicare ceased operations in Texas and gave their members the chance to transfer to Blue Cross Blue Shield of Texas.
In November of that year every Unicare insured received a letter from Blue Cross Blue Shield of Texas, aka BCBSTX offering to transfer their policy to BCBSTX as of January 1, 2010. In order to make the switch, people had to either call Blue Cross Blue Shield of Texas or make an election on-line.
Unicare continued to honor their policies in Texas but only until June 1, 2010. At that time they canceled all their major medical policies in Texas.
People who paid attention to the news, their mail or their insurance agents made the switch with no problems. Those who did not were caught without health insurance after June 1.
4. Be Careful When Moving
The 4th and final way you can prevent your health insurance policy from canceling without your consent is to add it to your “To Do” list when you are moving. With a bit of advance planning on your part, your health insurance can be taken secured with very little trouble.
All health insurance premiums include a geographic variable. Medical costs in some areas of the nation are higher than in others. Also, people in more urban areas, like major cities, are more likely to seek medical help for more routine things than people who live in more rural areas. I know I would be more inclined to go to the doctor for a sore throat because he was just 10 minutes drive from my house than if he was 2 hours away.
Also, all HMO type plans are built on a geographic model. They may provide health insurance to people who live in ABC county but not residents of XYZ.
If you are planning to move, whether it is just down the street or to another state, make certain you check to see if the move is going to affect your health insurance. You may get by with a simple change of address or you may have to find a different health insurance company.
The bottom line is that your health insurance is in your control here in Texas. There is no way for a health insurance company to legally cancel your policy unless you allowed it.
If you are moving to the Houston, Texas area from another state and need advice on health, life or disability insurance here in Texas, contact us at firstname.lastname@example.org or call (832) 767-8059 before you move or right after you have relocated.
- Declined Health Insurance? Don’t Give Up (theinsurancebarn.wordpress.com)