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BUSINESS PRACTICES IN THE INDIVIDUAL HEALTH

INSURANCE MARKET: TERMINATION OF COVERAGE

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JULY 17, 2008

Serial No. 110–112

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

JACKIE SPEIER, California

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 17, 2008 ............................................................................... 1

Statement of:

Bleazard, Heidi, Logan, UT; Dale E. Bonner, secretary, California Business, Transportation and Housing Agency, accompanied by Amy

Dobberteen, chief of Enforcement Division, Department of Managed

Health Care; and Kevin P. Lembo, MPA, State healthcare advocate,

Connecticut .................................................................................................... 22

Bleazard, Heidi .......................................................................................... 22

Bonner, Dale .............................................................................................. 29

Lembo, Kevin ............................................................................................. 47

Block, Abby L., Director, Center for Drug and Health Plan Choice, Centers for Medicare and Medicaid Services .................................................... 68

Kanwit, Stephanie, special counsel, America’s Health Insurance Plans ..... 79

Letters, statements, etc., submitted for the record by:

Bleazard, Heidi, Logan, UT, prepared statement of ...................................... 24

Block, Abby L., Director, Center for Drug and Health Plan Choice, Centers for Medicare and Medicaid Services, prepared statement of ............. 70

Bonner, Dale E., secretary, California Business, Transportation and

Housing Agency, prepared statement of ..................................................... 32

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, information concerning fair and appropriate practices ........... 12

Kanwit, Stephanie, special counsel, America’s Health Insurance Plans,

prepared statement of ................................................................................... 82

Lembo, Kevin P., MPA, State healthcare advocate, Connecticut, prepared

statement of ................................................................................................... 50

Waxman, Chairman Henry A., a Representative in Congress from the

State of California, prepared statement of ................................................. 4

(1)

BUSINESS PRACTICES IN THE INDIVIDUAL

HEALTH INSURANCE MARKET: TERMINATION OF COVERAGE

THURSDAY, JULY 17, 2008

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 9:30 a.m., in room

2154, Rayburn House Office Building, Hon. Henry A. Waxman

(chairman of the committee) presiding.

Present: Representatives Waxman, Murphy, Speier, Lynch,

Tierney, Van Hollen, Cummings, Braley, Sarbanes, Kucinich, Davis

of Virginia, Issa, Bilbray, Platts, and Shays.

Staff present: Phil Barnett, staff director and chief counsel; Kristin Amerling, general counsel; Karen Nelson, health policy director;

Karen Lightfoot, communications director and senior policy advisor;

Andy Schneider, chief health counsel; Roger Sherman, deputy chief

counsel; John Williams, deputy chief investigative counsel; Sarah

Despres, senior health counsel; Michael Gordon, senior investigative counsel; Steve Cha, professional staff member; Earley Green,

chief clerk; Jen Berenholz, deputy clerk; Caren Auchman and Ella

Hoffman, press assistants; Zhongrui ‘‘JR’’ Deng, chief information

officer; Miriam Edelman, special assistant; Mitch Smiley, staff assistant; Lawrence Halloran, minority staff director; Jennifer

Safavian, minority chief counsel for oversight and investigations;

Keith Ausbrook, minority general counsel; Adam Fromm and Molly

Boyl, minority professional staff members; Patrick Lyden, minority

parliamentarian and member services coordinator; and Jill

Schmaltz, minority senior professional staff member.

Chairman WAXMAN. The committee will please come to order.

I want to, as the chairman of the committee, welcome our newest

member, Representative Jackie Speier, who represents the 12th

District of California. We are very pleased to have her on our committee. She is very experienced as a State legislator, and I want

to acknowledge the fact that she is now a member of the committee.

Today’s hearing begins what I hope will be a series of hearings

into how the market for individual health insurance policies work.

The individual health insurance market serves approximately 14

million Americans. Some Members of Congress cite that the individual market as a model for national health insurance reform, yet

the business practices of the companies that sell individual health

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insurance policies have never been closely examined by the Congress.

Today’s hearing will examine a little known business practice in

the individual health insurance market, which the industry calls

‘‘post-claims underwriting.’’ Post-claims underwriting is a sanitized

name for an exceptionally offensive practice, retroactively denying

health insurance to people who get sick, and when they get sick.

Most Americans who have health insurance get that insurance

through their employers or through government programs like

Medicare or Medicaid or Tricare. Americans who are fortunate

enough to have group insurance are not at risk for post-claims underwriting. Group insurance coverage can’t be terminated when

you need it the most.

Americans who purchase health insurance in the individual market face a very different situation. In most States, insurers require

applicants for individual health insurance to fill out detailed application forms that are designed to identify any physical or mental

health condition or chronic illness.

Insurers are supposed to then look at the application provided on

these forms before approving the applicant for coverage. Based on

this information, the insurer decides whether to issue the policy, to

issue the policy with certain restrictions, such as refusing to cover

pre-existing conditions, or to deny the application altogether. This

process is called medical underwriting and the expectation is that

it will occur before the policy is issued or denied.

Post-claims underwriting happens after the individual health insurance company has decided to approve a policy and to issue that

policy. It is often triggered after the policyholder gets sick, or has

an accident and requires major health insurance coverage to be put

into place to pay for the bills. The insurer then goes with a finetoothed comb through the insurance application, to see if there is

any technicality that can be used to justify rescinding the policy.

This happened to two of our witnesses, Heidi and Keith

Bleazard. They will tell us how their health insurance was taken

away after Heidi suffered serious injuries in a biking accident.

Their insurer, Regence, claimed that Heidi and Keith made a mistake in their application for health insurance, and then the insurance company terminated the policy. They were left with more

than $100,000 in medical bills.

What happened to the Bleazards is inexcusable. The reason families buy insurance is so that they will be covered when they get

sick. But Regence canceled their insurance when they needed it the

most.

Unfortunately, the experience of the Bleazards is not an isolated

one. We will hear today that over 1,000 individuals in California

had their insurance policies inappropriately rescinded. And we will

hear about policyholders in Connecticut who suffered the same

thing. One person who was terminated because the insurer said he

should have known that his occasional headaches would later be diagnosed as Multiple Sclerosis.

I understand that insurance companies need to protect themselves from fraud. But that is not what happened in California,

Connecticut, or across the country. Insurers are using technicalities, or trumped-up ‘‘misrepresentations,’’ to rescind policies after

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policyholders get sick and accumulate hundreds of thousands of

dollars in medical bills.

Now, that may be a great deal for the insurance companies. They

can pocket the premiums while the families are well and then cancel the coverage if anyone in the family get seriously sick. But it

defeats the whole point of getting an insurance policy in the first

place.

While State regulators are the front line of defense for consumers, the Federal Government is the last line. Under HIPAA, the

Federal Health Insurance Portability and Accountability Act of

1996, consumers are guaranteed the right to renew their individual

health insurance policies unless they have defrauded the insurer or

intentionally misrepresented their medical condition.

Unfortunately, few consumers know of their Federal HIPAA

rights to guaranteed renewability. That is because the Federal

agency responsible for enforcing HIPAA, the Centers for Medicare

and Medicaid Services, has done nothing to enforce those rights or

to ensure that States do so. Of its 4,387 full-time employees, only

4 are assigned to administering HIPAA. CMS has never taken any

action against any health insurer for post-claims underwriting that

violates a consumer’s HIPAA rights.

Our hearing today will examine how the practice of post-claims

underwriting is being abused to deny coverage to ailing Americans.

We will learn what some State regulators are doing to stop the

abuses.

And we will ask why the Federal Government is doing nothing

to protect consumers from this practice.

And we will ask the health insurance industry’s trade association

why insurers in the individual market do post-claims underwriting,

and why it has taken the intervention of regulators to bring an end

to this unfair practice in some States.

These are not academic questions. Discussions are already underway about how the next Congress might best ensure that all

Americans have adequate health care coverage. Some health care

reform proposals would move millions of Americans, including

many of those now insured through their employers, and billions

of Federal dollars, into the health insurance market.

This would obviously be a radical change in our health care system. Whether it represents reform is a debate for another day. To

prepare for that debate, however, we all need a much better understanding of the individual health insurance market as it currently

functions. The purpose of this hearing is to begin that educational

process.

And I now want to recognize Mr. Issa for an opening statement.

[The prepared statement of Chairman Henry A. Waxman follows:]

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Mr. ISSA. Thank you, Mr. Chairman.

Mr. Chairman, I would like to have unanimous consent for principles for insuring fair and appropriate practices for individual

market policy rescissions and pre-existing conditions causes entered into the record at this time.

Chairman WAXMAN. Without objection, that will be the order.

[The information referred to follows:]

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Mr. ISSA. Thank you, Mr. Chairman.

Mr. Chairman, getting individual insurance can be difficult in a

market place. The market place clearly favors risks allocated or apportioned over large groups. Losing individual coverage retroactively can put one’s life at risk. I believe that is the reason for

this hearing today.

I think it is an incredibly important reason for the Bleazards

who are here today, and we will get the pronunciation better as we

go on, I am sure. You have our deepest sympathy. Clearly, mistakes happen. Wrongdoing can occur. And we are here today to try

to separate both of those from the legitimate practice of looking for

fraud in applications.

Undoubtedly, I am sure you will agree in testimony that all three

exist. People make mistakes. People defraud insurance companies.

And insurance companies make mistakes, or use practices in some

cases that are clearly wrong and self-serving. So, I appreciate the

committee covering this.

Although HIPAA’s jurisdiction is extremely limited, and the administration of both President Clinton and now President Bush

have seen fit to see little or no Federal wrongdoing. That doesn’t

stop this committee from seeing whether in fact two administrations have been wrong and perhaps create an opportunity for the

next administration to get it right.

Certainly, our witnesses today from California and Connecticut

will be very helpful. It is very clear that although people who are

victims, or alleged victims, of misconduct by health insurance carriers are important to hear from. It is also important to hear from

as many people who are advocates or responsible for administering

the fair use of these opportunities on both sides. Only State regulators have primary jurisdiction. Their goal, the goal of the people

of California, Connecticut, and all of our States, is, in fact, to guarantee consumers the contract sanctity necessary in health care arrangement.

Consumers clearly need more access and more awareness to this

growing problem that an individual health care application could,

in fact, retroactively be denied. It is not uncommon when people

are filling out applications for people quite harmlessly to gloss over

or not take time to mention that they had an injury or an illness

decades earlier. That clearly should not allow a technical and unrelated cancellation to occur.

