Health Insurance Scheme Denies Benefits and Cancels Policies
Also Blog: Week of December 29, 2008
If you’re one of the few who actually have health insurance coverage, consider yourself fortunate. However, if you have yet to file a claim for health insurance benefits, you may be in for some unpleasant surprises.
Insurers are now using a scheme to deny claims and actually cancel insured’s policies through “postclaims underwriting.”
“Postclaims underwriting” occurs when you (or a covered family member), makes a claim for health insurance benefits, the insurance company, at that time, begins an exhaustive investigation of your medical history in order to find any nugget of evidence that could qualify as a “pre-existing” medical condition. Once this “pre-existing” condition has been found, the insurance company then denies benefits under the current policy and can potentially cancel your policy altogether.
That’s what happened to California hairdresser Patsy Bates. She was undergoing chemotherapy for breast cancer when her insurer, Health Net accused her of making misrepresentations on her application. In arbitration Bates was awarded punitive damages and Health Net accused of pulling the rug out from underneath her.
According to the June 2008 Trial Magazine, California is leading the country in stopping this type of harmful practice. A number of lawsuits filed against health insurers like Health Net and the Bates case, and Blue Cross caught the public’s attention, which caused industry regulators to investigate and fine these health insurers.
In some cases, people who have been denied benefits or kicked out of an insurance pool have been allowed to sue for emotional distress and breach of the duty of good faith and fair dealing.
A class action suit was filed against Health Net for illegally canceling health coverage for over 1,000 insureds and for delaying the claims of thousands of other insureds.
Another tactic the insurance companies is using to keep from paying benefits and keep their bottom lines growing is to basically force their insureds to apply for other sources of benefits such as Social Security Disability Insurance (SSDI).
In some cases, if an injured claimant refuses to apply for SSDI benefits, the insurance company may go ahead and reduce his or her benefits by the amount it believes SSDI would pay. Some insurance companies have been known to stop paying benefits altogether.
Because Social Security’s definition of “disability” is much stricter than that of a private insurance company, most people who apply for SSDI are turned down at least once. Insurers then instruct their claimants to appeal the SSDI decision, which could take years to resolve. This is great news for the insurance companies because most do not have to pay benefits during this appeal process.
Should you win your SSDI case and are awarded benefits, the insurance company is then allowed to deduct, or “offset” the amount of SSDI benefits and pay you the balance. This is still a win-win situation for the insurance company. They get to reduce the amount of benefits they have to pay you, which reduces its claim reserves which, in turn, increases their profits.
How do you protect yourself from these “postclaims underwriting” tactics?
First, make sure you answer the medical questions as fully and completely as possible.
Second, confirm with your insurance agent how much information needs to be given regarding family members who will be covered under the same policy.
Third, make sure you have a copy of the signed insurance application.
Fourth, carefully read your insurance policy, paying close attention to the “cancellation” provisions – if you don’t understand something, ask your insurance agent or have your attorney review the small print. Don’t wait until you need to make a claim to learn about these potential loopholes.
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