I recently was asked, “Can my Medigap policy be rescinded for fraud?”
With the press and politicians using anecdotes designed to frighten people about the security of their health insurance, I understand why this question would be asked but find it unfounded for a couple of reasons.
In this post I want to explain why I do not believe there is much to worry about.
Medigap policies are guaranteed to be approved if you apply for them during your Initial Enrollment Period for Medicare. That period starts 3 months before the month of your 65th birthday and lasts until 3 months after your 65th birthday.
If you apply for Medigap during this time, the insurance company is required to approve your application, regardless of your health. You could be in the hospital receiving treatment for cancer and your Medigap will go into effect at the same time as your Medicare benefits.
If you got your Medigap policy during your Initial Enrollment Period, there is absolutely no way that you could do anything that would cause a problem with your insurance.
MEDICALLY UNDERWRITTEN POLICIES
If you elected not to apply for Medigap during your Initial Enrollment Period or do not qualify for a “Special Election Period” during which Medigap approval is guaranteed, you will need to medically qualify for Medigap.
Most of my clients get Medigap during a guaranteed approval period. It has been several years since any of my clients have put off getting Medigap until they have to medically qualify. I generally only have to deal with medical underwriting for Medigap for clients who are looking to change insurance companies for price reasons.
Although most insurance companies are more liberal with medical underwriting for Medigap than Major Medical, there are still some conditions that are automatic declines. If you are being treated for a severe condition, like cancer, rheumatoid arthritis, etc., you are best advised to keep the Medigap you got during your Initial Enrollment Period until after you have gotten approval for the new plan.
If you are subject to medical underwriting, you are not covered, just because you submit and application. The application is just a request to contract with an insurance company. It is not a guarantee of insurance.
In light of the original question that prompted this post, in my 25 years in insurance, I have never seen a medically underwritten Medigap be rescinded, although I am certain that it could happen. However, there is a different risk to be considered.
Every Medigap policy has a pre-existing condition clause. That clause is waived for those people who obtain Medigap during a guaranteed approval period. It exists for those who are medically underwritten.
Unless you had a comparable Medigap plan within 63 days of applying for a medically underwritten policy, your Medigap will not pay for any treatment you get during the first 6 months of your policy if you were treated for the same condition in the previous 12 months.
DEFINITION OF “FRAUD”
I am not a lawyer. However, I have had the misfortune of seeing two policies during the last 25 years rescinded.
There is an axiom in insurance law that says, “Statements made on an application are representations and not warranties.” In other words, when you fill out an application for insurance you have some protection if you honestly forget details about a doctor’s visit from 9 years ago.
For the most part, contrary to what the politicians say, insurance companies do not actively look for reasons not to pay a claim. However, they will not pay for something that they are not responsible.
Before they can rescind coverage, they have to prove that “fraud” exists. In order to prove “fraud” exists, they have to do more than just prove that the statements on your application were mistaken. They must also prove that it was your intention to mislead them.
In other words, your policy is safe from rescission just because something is missing on your application from long ago. The insurance company must prove that you lied or intentionally withheld pertinent information before they can rescind your policy.