We have an industry in America that is under considerable assault with rising costs and limited ability for individuals or even

companies to pay. I join with the chairman in recognizing that with

44 plus million uninsured Americans, the last thing we need to do

is to have people doubting whether it is worthwhile to get insurance to begin with.

Very clearly, unless people can count on contract sanctity, it is

likely that we would only increase the number of people who

choose to put the money into a savings account or spend it rather

than make that investment against the rainy day occurrence of an

illness or injury.

Mr. Chairman, as we talked earlier, at this time I would like to

ask unanimous consent to have our witness from the third panel,

so closely related to the industry and to the regulators, Stephanie

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Kanwit, be allowed to be on the first panel, because we believe that

it is the only way to have a fair back and forth during the evaluation. And it will save a considerable amount of time.

Chairman WAXMAN. This suggestion that you are making and requesting by unanimous consent is one that we have discussed. And

as we looked at how to organize this hearing, we think we have organized it in a way that is fair to everyone and will give everyone

an opportunity to speak. We could put everybody on one panel, but

CMS didn’t what to be on with the State regulators, which might

have made some sense. The insurance companies’ trade association,

are going to be on afterwards. I don’t see why they have to be on

this panel. We have always tried to accommodate the minority and

staff in witness recommendations and in structuring the hearings,

but our best judgment is we have structured it the way that it

makes the most sense.

Mr. ISSA. Mr. Chairman, since the UC has not agreed to, and

since the minority disagrees at this time that this is by any means

fairness, and since there is obviously a slanting on the first two

panels by the majority and our one witness has been relegated to

the last panel, I would hereby make a motion that we move Stephanie Kanwit to the first panel at this time.

Chairman WAXMAN. Is your witness the insurance company? Is

that why you are here, to protect the insurance company? Why

don’t we hear about this problem? And also, as Californians why

don’t we hear from the California regulators, who I think we ought

to be proud of for having done the right thing. They represent the

Republican Governor. Let’s hear from the witnesses and not go

through a procedural motion.

I would urge the gentleman not to try to pursue a motion to rearrange the committee hearing list. I understand your point. You

have made a point. But it is the prerogative of the chairman to decide the order of the witnesses, and we always welcome input. And,

in fact, I think we have been more responsive to the input from the

minority than when we were in the minority.

Mr. ISSA. Well, Mr. Chairman, we did talk about the other alternative, which would be to have the State regulators, including California, who is considering some of these reforms that the association representative will be talking about on the same panel, and

you also declined that. So, at this time, I must reiterate my motion

to combine the third and first panel.

Chairman WAXMAN. I don’t know whether it is appropriate even

to entertain such a motion. Let me have our counsel review that

and advise me. I have never in my 34 years in the Congress ever

had a Member, or seen a Member, make a motion to stop a hearing

for witnesses by asking that they be rearranged in different panels,

or in different positions. I have never seen it. It is a first time. I

think it is quite inappropriate because we are trying to get the witnesses the opportunity to be heard. Members of the committee have

not been informed that there may be motions before us today. This

is a hearing and not a committee meeting. I will recess for a second

and consult my counsel.

Mr. ISSA. Thank you, Mr. Chairman.

[Recess.]

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Chairman WAXMAN. The Chair will recognize himself in opposition to this motion. I think it is quite outrageous to make a motion

on the basis that the insurance company is unable to make their

case because they are the last ones to speak. I think what we need

is to have an opportunity to hear all of the witnesses. And it is the

prerogative of the Chair to make this determination. I think we

have acted fairly. And so, I would urge Members to vote against

the motion.

Mr. ISSA. Speaking in favor of it, Mr. Chairman, and I will be

brief. Insurers, and their representatives, trade association, have

answers to many of the questions. Regulators have questions to be

answered. The banter between the two was not a hypothetical request, but, in fact, one that I believe very strongly would promote

a better dialog.

The prerogative of the Chair under the House rules and the committee rules is relatively limited. The ability of the majority to, by

vote, do what they want to do is pretty absolute. Today, we make

this request mostly because, in fact, your party said that you wanted to come together. Our party did lose the last election. We want

to work with you. This is not an adversarial hearing. And, it should

not become one.

This is a hearing in which we are trying to find ways to fix a

real problem. We have real people here who were adversely affected by it. The regulators that are here today are here with hypothetical and proposed answers in order to keep this from happening

in the future, and they will in many cases need legislation and perhaps Federal help to do so. The insurance association representative that we chose to have here, we want them to be answerable

for this practice and we want them to be part of any solution. That

is necessary in our free market.

Mr. Chairman, you did mention that you thought that the motion

was not in order. I might remind you that when you were in the

minority, you made motions for subpoenas, or threatened to make

motions for subpoenas at hearings like this. This is an opportunity,

a scheduled opportunity. We were all given notice that, in fact, a

hearing and subjects related to the hearing may very well be

brought up.

Mr. Chairman, I very much believe that we should look to redo

this panel to make it more equitable and more effective. I am

happy to work with you on any compromise, but I don’t believe that

we were properly recognized in the process of finding an acceptable

panel that would be beneficial to all of the individuals who are

going to spend their time on the day as here, and for those individuals and representatives who are here today to give testimony and

be questioned.

Chairman WAXMAN. The gentleman has made his case. The issue

before us is a motion to rearrange the panels. All those in favor of

the motion offered by the gentleman from California, Mr. Issa, will

say aye.

Mr. ISSA. Aye.

Chairman WAXMAN. All those opposed will say, no.

[A chorus of noes.]

Chairman WAXMAN. The noes have it, and the motion is not

agreed to.

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Mr. ISSA. Mr. Chairman, on that, I have to ask for the nays and

ayes.

Chairman WAXMAN. All those in favor of the ayes and nays raise

your hand.

[A show of hands.]

Chairman WAXMAN. An insufficient number and the request for

a roll call is not granted.

Mr. ISSA. Mr. Chairman, I appeal the ruling of the Chair.

Chairman WAXMAN. You would go that far to keep us from even

hearing these witnesses because you are worried that we won’t be

here to hear the insurance company? Well, we won’t even get to the

insurance company if you drag out this hearing.

Mr. ISSA. Mr. Chairman, I do not want to drag out the hearing.

I will at this time——

Chairman WAXMAN. Those in favor of overruling the decision of

the Chair will say aye.

Mr. ISSA. Aye.

Chairman WAXMAN. Those opposed will say no.

[A chorus of noes.]

Chairman WAXMAN. The noes have it.

Mr. ISSA. Mr. Chairman, on that, I ask for the ayes and nays.

Chairman WAXMAN. All those in favor of a roll call vote, raise

your hand.

[A show of hands.]

Chairman WAXMAN. An insufficient number. The request is not

granted.

Now we will hear from our witnesses. The committee will receive

testimony from Heidi and Keith Bleazard, who are from Logan,

UT. They had their health insurance policy retroactively rescinded

by Regence Blue Cross and Blue Shield, of Utah, after Heidi was

in a serious biking accident. They will explain the circumstances

and consequences surrounding the rescission of their insurance coverage.

Dale Bonner is secretary of the Business, Transportation and

Housing Agency for the State of California. Mr. Bonner was appointed by Governor Arnold Schwarzenegger in March 2007, and

oversees 13 departments, including the Department of Managed

Health Care. He will testify about the actions his agency has taken

to help consumers who had their health insurance inappropriately

rescinded.

Cindy Ehnes, the director of the Department of Managed Health

Care, was initially listed as a witness, but she was unable to appear this morning, because she is in negotiations with two remaining large plans, Anthem Blue Cross and Blue Shield of California,

on this issue.

Mr. Bonner is accompanied today by Amy Dobberteen, chief of

Enforcement Division of the Department of Managed Health Care.

And Kevin Lembo heads the Office of the Healthcare Advocate

for the State of Connecticut in his role as Connecticut’s lead advocate for patients and their families. Mr. Lembo will discuss Connecticut’s experience with health insurance rescissions and what

steps Connecticut has taken to aid policyholders and prevent future

rescissions.

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It is the policy of this committee that all witnesses that testify

before us do so under oath. So I would like to ask all of you, if you

would, to please stand and raise your right hands.

[Witnesses sworn.]

Chairman WAXMAN. Thank you. The record will indicate that

each of the witnesses answered in the affirmative.

Mr. Bleazard, why don’t we start with you and your wife, and

have you speak to us. There is a button on the base of the mic,

which you have to push in to turn the mic on, and we want to welcome you to the committee and express our appreciation for your

willingness to be here.

STATEMENTS OF HEIDI BLEAZARD, LOGAN, UT; DALE E.

BONNER, SECRETARY, CALIFORNIA BUSINESS, TRANSPORTATION AND HOUSING AGENCY, ACCOMPANIED BY AMY

DOBBERTEEN, CHIEF OF ENFORCEMENT DIVISION, DEPARTMENT OF MANAGED HEALTH CARE; AND KEVIN P. LEMBO,

MPA, STATE HEALTHCARE ADVOCATE, CONNECTICUT

STATEMENT OF HEIDI BLEAZARD

Ms. BLEAZARD. Hello, my name is Heidi Bleazard.

Chairman WAXMAN. The button on the mic needs to be pressed,

and pull it closer so that we can hear you.

Ms. BLEAZARD. Can you hear me? My name is Heidi Bleazard,

and I am here with my husband, Keith Bleazard to testify about

the problems we had with Regence Blue Cross and Blue Shield of

Utah rescinding our health insurance coverage.

In February 2005, Keith and I decided we wanted to get an individual health insurance policy for ourselves. We had two friends

who are insurance agents, Doug Thatcher and Troy DeLair. Keith

had known them for over 10 years. We met with them a few times,

and filled out applications for health and life insurance, and a

nurse came out to complete more detailed paperwork. On one of the

forms Keith marked that he had a history of back trouble, but

wasn’t sure what to write in the comment section on the back. We

consulted with Doug who knew all about Keith’s back history having similar difficulties with his own back.

Over the years and quite recently, they discussed and compared

their similarities, including medicines and doctor visits. After discussing Keith’s back, Doug Thatcher, one of our agents, wrote in

the application that Keith had ‘‘slipped disc in back, had surgery

1996, full recovery.’’ Doug assured us the paperwork was filled out

satisfactorily, and we trusted his knowledge of what information

the insurance company needed.

