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Will Health Reform Law Stop Insurers From Denying Coverage? A Loophole That Deserves More Attention

As Obama's health care overhaul gets moving, loopholes threaten to undermine the legislation. Despite reports that the bill bans a controversial practice where insurers retroactively cancel health coverage of patients, the law hasn't changed.
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Even as President Obama's health care overhaul gets moving, loopholes threaten to undermine the legislation.

Despite a flurry of news reports that the health care package bans a controversial practice where insurers retroactively cancel the health coverage of patients, the law has not changed. Yes, federal law already outlaws rescission, except in cases where insurers say patients have committed fraud.

But insurers generally are not required to prove that the fraud was committed knowingly, and can revoke coverage retroactively -- saving large sums -- at little risk to themselves. Absent any new disclosure requirements or industry standards governing rescission criteria, insurers will ostensibly continue to be able to exploit the loophole to their advantage.

Peter Harbage, former assistant secretary for the California state health department and health policy expert, said it was a good thing that the new law re-emphasizes the existing prohibition on rescission, but argues that it does not go far enough to prevent the practice.

"The law will only lead to positive change if the federal government and states enforce it," he said. "Poor enforcement -- not a lack of legal authority -- has always been at the heart of the rescission issue."

On Friday, the Huffington Post Investigative Fund reported the story of Heather Galeotti, a young woman whose story raises questions about these retroactive cancellations, known in the industry as rescission.

Galeotti was hit by a car in February 2007 and lay in a coma for nearly six months. The hospital confirmed her status with Kaiser Permanente, her insurer through her father's job, and proceeded to treat her. Five months (and $4 million in medical bills) into Galeotti's treatment, Kaiser retroactively terminated the girl's coverage. The case was shifted to Medicaid, where taxpayers would cover the bills.

California regulators later ordered Kaiser to cover Galeotti's care, saying the insurer had no basis for denying payment "other than to achieve a significant financial windfall" at the expense of her family, the hospital and the state's Medicaid program. Kaiser eventually paid the bill and acknowledged that it should have "handled the processing of this claim better."

But the case underscores the mistrust surrounding a claims process in which insurance companies aren't required to disclose data on its claims decisions. The ink on Obama's signature was barely dry before insurers challenged the pre-existing condition requirements for children -- an actual change in the law. We'll be watching to see how insurers handle rescissions going forward.

Has this happened to you? Have your health insurance claims been denied retroactively? Do you have inside information or insight on about how insurance companies handle rescissions? How are decisions made within insurance companies? How have they managed to maintain their practices as health reform moved forward? We're examining how the health insurance industry manages the claims process, and the impact on patients. Tell us your story or sign up with our Citizen Assignment Desk for updates and volunteer opportunities on this project.

This post was updated Tuesday, March 30, at 2:12 p.m.

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