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Are the Insurance Regulations Enforceable?

One reason that health care supporters have given for not wanting to go the route of reconciliation is that you would lose all of the insurance reforms and regulations that will end the practice of rescissions, the denial of coverage due to pre-existing conditions, and the price discrimination against the sick. The LA Times has a story today on regulation as the linchpin of the health care bill.

But shorn of a “public option,” the Senate healthcare bill has reverted to a long-established practice of leveraging government power to police the private sector, rather than compete with it.

Despite the resistance among Republicans and conservatives to more government regulation, even the insurance industry has agreed to broad new oversight of their business in exchange for the prospect of gaining millions of new customers.

Ending rescissions, mandating preventive care with no cost-sharing, guaranteed issue and community rating (modified for age) are very important steps to a saner health care system, along with the other host of regulations. But Mcjoan has done a very good job at Daily Kos explaining how the bill isn’t totally secure on all of these fronts. Her most recent effort takes a look at 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).

It’s all going to boil down to how “fraud” and “intentional misrepresentation of material fact” are going to be interpreted in the regs written for this bill. Because insurance companies have been using “fraud” as the means for cutting people off for a long time […] The bottom line for insurance companies will always be the bottom line. We don’t want insurance company lawyers defining “intentional fraud.”

The bill contains several pieces that are open to interpretation, and whether or not you think they’ll succeed depends on your belief in the success of the government over insurance industry lawyers to manage those interpretations best. For example, there’s the bit on banning only “unreasonable” annual caps on expenditures, in the Senate bill, or the ability to sell nationwide plans and skirt existing state insurance regulations.

But I have a different concern I’d like to share, one that the LA Times article covers as well: Where is the police force?

But the success of this approach may well depend on whether regulators have been given enough authority, a question that has received considerably less attention than the ideologically charged battle over a new government insurance plan […]

Although the bill mandates that state and federal regulators review rate increases, it is unclear how the regulators would evaluate what insurers want to charge and how aggressively they would restrain the industry.

I just want to offer into this debate an example of how the lack of a police force for these regulations should distress anyone who thinks they are somehow bulletproof.

The California Department of Managed Care has been going after rescissions in California for several years. They have put together lawsuits, distributed fines, et al. In one case, they fined Blue Cross of California $1 million dollars for rescinding patients. Blue Cross just didn’t pay it. And the Department of Managed Care decided not to sue them over it, BECAUSE THEY KNEW THEY WOULD BE OUTGUNNED IN COURT.

California regulators admitted Thursday that for more than a year they didn’t even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because it feared they would be outgunned in court.

In early 2007, the Department of Managed Health Care pledged to fine the state’s largest insurer for “routinely rescinding health insurance policies in violation of state law.” But they never did.

The department’s director, Cindy Ehnes, told The Associated Press on Thursday that, when it comes to rescissions, the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.

“In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever,” Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.

“They have the largest number of rescissions, so as a practical matter for the department it does present some practical challenges that are different from a Health Net (of California) or a PacifiCare,” referring to providers who, along with Kaiser Permanente, have made settlements with the state to reinstate health care coverage.

The bigger the company, with the more rescissions, the less likely it is for regulations to be effective.

Incidentally, when the Department of Managed Care finally did take one of these rescission cases to court, in May of this year, they lost it. And they lost it because the plaintiffs made an agreed settlement with the insurance company, rather than prolong a trial they may have lost. In that settlement they basically stipulated that Blue Shield, the insurer in this case, was correct to rescind their policy.

In all, the couple made 11 stipulations that represent an abrupt reversal in the position that they had maintained since Blue Shield rescinded their coverage after a 2001 car accident that led to many medical bills.

Now, keep in mind with all of this that California’s Dept. of Managed Care is the biggest entity enforcing insurance regulation in the entire country, both before and after this bill. They oversee 21 million enrollees in the state. They haven’t lost every attempt to regulate the industry – but they haven’t won all of them, either. And meanwhile illegal rescissions still occur routinely in the state of California.

The HHS Secretary has made some promises to give state regulators the necessary authority to enforce the rules, but I’m not sure that solves this problem, the same one put forth by Andrew Jackson about John Marshall: “Marshall has made his decision, now let him enforce it! …”

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David Dayen

David Dayen