Keith had surgery in 1996 for a herniated disk and went 3 years

without any pain or trouble of any kind. Later Keith pulled his

back playing basketball and developed back pain that his Doctor

helped him control with medicine. He has since then carried on his

normal active life, including his job in floor covering, involving

hard physical labor, a wide variety of rigorous activities such as

hockey, snowmobiling, and being an active member of a Search and

Rescue team.

The medicine and doctor visits were detailed by the nurse on another form. We thought all the forms were being used together

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with our medical records, which we signed a release for the insurance companies to use to make their decisions. We received a letter

in March 2005 from Regence, indicating that our application had

been accepted and we had health insurance coverage.

On August 18, 2005, I was in a bad mountain biking accident.

I broke my neck in two places and my back in five, had a pulmonary contusion, a few broken ribs, and a brain injury. Search

and Rescue got me to where I could be life flied to a trauma center,

and they placed me in an intensive care unit. I had to have several

hours of neurosurgery on my spine. When I got out of the hospital,

I had to stay in a rehabilitation unit until I was good enough to

go home. My medical bills were over $100,000.

In November, just when the scope of the bills was becoming apparent, Regence notified us they would be looking into our medical

records. And then in January 2006, Regence notified Keith and I

that they were rescinding our health insurance policy retroactively.

They claimed that Keith failed to provide information in the application about his back. Regence did not respond to our attempt to

talk with them to find out where the misunderstanding came from.

Troy DeLair, the senior agent, also attempted to clear things up

with Regence, communicating to them we had no intention of misleading them. Regence had accepted the claims and paid for Keith’s

medicines and doctor visits without any problem for most of a year.

Having signed the release of records at the time of our application,

and being open to the agents and the nurse, we had no reason to

suspect Regence was missing any information. Only after the bills

from my accident were mounting did they notify us of a problem.

Later we learned that they had not received the nurses report

detailing Keith’s pain medicines and doctor visits, and went to life

insurance only, and that these things should have been included on

the form that Doug had helped us fill out. Had Regence returned

a copy of our application with our healthcare policy, as prescribed

by law, at the time of our acceptance, we would have had the opportunity to question where the rest of the paperwork was, and

perhaps avoid the future confusion.

I hope insurance companies such as Regence would be prohibited

from rescinding insurance coverage without making a thorough inquiry into the facts and circumstances surrounding the application

of the insurance. In our situation it was completely inadequate to

simply look at the application and compare it to Keith’s medical

records. Had Regence understood all of the facts, I do not believe

they would have felt it was appropriate to retroactively cancel our

coverage.

And I thank you for the opportunity to appear before this committee to provide information about our circumstances. Keith and

I are hard working, responsible citizens. We have never had any

trouble with our creditors before this time, or with the law. I believe that Regence has taken advantage of the situation to avoid

paying the large medical bills for my biking accident. Any help that

you can provide in making sure that these unethical practices do

not continue in the future would be most appreciated.

[The prepared statement of Ms. Bleazard follows:]

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Chairman WAXMAN. Thank you very much. Mr. Bleazard, did you

have anything to add, or is that it for both of you?

Mr. BLEAZARD. No, that was pretty much what we had prepared

as far as the outline of our rescission.

Chairman WAXMAN. OK. At least you are here, and when we get

to questions, you may want to respond to them.

Mr. Bonner.

STATEMENT OF DALE BONNER

Mr. BONNER. Thank you, Mr. Chairman, and members of the

committee. I am Dale Bonner, secretary of California’s Business,

Transportation and Housing Agency. Some years ago, I was the

HMO regulator in the State of California, and now as secretary, I

oversee the Department of Managed Health Care, and a number of

other regulatory departments.

With me is Amy Dobberteen, chief of the Department’s Enforcement Division. And she will be happy to answer any specific questions that you may have about the law or specific enforcement actions. We appreciate the opportunity to be here this morning to

help shed light on what you, in your opening comment, noted is a

very troubling practice occurring in California, and we are sure

across the Nation.

By way of background, we started getting aggressive in this area

in 2006, when we saw a number of complaints, consumer complaints and an increase in litigation. And so, the Department initiated what has probably been the largest investigation of this practice in the Nation, looking at the five largest plans that provide the

most individual coverage in California. That would be Anthem Blue

Cross, Blue Shield of California, Kaiser, PacifiCare and Health

Net.

And we think that since we started getting involved, we have

seen dramatic changes in industry practices. We have seen about

an 81 percent drop in rescissions just in the first year alone. And

we have continued to focus on the area because, as it was noted

earlier, this is a particularly harsh practice that affects individuals

because unlike having your insurance policy canceled, which just

means that you have no coverage going forward, in this case rescission results in the entire withdrawal of your coverage even going

back. And so, it leaves the member in many cases in limbo relative

to existing or ongoing treatment, and also, at risk of being, in some

cases, bankrupt, as a result of substantial legal bills going back in

time.

And so, we have continued to focus on these practices intensely.

We don’t deny that health plans have the right and, in fact, the responsibility to take a look and try to police inaccurate statements

in applications and to make sure that everything is appropriate.

But we have been concerned about what appeared to us to be little

or no consistency in their processes or procedures for investigating

these issues and medical history in determining whether to rescind

coverage.

The Department’s investigations and actions to date have included a total of about $3.1 million in fines, and we have brought

about a number of procedural changes in health plan practices, and

we have achieved a significant roll-back in a number of rescissions.

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Working with our State attorney general and Department of Insurance, we have been able to work with the industry in making sure

that insurance applications are much more transparent, and that

everyone has a much more clear understanding of what is required

in the up-front review process.

A final point, or a couple of final points, one is that in April of

this year, the Department announced that we were going to take

the issue a little bit further and actually go back and review each

and every individual case that was, in fact, rescinded dating back

to 2004. And that announcement prompted a number of the plans

to come forward and offer settlements. And we achieved successful

settlements with Kaiser, Health Net and PacifiCare.

And those settlements specify that the previously rescinded enrollees will be guaranteed coverage. The pre-rescission out-of-pocket medical expenses will be reimbursed or paid by the Plan, and

additional compensatory damages can be gained in arbitration or

private litigation, if the member so desires. Unfortunately, there

are two of the major Plans that we have yet to achieve some settlement with to date. That is Anthem Blue Cross and Blue Shield of

California. Together they have about 2,200 cases of rescission between them. And if we are not able to achieve settlements in those

cases, then we will go forward and review each and every case.

And, of course, we would prefer not to have that result. But if we

are not successful, there could be very substantial fines that would

be imposed against each of those Plans.

But in summary, we think our aggressive action in California

has achieved significant improvements in the industry, certainly in

the State, and maybe in other States, because we have brought an

end to this very unfair and illegal practice. We have been assured

that consumers have a much better understanding of what is required on the application at the point of intake. We have been very

successful in restoring coverage for a substantial number of enrollees who have had their coverage unfairly rescinded in the middle

of care. We think it is a good thing that we have been able to avoid

lengthy litigation between consumers and health plans. And more

importantly, we have restored some measure of faith in the individual market, so that those who go out and buy individual coverage

have some greater sense of assurance that the coverage will not be

rescinded at an inopportune time.

On the policy front, the Governor has signed legislation that prohibits insurance companies from trying to recoup payments from

providers after they have already approved or authorized a course

of treatment and then subsequently rescinded care. He also wants

to outline the practice of offering bonuses or financial incentives,

to claims adjusters and others, to incentivize rescinding coverage.

And ultimately, the Governor wants to see a guaranteed issue in

California, coupled with an individual mandate, because we feel

very strongly that would eliminate the need for medical underwriting altogether in the individual market.

In the meantime, we are going to continue to vigorously enforce

the existing law. And we are going to continue to look out for the

interests of consumers, so that we cannot only bring light to this

issue but more importantly bring an end to this very troubling

practice.

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Thank you.

[The prepared statement of Mr. Bonner follows:]

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Chairman WAXMAN. Thank you very much. And Ms. Dobberteen,

are you here for questions?

Ms. DOBBERTEEN. I am here for questions.

Chairman WAXMAN. Mr. Lembo.

STATEMENT OF KEVIN LEMBO

Mr. LEMBO. Thank you, Mr. Chairman. My name is Kevin

Lembo. I am the State healthcare advocate in Connecticut. Connecticut has a unique set-up in that we have an insurance regulator in our insurance department, and I am the full-time advocate

for those consumers.

On behalf of the growing number of Americans who find themselves trying to get and keep coverage in the individual health insurance market, thank you for your willingness to shed light on

this very important issue.

The problem with post-claims underwriting abuse and policy rescissions appears to be growing.

Mr. LYNCH. Mr. Chairman, can we have the witness speak into

the mic. I cannot hear. I am sorry.

Mr. LEMBO. The result of this process and the particularly egregious result is the unjust rescission, cancellation, or limitation of

health insurance contracts after someone is diagnosed with an illness and faced with expensive medical care.

In Connecticut, we were fortunate and identified this problem in

our market beginning in 2003. My office, the Office of our Attorney

General Richard Blumenthal and our State Insurance Department

saw a jump in complaints from consumers whose policies were rescinded or limited in some other way. They were sick, and didn’t

understand why their coverage was taken away or limited. Ultimately, a coordinated and successful effort by our offices was undertaken to fix the problem through legislation.

Connecticut’s law, an act concerning post-claims underwriting, is

the product of 3 years of work at the legislature to protect consumers from unfair health insurance rescissions, cancellations or limitations. Under the Connecticut statute, insurers now need to seek

the approval of the Connecticut Insurance Department before they

can rescind, limit, or cancel a policy.

I want to be clear at the outset that this public policy debate is

not about consumers who intentionally misrepresent their health

status. That is a red herring that is utilized as a distraction by

those who would rather not have this conversation. Further, we

could spend a day arguing about what motivates the desperate, albeit infrequent, action to lie on an application. Instead, I am focusing on those whose policies were unjustifiably rescinded, canceled

or limited by a carrier to avoid paying claims.

In Connecticut, a company denied claims for a resident named

Maria, who was diagnosed with non-Hodgkin’s lymphoma in 2005.

The insurer said Maria should have sought treatment and found

out the diagnosis sooner, in other words, before seeking a policy.

Once the company started receiving her medical claims, it found

out she had gone to the doctor for what she thought was a pinched

nerve. She also told the doctor she had been feeling a little tired.

