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Health Insurers Ordered to Reinstate Revoked Policies

Three of the leading health insurance companies in California have been ordered to reinstate 26 policies that were revoked because insurers claimed that policyholders lied on their applications. California regulators said the policies were wrongly rescinded for inadvertent errors made on the applications.

A California regulatory agency warned the companies that it will also review thousands of revocations of insurance policies from the past four years, which may lead to many more reinstatements.

Consumer advocates believe that the policy of wrongful rescission by insurance companies is not limited to these 26 cases in California. They say that predatory insurance practices are an industry-wide problem.

These problems occur more often with individual health insurance plans than with group plans. Only about 5% of insurance policies are currently purchased on the individual market. However, a plan proposed by Republican presidential nominee, Senator John McCain, would cause a dramatic spike in individual insurance plans.

McCain proposes converting the tax break that employees currently receive on health insurance benefits into a tax credit to be used to purchase health insurance on the individual insurance market. This would place more individuals at risk of having their policies revoked for inadvertent mistakes on insurance applications.

If what is happening in California is indicative of a more widespread problem in the insurance industry, reform measures will be necessary to prevent predatory insurance practices.