Maria said she wasn’t concerned about the way she was feeling because she had been working particularly hard. Tests were done at

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that time to determine whether there were other issues. These

tests did not yield significant results, and they were not tests for

cancer. The company denied payment for subsequent, cancer-related bills, saying that Maria had this condition before she bought the

policy and should have sought treatment. Maria ultimately died

from her illness.

A young man, named Frank, was taken by surprise when his insurance was rescinded because his insurer alleged that he omitted

material information from his insurance application. When Frank

applied for coverage, he disclosed that he had occasional headaches.

After he applied, the carrier obtained all of Frank’s medical

records, theoretically for medical underwriting, and then wrote him

a policy. Several months after getting the policy, Frank went for a

routine eye exam and was referred to a neurologist by that eye doctor. The neurologist diagnosed Frank with Multiple Sclerosis.

Immediately following that diagnosis, the carrier rescinded the

policy stating, in effect, that he should have known his headaches

would have led to a diagnosis of MS. The carrier stuck to its position even after receiving a letter from Frank’s doctor saying that

there would have been no reason at all to suspect MS, since Frank

was an otherwise healthy young man with a normal exam. Frank

was now responsible for more than $30,000 in care that he could

not afford. His condition rapidly deteriorated, forcing him to end

his employment, and seek public insurance and assistance.

These are the kinds of people who are impacted by post-claims

underwriting abuses, and that impact is medically and financially

devastating.

Unfortunately, while State Insurance Departments can often intercede in these cases through market conduct examinations under

their existing laws against unfair insurance practices, there is little

that can be done as regulators to make it right for these consumers, at least completely. As State regulatory agencies, they can fix

problems going forward, making it safe for future consumers, but

are limited in what they can do now, for these relatively uninsurable consumers who are back in the marketplace.

States need to stop this problem on the front-end with good, clear

law that prohibits these abuses and forces companies to seek permission before rescinding a policy. The practice must be stopped on

the front-end, because the clean-up is almost impossible.

In Connecticut, the Insurance Department recently concluded a

very long and deep investigation of Assurant Companies, in particular, Time Insurance, formerly Fortis, and John Alden, that resulted in a record fine for Connecticut of $2.1 million in fine, and

more than $900,00 in restitution to consumers. The Department

did all they could, but the damage to the individuals, in fact, was

done. Although the company admitted no wrong-doing, they agreed

to pay the fine and restitution.

Mr. Chairman, it is my opinion, and that of many of my colleagues, that our States need to move rapidly to address the issue

of post-claims underwriting. It is my hope that legislatures across

the country, with your encouragement, will take the following steps

to protect consumers and ensure a level playing field in the individual market.

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We need to create and adopt a State or National uniform application for individual insurance that is clear, easy for consumers to

understand, and takes out some of those trip-ups that do occur in

the application.

States must define medical underwriting and be clear that the

review of the application alone is not sufficient. Further, States

must require that underwriting be complete, and all outstanding

questions be asked and answered to satisfaction before the policy

is written.

And finally, there should be creation and adoption of laws to stop

post-claims underwriting abuses, and provide greater limitations

on a company’s ability to rescind or limit a policy without a finding

of fact and approval of the State regulator.

Since passage of our Connecticut post-claims underwriting law,

complaints from consumers have dropped to a handful, and the Insurance Department has received no requests to modify or rescind

a policy. I think this speaks to the effect of a good law yet to be

tested, but I would encourage my colleagues in other States to join

us in ending the practice.

Thank you.

[The prepared statement of Mr. Lembo follows:]

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Chairman WAXMAN. I want to thank all of you on this panel. I

think it is a panel that made a lot of sense because you are all explaining the problem to us, and you are all advocates of trying to

do something about the insurance company practices to take away

insurance when people need it the most. It really is astounding.

And what you have described, Mr. and Mrs. Bleazard is horrible.

When you are sick, that is when you want that insurance coverage

to be there, not to have to have insurance companies come in and

take it away from you, sticking you with the bill, which I think in

your case was $100,000; isn’t that right?

Well, people think they get insurance coverage and insurance is

insurance. But the reality is that most people have group insurance. And group insurance spreads the risk. The private insurance

policies try to avoid the risk. They try to avoid the risk by not insuring people who have been sick. If they have been sick, the insurer won’t cover any treatment for that illness. If someone has

had cancer, and they apply for a private insurance policy, and they,

of course, say they have cancer, because that is part of the questions that are asked, they may be told, well, we will insure you for

everything but cancer. Well, that is the business arrangement that

can be agreed to. There is no Government requirement to do otherwise, if it is a private insurance policy.

But once they have asked those questions, and all of the information has been furnished, the insurance company can deny coverage

of an individual, but if they agree to cover the individual, they

shouldn’t be coming back afterwards when they get the bills for

medical care and say, oh, we are rescinding the policy. And it

sounds to me like in many cases it is a trumped-up argument. Is

that your experience, Mr. Lembo? You just went through a lot of

horrible examples of people who have been denied coverage after

they already had the policy and had been paying for it, on

trumped-up charges. Is that fair to say?

Mr. LEMBO. Mr. Chairman, in some cases, I think it is fair to

say. I think, in the case of the Bleazards, that certainly sounds like

what happened. We are looking at a case now that is under investigation, where a person’s policy was rescinded as she was in a hospital bed being treated for cancer, but the rescission was based on

information, as it was not disclosed, or on hypertension. Under normal circumstances, and without that specter of a large claim coming in, they might has simply limited the coverage to exclude anything related to that hypertension, rather than rescind the whole

policy.

Chairman WAXMAN. And tell me again, that in other words, if

somebody was denied healthcare coverage and had their policy rescinded because when they put on their application they had occasional headaches that person was supposed to have known that

later he would be, or she would be, diagnosed with MS; is that accurate?

Mr. LEMBO. She should have known that it was a large enough

problem that she should have sought additional medical attention.

As I stated, she didn’t think it was that big of a problem.

Chairman WAXMAN. That is really astounding to me. And there

are Members of Congress who are not aware of the fact that individual healthcare policies, health insurance policies, are different

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than from the group policies. Now, let me just say this to you, and

to anybody watching this hearing, if it weren’t for a free press, the

L.A. Times particularly, doing a series of articles about this issue,

I don’t know that the State of California officials, and others, would

have realized what a problem it was. But when the regulators in

California, and in Connecticut, and in Utah, saw what kind of

problem it was, these regulators came in and tried to do something

to protect people.

We are trying to do this same thing here with this hearing, because there is a Federal law, called HIPAA, that is supposed to

stop insurance companies from carrying on these practices. And we

are going to hear in the second panel from the Center for Medicare

and Medicaid Services. They didn’t want to be on with anybody

else. They represent the Bush administration. They didn’t want to

be on a panel with anybody else. We could of had them on with

the regulators, but they didn’t want that.

Mr. and Mrs. Bleazard, I just can’t tell you how pleased I am you

would be willing to come and talk about this. This is not a happy

situation in your lives to have your insurance coverage canceled on

you. You certainly believe you were not treated fairly; isn’t that the

case?

Mr. BLEAZARD. No, certainly not, you know, we were as honest

as we could be. We certainly weren’t trying to mislead anybody.

You know, we felt all alone, you know, I am surprised that there

are other people that are experiencing the same thing.

Chairman WAXMAN. Well, it is clear that your situation was not

an isolated incident. We are hearing it from others as well.

Mr. BLEAZARD. At the time, you feel like you are all alone.

Chairman WAXMAN. Yes.

Mr. BLEAZARD. It is you against the world.

Chairman WAXMAN. Yes. Well, this committee is going to open

an investigation into the practices of the private health insurance

market. We are going to be sending questionnaires and document

requests to the major health insurers to get answers to these questions. And I am pleased that all of you are here to give us your

perspective.

Mr. DAVIS OF VIRGINIA. Mr. Chairman, I wasn’t here earlier.

Maybe we can combine the second and third panels. That would

certainly be OK with us, just so we could expedite and get the appropriate questions.

I would ask unanimous consent that my opening statement go on

the record, so I won’t have to read it.

Chairman WAXMAN. Without objection, all opening statements by

Members will be put into the record.

Mr. DAVIS OF VIRGINIA. Thank you.

Mrs. Bleazard, let me ask you, obviously the rescission issue in

your case is, I think, very disturbing to all of us. On a later panel,

the committee is going to hear about a proposal to give individuals

in situations like yours, an opportunity to appeal a rescission to an

objective panel that includes a doctor and a lawyer, which would

have the power to reinstate the policy immediately, so you get an

instant appeal to an independent group, including a doctor and a

lawyer.

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And even if you lose that, you can still sue. So it wouldn’t take

away your right to sue, if you were to lose that panel. But, what

it would allow is, it would give you an independent group to take

a look at something like this very, very quickly, because having to

go to court is a long—even if you win, you lose, because you have

carrying costs, and you are not sometimes getting the care you

need in the meantime.

Had that kind of option been available to you and your husband,

would you have pursued that understanding that if the panel did

rule against you, you could still sue? Would that be something that

could be of interest to you?

Ms. BLEAZARD. As I understand it, yes.

Mr. DAVIS OF VIRGINIA. OK. I mean, it obviously devils in the details. I am not trying to trap you. I mean, conceptually, but in an

earlier panel, I think you need an instant right of appeal to some

independent group in a case like this that can call balls and strikes

right off, and sometimes mitigate or solve this earlier on, so you

don’t have to go to court. If you lose, and you think you got a raw

deal, you would still have the right to go to court. That is one of

the concepts.

And it would allow you to get, possibly, the opportunity to get

your insurance reinstated on an expedited basis. It seems to me

that is a reasonable route to go, but we will talk about that a little

more. I just wanted to get your reaction to it.

Secretary Bonner, given California’s well-publicized problems

with rescissions, do you think that the Federal Government should

take over enforcement of HIPAA protections?

Mr. BONNER. Well, HIPAA, being a Federal law, I think it would

be an inappropriate thing for the Federal Government to be taking

a hard look at, yes.

Mr. DAVIS OF VIRGINIA. OK. From the State regulatory perspective, under what circumstances should the Federal Government

take over State regulation in the individual insurance market for

failure to substantially enforce HIPAA?

Mr. BONNER. Boy, that is, I think, a very difficult question, because I don’t think that it is in our interest to have too many carve

outs of our State regulatory jurisdiction. As I say, HIPAA, being a

Federal law, I think it is a very appropriate thing to be looking at.

Beyond that, I am not sure if you are suggesting the State taking

over certain aspects of our Knox-Keene or other insurance regulation?

Mr. DAVIS OF VIRGINIA. Well, the problem always is if the Federal Government isn’t doing its job, sometimes the State is better

off in a State like California, sometimes States don’t do the job. I

mean, that is always the dilemma in terms of, do you Federalize

something like that or give it back to the States? Mr. Lembo, let

me ask you, from a State perspective, under what circumstances do

you think the Federal Government should step in and take over

State enforcement of HIPAA protections?

Mr. LEMBO. Like, Mr. Bonner and Mr. Davis, I would have to

say, I am not sure on its face, what those circumstances would be.

We would want to preserve the right of States to regulate insurance as they are doing now. I think the Federal Government has

a role in encouraging better and stepped-up enhancement.

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Mr. DAVIS OF VIRGINIA. Here is my understanding. The individual health insurance market is regulated almost exclusively by

States. CMS is responsible for making sure that States enforce protections that are contained in HIPAA. That is the current law.

Only if the States fail to enforce HIPAA can the Federal Government take over enforcement and that has not happened.

So I am guessing, with that perspective, from a State perspective, when do you think the Federal Government should step in

and take over State enforcement of HIPAA protections? And second, do you think that prior to the recent enactment of State legal

reforms in Connecticut, prior to those reforms, was Connecticut

failing to substantially enforce HIPAA protections?

Mr. LEMBO. I’ll take the second piece first, if you don’t mind?

Mr. DAVIS OF VIRGINIA. Yes, you are probably more familiar with

that.

Mr. LEMBO. And that is, there was enforcement activity around

Connecticut’s existing Unfair Insurance Practices Law. Those laws

exist in most States, because they are based on an NAIC model

that has been adopted by both States, and give the States lots of

opportunity to regulate around this issue, without naming it specifically. I think at this point the conversation that happens on an

ongoing basis between CMS and the NAIC around ways for those

two groups to work together to make sure that there is, in fact,

even enforcement seems to be working but could be encouraged.

Mr. DAVIS OF VIRGINIA. Thank you.

Mr. LEMBO. Thank you. Mr. Davis. Mr. Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr. and

Mrs. Bleazard, I, too, thank you all for being here today, and I am

sorry that you are continuing to experience this nightmare. Mr.

Bleazard, you and your wife had recently married; is that right?

Mr. BLEAZARD. Yes.

Mr. CUMMINGS. And then you decided that you needed to get

both health and life insurance; is that right?

Mr. BLEAZARD. Yes.

Mr. CUMMINGS. And you met with an insurance agent who was

fully informed about your health, including your back; is that

right?

Mr. BLEAZARD. Yes, they were friends of mine.

Mr. CUMMINGS. And in March 2005, Regence Blue Cross and

Blue Shield issued you an insurance policy. Do you remember how

much you were paying in premiums?

Mr. BLEAZARD. I think it was in the $300 range.

Mr. CUMMINGS. But you paid them?

Mr. BLEAZARD. Oh, yes.

Mr. CUMMINGS. And Mrs. Bleazard, in October, you had a serious

accident, and just hearing your testimony, and so that we reiterate

it, you said, ‘‘My physicians told me that the fracture is so severe

many individuals die as a result of it. The fractures in my back

were impact fractures, which shattered the bone at the point of

greatest impact. I also had a pulmonary contusion, three broken

ribs, and a brain injury. Several hours of neurosurgery were performed to save my spine. I spent 3 weeks in the hospital and in

a physical rehabilitation unit, and I am continuing to do physical

therapy. My medical bills are over $100,000.00.’’ Is that right?

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Ms. BLEAZARD. Yes.

Mr. CUMMINGS. And it is your testimony that the insurance company hadn’t paid a dime; is that right?

Ms. BLEAZARD. Well, at first, they paid. And once the bills started mounting, they said they were going to look into it. And then,

they took all the money back. And we were left responsible for all

of it.

Mr. CUMMINGS. Now, do you have health insurance now?

Ms. BLEAZARD. No.

Mr. CUMMINGS. Are you concerned that you can’t or won’t be able

to get it?

Ms. BLEAZARD. That is correct.

Mr. CUMMINGS. And what impact has this incident had on you,

on your family?

Ms. BLEAZARD. Indescribable stress.

Mr. CUMMINGS. And can you tell us a little bit about it? You

know what happens so often, I mean, and I was very glad to hear

Mr. Bonner’s testimony and Mr. Lembo, but what happens too

often is that the insurance companies collect, and then when it

comes time, when somebody is going through a nightmare, the very

thing that they paid insurance for, they then suddenly go AWOL,

and individuals like you are left in pain and suffering. And as I listened to Mr. Lembo’s testimony, one of the things that I like about

the Connecticut system is that they have to have basically

preapproval before doing the rescinding; is that right, Mr. Lembo?

Mr. LEMBO. Yes, Mr. Cummings.

Mr. CUMMINGS. And it seems like that system, and then I also

am interested to see that in your testimony, Mr. Lembo, you talk

about how since the passage of your system, you had very few complaints from consumers; is that right?

Mr. LEMBO. That is correct.

Mr. CUMMINGS. And why do you think that is?

Mr. LEMBO. I think sometimes the best law never has to be enforced.

Mr. CUMMINGS. What do you mean by that?

Mr. LEMBO. Having good law on the books will often put an end

to certain behaviors that are questionable, and it never gets to the

point where it has to an enforced law, just knowing that the law

is there.

Mr. CUMMINGS. And the fact is that when, you know, you think

about a person going through the trauma of the Bleazards, or

somebody who walks into a doctor’s office, and I have often said

that we are all one diagnosis from disaster. But they walk into a

doctor’s office and the doctor says, God forbid, gives them a diagnosis of cancer, they have to have surgery, radiation, chemotherapy, but at the same time they have to tackle a question of

whether an insurance company is going to pay. That is a major

problem, isn’t it?

Mr. LEMBO. It is.

Mr. CUMMINGS. Do you see those kinds of situations, Mr. Bonner,

in your experience?

Mr. BONNER. Situations where the insurance company just refuses to pay all of the previously incurred medical bills?

Mr. CUMMINGS. That is correct.

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Mr. BONNER. Yes, I mean, you see that is often the case is that

sometimes what prompts the review in the first instance is the utilization of services. So it is the big ticket medical bills that sometimes prompts the insurance company to go back and take a look

at the application, and then that sometimes results in the decision

to rescind.

Mr. CUMMINGS. Now, going back to the Connecticut system, what

is your opinion of that system, Mr. Bonner?

Mr. BONNER. Well, we are taking a look at many of the same

types of things. We have already developed a model application

that is available through the regulatory, through the Department

of Managed Health Care, but we are also looking at legislation that

might lay out an independent review process, an instant appeal,

some of the other preapproval, some of the other things that were

referenced in Connecticut.

Mr. CUMMINGS. Thank you, Mr. Bonner.

Chairman WAXMAN. Thank you, Mr. Cummings. Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. Mr. Bonner, I am a fellow

Californian. I appreciate the good work that you and the Governor

are trying to do. As you heard earlier, because we are not able to

sort of get our questions and between yourself, the others, and the

representative from, if you will, the healthcare industry, I am going

to ask you a series of questions. In some cases, they may be obvious, but remember I am going to later be asking the health care

industry to comment on some of these same things. For now, I will

look at it as a California issue, only because, as a Californian, I am

a little more familiar.

First of all, my understanding is in California, the Insurance

Commissioner has authority over all insurance, except health care;

is that roughly correct? That Insurance Commissioner Poizner has

limited jurisdiction in this area?

Mr. BONNER. Well, it is not entirely accurate that he has jurisdiction over health insurance, it is the distinction between regulating

the insurance product, which is basically indemnity insurance versus managed care, you know, HMO insurance, which is what the

Department of Managed Healthcare regulates.

Mr. ISSA. OK. So, my question would be, do you believe that even

if it is joint, that greater jurisdiction to the elected Insurance Commissioner might be helpful in bringing pressure to bear to insure

that these kinds of selective abuses don’t happen?

Mr. BONNER. You know, I don’t see the structure of the regulator

itself as being key to the solution here. I think aggressive enforcement and clear rules, and aggressive enforcement of those rules,

are really the key.

Mr. ISSA. OK. Well, if I can get to a couple of those potential

rules. If, in fact, transferability was an absolute right, meaning

that no pre-existing conditions in California could be looked at

under any circumstances as long as you were continuously insured,

would an absolute statement of that in all 50 States be helpful, to

prevent essentially people having to, if there are continuously insured, having to find themselves, you know, going through this

process of looking in the rear view mirror, and there is a serious

of questions here?

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Mr. BONNER. To make sure I understand, you are asking if we

just prohibited the practice of rescission, or it would require guaranteed issue?

Mr. ISSA. No, as long someone didn’t have a break in insurance

when they went from a group insurance to an individual insurance,

their background would be prohibited. In other words, if you will,

an assigned selection, that if you want to do business in California,

you have to accept anyone who is going, let’s say, from a COBRA

coverage, having left an employer that did have care, to an individual? We would have that right as a condition in California. Would

that, in fact, distribute the risks in a way that would be fair but

at the same time prevent a huge amount of people having to deal

with, in some cases, their pre-existing conditions?

Mr. BONNER. I think, as I understand the question, one of the

things that you would be concerned about when you refer to distributing the risks is the scenario where there are substantial numbers of people who in the individual market, in particular, who

simply are not in the system. And so, you know, you don’t have

that same opportunity to share risks or distribute, as you would,

in a group environment.

Mr. ISSA. And I want to get to that, but, you know, this is assuming people coming out of a distributive risk. Second, limiting preexisting conditions to ones which are chronic and life threatening,

in other words the State could eliminate conditions that are unrelated to the claim from being allowed to cause cancellation of the

claim? The State could do that, just yes or no, it is certainly within

the power of the State?

Mr. BONNER. The State could do that.

Mr. ISSA. Yes or no, if you don’t mind. Is it a good idea?

Mr. BONNER. Yes.

Mr. ISSA. Is it a good idea? You know there have been specific

conditions, and Amy may speak to this better, but there are specific

conditions where the legislature has made a termination that they

are not grounds for cancellation or rescission.

Mr. BONNER. And in this case, an accident. In other words, an

event, which is traumatic in its nature. Would that be probably

first and foremost among them that even if you knew you had cancer and didn’t say so, but you were in a car accident, uninsured,

or you were just a rider in the car and you became seriously injured, cancellation, even though you didn’t say you had cancer, the

injuries are, you know, are unrelated, by definition, wouldn’t that

be one of the first ones that California should ensure would not

allow this retroactive cancellation?

I agree with you that an accident should not be grounds for cancellation, or a recission, yes.

Mr. ISSA. OK. Once again, Mr. and Mrs. Bleazard, you have our

deepest, not just sympathy, but recognition that you shouldn’t have

to be here today. This shouldn’t have happened. And I appreciate

the chairman’s willingness to try to bring focus for change. And I

yield back, and thank the chairman.

Chairman WAXMAN. The gentleman’s time has expired. Before I

recognize the next Member, Members have a lot of conflicts in their

schedule, and that is just the way this place operates. And I am

going to have to go to a conference committee that I pleaded with

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the Senate not to call at the same time, but they didn’t pay attention to that. So that is why I wanted to speak out of order.

There has been another request of changing the panels. And Mr.

Davis said, perhaps we could put the insurance companies with

CMS. Now, I suppose, we could have put everybody on one panel,

and we could have moved this hearing faster, but I really don’t

think that makes sense, because CMS is the regulator. And as the

regulator for the Federal Government, they didn’t even want to be

on a panel with the regulators in the State government, because

that would have made some sense.

But to put the insurance companies with CMS doesn’t make

sense. And you can’t have everybody talk all at once. So, we have

to have witnesses get a chance to speak and ask questions. So, we

have had this panel, which we thought made sense to put you altogether. We have CMS next. And then, we have the insurance companies.

Now, there is a concern on the Republican side of the aisle that

people won’t be back for the insurance companies. They won’t be

here for the insurance companies. Well, we only have two Republicans here now, and I hope they will be here, but I don’t see Republicans rushing in to be here at all at the moment, but they do

have conflicts in their schedule. We have some Democrats, but we

don’t have all of our Democrats.

So, the Chair’s prerogative is to set the agenda, to call the hearings, and to set the agenda, and to, in consultation with the Republicans, establish the order for the witnesses. And I am going to

stick with what we have, even though this request has been made

because I think what we have makes sense. I will certainly try to

be back here for the insurance companies, because I, particularly,

want to hear from them and ask them questions.

So, Mr. Davis, I know you have made that request and I hope

you will acquiesce.

Mr. DAVIS OF VIRGINIA. Well, you are the chairman. Can we just

move ahead? Thank you.

Chairman WAXMAN. OK. Thank you. Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman. And right on point, I am

actually in two hearings simultaneously, one down the hall, so I am

going to have to leap out and go over to that hearing, and hope to

come back in time for the insurance company testimony.

Mr. Chairman, I want to thank you for your willingness to work

with the minority, as well. I want to thank the panel for coming

forward with their testimony, helping the committee with its work.

Following the chairman’s initial remarks, the essence of our insurance system is really to spread risks, to distribute risks across

a wider, healthier, less accident prone population. And what has

been described here, this practice of post-claims underwriting, basically turns the whole theory of insurance on its head. In other

words, the end result here, at least the cases that have been described here, demonstrate a pattern of conduct, and I would say

thousands of cases demonstrate a pattern of conduct, by some insurance companies in some States, in which the insurer actually

accepts an application for insurance and accepts payment of premiums from the consumer until the point at which a claim is filed.

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Then, it appears, at least from the cases we have seen here

today, the insurance company rescinds the insurance agreement in

many cases based on specious reasoning. The end result is that the

consumer is led to rely to his or her detriment on the inducement

by the insurance company to rely up to the point that the harm,

or the illness, is actually irreparable. Because, but for the insurers

inducement, the consumer could have kept on looking for insurance

elsewhere, but it was sort of trapped by the insurer’s conduct. And

again, the number of cases that have been cited here in California,

and Connecticut, and elsewhere, indicates that there really is a national pattern of conduct here that is indeed troubling.

Mr. Lembo, you provided a lot of testimony here today, and I

want to ask you about a couple of cases that you described. You

described a case of a woman who purchased health insurance and

then was later diagnosed with Hodgkin’s lymphoma, or cancer that

attacks the lymph nodes. After she received her diagnosis, her insurer terminated her coverage. Can you tell me why the insurer

terminated the coverage in that case?

Mr. LEMBO. Yes, sir. I just have to flip to that one, I am sorry.

In the case of the woman with Hodgkin’s lymphoma, a 34-year old

woman, it was a straight pre-existing condition charge on the part

of the insurance companies. They said that she should have sought

treatment, because she had experienced minor shortness of breath

while exercising.

Mr. LYNCH. Shortness of breath, while exercising?

Mr. LEMBO. That is correct.

Mr. LYNCH. You are serious? OK. Was there any connection between her shortness of breath while exercising and the lymphoma,

in your opinion?

Mr. LEMBO. Not being a doctor, I would say, no, but——

Mr. LYNCH. All right. I will let you go on that one. I want to ask

you about another example. Some of these are really outrageous.

According to your statement, you had a young man in good health.

I think you named him Frank. He disclosed to the insurer that he

had occasional headaches, that the insurer agreed to issue a policy

nevertheless, and then several months later, Frank was diagnosed

with Multiple Sclerosis. After learning of that diagnosis, the insurer rescinded Frank’s policy. You are more familiar with the detail of this case. Was the rescission in this case justified, in your

opinion?

Mr. LEMBO. No, it was not.

Mr. LYNCH. OK. I know that there are tens of thousands of cases

cited in California, or in Connecticut, and elsewhere, is it your

opinion that this is an isolated practice, or these are outliers, or

does this, as I suspect, represent more of a pattern of conduct by

perhaps a narrow group of insurers?

Mr. LEMBO. I think that is probably the case, Mr. Lynch, that it

is not a common practice, at least not in Connecticut, but the outcome of that process is pretty awful for consumers. So, in a State

of $3.4 million, when you get a couple hundred cases of rescission,

that is a trend and a spike.

Mr. LYNCH. Mr. Bonner, just the same question on the scope of

this——

Mr. CUMMINGS [presiding]. The gentleman’s time is up.

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Mr. BONNER. Yes, I think that the number of cases we have seen,

almost 5,000, or about roughly 4,800, in the last few years, that it

suggests that it is a common practice.

Mr. LYNCH. OK. Thank you, Mr. Chairman. I yield back.

Mr. CUMMINGS. Thank you very much. Mr. Bilbray.

Mr. BILBRAY. Mr. Bonner, we heard a lot about this problem in

California. And I guess, there is no uniform National policy on reporting rescissions, or whatever. Do you think California is unique

in any way, and that is why it seems to have been focused more

in California. Or, why is California such a hot bed?

Mr. BONNER. Well, the short answer to your question is I don’t

think there is anything structurally unique about California, particularly since we are talking about the individual market. And I

think part of it obviously is the numbers, you know, it is a large

State. And we have almost 3 million, I think roughly 3 million in

the individual market, so just the scale and the numbers is, I

think, significant. But I would venture to guess that if you just adjust for population and so on that you would find that it is probably

a routine.

Many of the same carriers in California are national companies,

so those that we mentioned, Kaiser, Health Net, PacifiCare, are national companies, and so, some of these practices are the function

of national corporate practice and policy. So, I don’t know that

there is anything unique to California that would suggest the problem is greater there than other States.

Mr. BILBRAY. Well, if the problem isn’t greater there, the problem

itself, if you were judging by the complaints themselves, or the

highlights of the problem, it goes far beyond our proportionality

and population. Is there, you know, is it a heightened sensitivity?

Is it the fact that the reporting, or the sensitivity, or the concerns

about that, is a little more heightened in California than it may be

in the general population of the United States? Because it seems

like proportionality in population, even though we are the big guy,

we still seem to have more press, more media, more reporting coming out of California than even the numbers would justify. You say

you don’t think the problem is any worse than anywhere else in the

country, do you think the sensitivity to the issue may be what is

driving the appearance, at least, of more activity, or more concern,

in California based on what we have seen?

Mr. BONNER. I think that maybe a variation on that theme, I

would say, rather than sensitivity, I would say awareness, meaning

that we have done a lot of work over the last several years to increase consumer awareness of what their rights are, and made it

easier for consumers to bring complaints, not necessarily legal complaints, but just complaints with the regulator, and through their

health plans.

So, I think all of those things, and in addition to the private litigation that we have seen, the more that you do to shed light on

the issue and let people know that they have some form of redress,

the more people you are going to have raising the issue, and hence

it is much more transparent on the regulatory radar as well.

Mr. BILBRAY. Well, I think the sensitivity to consumer protection

in California has been something that, you know, the whole world

has talked about before. And, as somebody who has come from a

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family lawyer, it also happens to be that California proportionately

per capita has more lawyers in any other State in the Union, so,

it might raise a little degree there too. But, thank you very much.

I appreciate it. And, Mr. Chairman, I yield back.

Mr. CUMMINGS. Thank you very much. Mr. Murphy.

Mr. MURPHY. Thank you very much, Mr. Chairman. I know

Chairman Waxman had to go a conference committee, but I would

just like to thank him for keeping the order of panels that we have

here today.

I am going to go out on a limb and take a guess that the

Bleazards don’t have a lobbyist, or representative, here in Washington. And I am pretty certain that the families and the individuals that Mr. Lembo talked about don’t have lobbyists or representatives, here in Washington.

And I, for one, have absolutely no problem with individual citizens coming to Washington, the stories of individual citizens being

told here, being given preference to associations and corporations,

who will have every opportunity after this panel is done to reach

out to the Members that didn’t get to make it to this hearing and

make their case. I think that is how hearings should be run. I

think we should hear all of the evidence, but I have absolutely no

problem with regular, average, everyday people, getting a little bit

of preferential treatment in terms of how the stories are being told

here, given that they don’t have the type of representation that

others do.

Mr. Lembo, first of all, I want to thank you for coming. I was

in the State legislature for a number of years when the office was

created, and have watched it grow, and have watched it become an

asset for consumers in Connecticut. And, I guess, my question is

this, for all of the States out there that don’t have the new statutory structure that we have put in place in Connecticut, what were

the tools available to you before this law passed, or to the Insurance Commissioner, when you were receiving these hundreds of

phone calls, what was the recourse that you had, or what was the

recourse that those individuals had, when they were seeing these

rescissions?

Mr. LEMBO. Thank you very much, Mr. Murphy. First of all, I always believe that for every call we get, there are probably 10 that

we don’t. And I think that is mostly because people don’t feel in

power to fight that big fight, and also maybe second-guess themselves, did I complete the application appropriately? Is the company right? That said, as I mentioned earlier, there are model laws

on unfair insurance practices in most States in the country. They

are very useful. In some of our cases, we were able to utilize the

pieces of that law to get an appropriate outcome for consumers; but

in others, we were not. It wasn’t until we had very specific language that we were able to get relief and I hope stop the practice.

Mr. MURPHY. And in many of the cases that you were describing,

you were really talking about the insurance companies asking

these patients, and these consumers, to be doctors themselves, that

they should have known that something was wrong, and should

have sought treatment and help before they submitted an application. It is bad enough that we now have insurance companies actVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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ing as doctors, and now we are asking the consumers and the clients to be doctors, as well.

And I guess the question is this, what kind of normal medical

underwriting would we expect, and this is a question potentially for

Mr. Bonner and Ms. Dobberteen as well, would we expect of an insurance company up front when they see an application with a notice of shortness of breath, or back pain, or other specific problems,

what is the normal obligation on behalf of that insurance company

to go out and do due diligence?

Mr. LEMBO. There is certainly a growing body of agreement

around what real medical underwriting is. I think it is fair for a

company that is faced with an application that has no flags in it.

There are no yeses to any of the medical condition questions. To

go forward with that application under certain circumstances. But

any, as you mentioned, any of the things that you mentioned

should cause the company to then seek the medical record and investigate further.

And once they complete medical underwriting, in the academic

sense, medical underwriting, not a shorthand medical underwriting

that is just a review of a screening tool, which is what the application is, in a rush to sort of own on a market in a particular State,

because it is a lucrative market. If we get there, I think we will

see a lessening of this issue, and frankly, the companies will be

given an opportunity to fulfil their obligation to their corporate entity, and to their stockholders in some case, to make sure that they

are doing their job, as well.

Mr. MURPHY. Mr. Bonner, any comments on the scope of up-front

medical underwriting that we really want to be requiring, if we

were to proffer a uniform law or encourage States to adopt such

laws?

Mr. BONNER. Well, short of a uniform law, or much more detail

than what the regulatory requirement is, I think you definitely

want to see reasonable inquiry into those issues that may be suggested on the application itself. I think the other thing that is very

important is to look at the qualifications of those who are actually

doing the review, as well, because one of the issues that we have

found is that in many cases the person reviewing the application

and the information may not have the necessary qualifications to

determine whether they should be making further inquiry to discover a problem. So, we think that there needs to be some very

clear rules on what is asked on the application, and very qualified

reviewers, as well. Anything you would add to that?

Ms. DOBBERTEEN. Just that new case law in California did add

that insurers would be obligated to verify the, not only the accuracy but the veracity of the answers on the application, so that

there should be more than just reviewing an application and

stamping it OK, that they actually do have the duty of the investigation prior to issuing the policy, rather than post-claims.

Mr. MURPHY. Thank you very much.

Mr. CUMMINGS. Thank you very much, Ms. Speier.

Ms. SPEIER. And thank you to the panelists for being here. I

apologize for coming in, and going out, and coming in, but again,

a number of hearings are taking place. I want to welcome the regulators from California here. It is great to see you again.

66

Congressman Bilbray asked a question that I think needs to be

explored a little bit more. The question was, you know, is this kind

of something more attributed to California than anywhere else

where there are more cases? My understanding is that California

is unique in the country in that so many Californians are in managed care. The vast majority of Californians, in fact, are in managed care, so they are in group health insurance settings where

this would not be an issue. And I would offer that as a question

to either of you to answer.

Mr. BONNER. Well, that is certainly true that we have a much

greater saturation of managed care in California than you see in

other parts of the country.

Ms. SPEIER. So, it would suggest that in areas where there are

a larger penetration of individual health insurance, that this is

going to be a problem. Obviously, it is a problem in the individual

market, not in the group market. So, in States across this country,

where individual health plans have a greater penetration, this is

conceivably more likely to be a problem?

Mr. BONNER. I think that is a logical assumption to make in the

absence of information to the contrary.

Ms. SPEIER. And in your assessment in California, you have identified a number of insurers who have engaged in this practice. Do

you have any reason to doubt that it is a practice that is embraced

by most insurers, not just in California but across the country?

Mr. BONNER. No, you know, my assumption or, let me back up

and say that first, you know, the insurance industry is a very risk

adverse industry and very competitive, as well. And what they seek

is clear rules, and consistent application in what you see often

times, or what I have seen over the years, as both the regulator

and now having oversight of the regulator, is that competition in

the industry is such that when you have one company that has one

approach, or practice, you often see some consistency in that approach and practice among their competitors. And so, I think at

least that is what is implicit in your question is, would we tend to

believe that the practice is common amongst insurance companies

in general, and I would say, it is likely.

Ms. SPEIER. This is a hypothetical, of course, but we are excluding fraud. So, anyone who fills out an application, and fraudulently

fills out an application, says that they don’t have any pre-existing

conditions when, in fact, they did have pre-existing conditions, is

not someone we are talking about. We are talking about rescission

where it is done unrelated to fraud. Shouldn’t we just create a burden on the insurer to establish that, in fact, it is fraud before a rescission can take place?

Mr. BONNER. Well, you may speak to some of the recent case law

in California that has moved closer to that result, but you may

want to speak to that a little more directly.

Ms. DOBBERTEEN. In fact, California law requires a showing of

willful misrepresentation before they can rescind, if they have completed medical underwriting. The new case law did delineate that

they have to either absolutely complete medical underwriting in

order to rescind, or make a showing of willful misrepresentation.

It does require documentation. It does require looking into, rather

than just making that assumption.

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Ms. SPEIER. So that is case law, but not statutory law?

Ms. DOBBERTEEN. No. It is based on the statute in California.

Ms. SPEIER. All right. So then, it is just an issue of enforcement?

If you don’t hear about it, you can’t enforce it?

Ms. DOBBERTEEN. We have investigated in depth, not just waiting for complaints, but we have investigated all five major health

plans who have any products in the individual market.

Mr. CUMMINGS. Thank you very much.

Ms. SPEIER. Thank you.

Mr. CUMMINGS. Mr. Platts.

Mr. PLATTS. Thank you, Mr. Chairman. I will be real brief here.

Mr. Lembo, I apologize with coming in late, and I don’t think I’m

being repetitive, but in your testimony you talked about the issue

of intentional misrepresentations, as being more or a red herring

issue, can you expound on that? Is that because it is a very small

percentage in your opinion and it is blown out of proportion?

Mr. LEMBO. I think it is a very small percentage of the group of

folks who have the policy that you are saying.

Mr. PLATTS. What level would you put it at in your opinion?

Mr. LEMBO. You know, not having real data to support that, it

is just our experience based on the case work that we do.

Mr. PLATTS. Given the work you do, and seeing that not as a

driving issue here apparently by your testimony, is it something

that rescissions should not be allowed, or there should be a high

bar for a rescission being granted?

Mr. LEMBO. I think before a policy can be rescinded, there needs

to be a showing that there was a willful, knowing misrepresentation of health status.

Mr. PLATTS. In Connecticut, what is the standard?

Mr. LEMBO. Knowing.

Mr. PLATTS. Knowing. And your opinion is just that, that should

be replicated nationally like that?

Mr. LEMBO. We went for intentional, but lost that particular battle.

Mr. PLATTS. OK. All right. Thank you, Mr. Chairman.

Mr. CUMMINGS. Thank you very much to our witnesses. We

would to thank you very much for your testimony to the Bleazards.

We thank you. Clearly, I think everyone on both sides are very concerned about what happened to you, and I don’t think we want to

see that happen to anybody else. And we will do our very best. And

I want to thank our other witnesses for providing the testimony.

This is the United States of America. We can do better by our citizens. And again, all of your testimony is very helpful. You are now

dismissed. Thank you very much.

We will now call on Ms. Abby Block, the Director, Center for

Drug and Health Plan Choice, Centers for Medicare and Medicaid

Services, here in Washington.

Mr. DAVIS OF VIRGINIA. Mr. Chairman, while she is getting here,

let me just note, the reason I want to combine panels is we allowed

Mr. Waxman to move the hearing up to 9:30 a.m. this morning. It

was inconvenient to us for different reasons, but we allowed him

to do that. I had a 12 appointment I couldn’t make, and I wanted

to get our appointment while I was still here.

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It had nothing to do with bringing lobbyists up front. I want to

underscore that. There is a proposal that they have, and it would

be interesting to have people comment on, but this is not an adversarial hearing. And I think this kind of rhetoric is exactly what is

wrong with Congress. Everything has to get torn up into partisanship. We have tried our best to accommodate, you know, the majority with their time. They didn’t give appropriate notice for it, but

we wanted Mr. Waxman to be able to get his hearing in and be

here, because we knew this other committee meeting was called

that he couldn’t avoid. Thank you.

Mr. CUMMINGS. I want to thank you for your comments. But irrespective of that, I think we can still try to resolve these issues for

the people of our great country.

Ms. Block, it is the policy of this committee to swear in all out

witnesses. Would you stand and raise your right hand?

[Witness sworn.]

Mr. CUMMINGS. First of all, we are very happy to have you with

us. You may proceed.

STATEMENT OF ABBY L. BLOCK, DIRECTOR, CENTER FOR

DRUG AND HEALTH PLAN CHOICE, CENTERS FOR MEDICARE AND MEDICAID SERVICES

Ms. BLOCK. Thank you, Mr. Cummings, and our thanks to Chairman Waxman for inviting us today. And thank you Mr. Davis, and

distinguished members of the committee for giving us this opportunity to speak. It is my pleasure to be here to discuss the Centers

for Medicare and Medicaid Services role in the oversight of individual health insurance markets.

As you know, the agency core mission is administering Medicare,

Medicaid, and the State Children’s Health Insurance Program. As

Director of the Center for Drug and Health Plan Choice within

CMS, I oversee day-to-day operations and lead new policy development with respect to individual insurance market issues within the

agency’s jurisdiction, as well as with respect to private plans in

Medicare.

We share the chairman’s concern with recent reports that insurers in the individual market might be using rescission as a means

for circumventing the guaranteed renewability requirements established in the Health Insurance Portability and Accountability Act

of 1996. HIPAA is very clear that, with limited exceptions, an individual insurance policyholder has a right to guaranteed renewability. In other words, an insurer must renew or continue in force an

individual’s existing coverage unless a specific exception is met.

The most relative exception for purposes of today’s discussion is if

the policyholder acted fraudulently, or made an intentional misrepresentation of a material fact under the terms of the coverage.

CMS believes that States have primary responsibility for enforcement of guaranteed renewability and that CMS can act only if it

determines that a State fails to substantially enforce the requirement. Specifically, if a State fails to enact legislation that meets or

exceeds Federal HIPAA standards, or if it otherwise fails to substantially enforce the HIPAA standards, the U.S. Department of

Health and Human Services has authority to investigate, and if

necessary, take over direct enforcement of the standards in that

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State. While there is Federal oversight authority, there is no direct

Federal role in regulating the private individual insurance market.

It has been suggested that in certain States private insurance

issuers might be using rescission, a State contract law concept, to

circumvent guaranteed renewability. The role of CMS in addressing such situations hinges on the specific facts of the situation, including any actions already taken by the State. If there is any indication that the rescissions may be occurring for reasons that are

inconsistent with the HIPAA guaranteed renewability standards,

that would be a red flag that the State may be failing to substantially enforce those standards. CMS could then begin a process, set

forth in our regulations, to assess the State’s compliance with

HIPAA requirements. Depending on the outcome of our investigation, CMS could ultimately take direct control over enforcement of

guaranteed renewability in a State.

In light of recent scrutiny of the use of rescission in certain

States, the National Association of Insurance Commissioners established a work group in May 2008 to examine and develop recommendations relating to the use of rescission in the individual

health insurance market. CMS is actively engaged in this effort,

and we applaud the NAIC’s leadership on this emerging issue, particularly given HIPAA’s clear intent that States take the lead in

enforcing individual insurance market protections.

It is CMS’s goal to work collaboratively with States and other

stakeholders to enforce policyholder protections established by

HIPAA. We will do whatever is possible within the scope of our jurisdiction to ensure that States are substantially enforcing HIPAA’s

protections. Thank you for the opportunity to testify today, and I

would be happy to answer any questions you may have.

[The prepared statement of Ms. Block follows:]

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Mr. CUMMINGS. I want to thank you very much for your testimony. And let me just ask you, there is a Federal law, the HIPAA

Act of 1996 that sets a clear Federal standard that protects policyholders against unfair rescissions, and under that law, your agency

is charged with enforcing this minimum standard in ensuring that

insurers are not illegally terminating policies; is that correct? Is

that what you are testifying to?

Ms. BLOCK. Yes, although HIPAA does not specifically mention

rescission, it does mention the discontinuance of coverage.

Mr. CUMMINGS. All right. And the witnesses on our first panel,

were you here to hear them?

Ms. BLOCK. Yes, I was.

Mr. CUMMINGS. As a matter of fact, they are sitting right behind

you. Describe how insurance companies have engaged in widespread abuses and routinely terminated policies after the policyholder gets a serious illness or injury. The witnesses on the first

panel told us that this is very likely a National problem, not one

limited to their particular States, and in many States, however,

such as Utah, where the Bleazards lost their coverage, there has

been no State enforcement. Now, tell me, Ms. Block, has CMS

taken any enforcement action with regard to improper rescission

practices, any action?

Ms. BLOCK. CMS has not because, remember that, the only time

that CMS has any jurisdiction is if a State, if there is any indication that a State is not substantially enforcing the HIPAA provisions.

Mr. CUMMINGS. And how would you know?

Ms. BLOCK. We would have to receive specific complaints to that

effect, and we have not received any such complaints.

Mr. CUMMINGS. And so, in other words, a complaint would likely

come from someone who felt that they were a victim; is that correct?

Ms. BLOCK. Yes, that would be correct.

Mr. CUMMINGS. And so, you are saying that you have never received any complaints. Is that to your knowledge?

Ms. BLOCK. Not in regard to rescission. Over the last 5 years, we

received a total of five complaints about HIPAA compliance, particularly in the State of Missouri——

Mr. CUMMINGS. But in regard to rescission?

Ms. BLOCK. And none of those were in regard to rescission.

Mr. CUMMINGS. I see. Now, one of the reasons your agency hasn’t

taken any action to protect policyholders is that you have devoted

almost no resources to this important responsibility. HIPAA is a

big law with numerous enforcement provisions. For example, requirements relating to patient privacy insurance portability standards preventing drive-through births and mental health parity, and

all of which need to be enforced. But we were told by the administration, that you all only have four people assigned to the task of

enforcing all of HIPAA’s provisions, and that is throughout the entire United States of America. Is that right?

Ms. BLOCK. No, I don’t believe that is correct, sir. I have four

people on my staff specifically that do enforce, have responsibility

and jurisdiction over specific HIPAA provisions. HIPAA is, as you

say, a very big statute. The Department of Labor has jurisdiction

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over some aspects. The Department of the Treasury has jurisdiction. So, I don’t represent the whole U.S. Government.

Mr. CUMMINGS. Well, I’m just talking about, with what you testified today with regard to rescission, you all have jurisdiction over

that; is that correct?

Ms. BLOCK. That is correct.

Mr. CUMMINGS. You and the four people?

Ms. BLOCK. Yes, I have four dedicated staff.

Mr. CUMMINGS. And they do other things other than the rescission oversight; is that correct?

Ms. BLOCK. They do everything related to the private insurance

market.

Mr. CUMMINGS. Very well. Four people for the entire United

States of America. Today, we heard appalling stories of truly abusive conduct by insurers who unfairly rescind policies leaving people uninsured and uninsurable in the middle of a medical crisis.

Your agency is the ultimate authority of HIPAA’s protections and

it is your job under the law to make sure that insurers in all States

are complying with HIPAA’s important safeguards for individual

policyholders. How can you possibly enforce all of that with four

people?

Ms. BLOCK. We believe that the States have primary responsibility and that our jurisdiction is to ensure that States are, in fact,

substantially enforcing the HIPAA provisions. If we have any indication that a State is not doing that, we have the ability through

our regulations to investigate and take appropriate action. And I

assure you, we will do that.

Mr. CUMMINGS. But that has never happened to your knowledge;

is that correct?

Ms. BLOCK. That has not happened.

Mr. CUMMINGS. And when you hear stories like the Bleazards,

does that concern you, and does that make you want to go back

and do something about it?

Ms. BLOCK. It concerns me very, very much. And, I believe, I

have expressed our concern. Obviously, we believe this is a serious

issue. We take it very, very seriously. And that is why I look forward to working closely with the NAIC, as they review the problem

and come up with solutions.

Mr. CUMMINGS. And what would your solutions be to them, be- cause they are sitting here. They have a $100,000 worth of bills,

trying to figure out how they are going to pay them. And by the

way, and counting, I mean, what would your solution be? I am just

curious.

Ms. BLOCK. I don’t have any authority to come up with a solution. I have to act within the jurisdiction that I have under the law

and regulations.

Mr. CUMMINGS. Mr. Bilbray. Mr. Murphy.

Mr. MURPHY. Thank you, Ms. Block. Just to explore the Utah situation and law a little bit further. The Federal law, as you have

stated, gives you authority to step in when a State doesn’t comply

with the Federal standard, which is tied to the constitution of

fraud, or intentional misrepresentation, and the Utah law, which

had jurisdiction in the case of the Bleazards, does not have that

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lows for the insurer to discontinue a policy simply made on material reliance with or without any intentional misrepresentation.

And so, it appears, and I know you may not have had the chance

to, you know, take a look at the Utah law, it certainly appears from

our reading that there is a clear statutory conflict between the law

in Utah that controlled in the case of the Bleazards, and the Federal standard. And so, it would seem, you know, given the fact that

we have here today at least one example of a State law, which

stands in direct conflict of the Federal law, that maybe a first step

might be for the agency to do a review of, and there is only 50

States, so it is probably not that hard to go and take a look at all

of the different statutes that control here, and determine which

States, by the very definition of their statutory treatment of this

issue, aren’t in compliance with the Federal law. Does that not

seem like a reasonable step to take?

Ms. BLOCK. We actually reviewed all of the State laws right after

the enactment of HIPAA to make sure that they were consistent.

And it was the determination of the staff at the then-HCFA, that

they were, with a few exceptions, the last State that came into

compliance was Missouri, which enacted its legislation just recently, in the individual market. What really occurs here is, as I

indicated, if there is a situation such as the situation in Utah, and

we are very sympathetic to that situation, that could be a red flag.

So we would have to look at the specific circumstances of the specific case to determine that in that specific situation, the State is

not substantially enforcing the HIPAA provisions. If we were to

make such a determination after an investigation, we would then

work with the State to make sure that the State came into compliance, which is the ultimate goal, as a very last resort. If the State

failed to come into compliance, we could then assume jurisdiction

in that State.

Mr. MURPHY. And I appreciate that, but looking at the Utah law,

and just to quote you the law, it is unclear to me how on Earth

there could have been a determination that this was in compliance.

The Utah law says, ‘‘No misrepresentation or breach of an affirmative warranty affects the insurer’s obligations under the policy, unless the insurer relies on it and it is material, or it is made with

the intent to deceive.’’ And so, that or clause allows I think insurers in Utah to cancel a policy based on material reliance.

So, this is just by way of hoping that one of things you will take

from this hearing is the chance to go back and re-review the determination that there are 50 States in compliance, because, at the

very least, it looks like the Utah policy is not. And last, I understand you haven’t received complaints into your office, but don’t

you think there a pro-active duty on the part of your agency to at

least be examining the experience that States have.

It wouldn’t take much effort for your agency, I understand you

are short-staffed and that is a problem that maybe needs to be

solved, but it doesn’t seem like it would take much effort to be in

contact with someone like Mr. Lembo, or Mr. Bonner, on even an

irregular basis. And that kind of contact, that kind of solicitation

of input from State regulators and State advocates, would have discovered I think pretty easily, that there was a problem here that

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CMS could have stepped in to address. Shouldn’t there be some, at

least rudimentary, pro-active obligation?

Ms. BLOCK. In fact, that happened, sir. That happens on a regular basis. We talk regularly with State regulators. We meet regularly with them at the quarterly NAIC meetings. That kind of

interaction goes on regularly.

Mr. MURPHY. And this didn’t come up in any of those discussions?

Ms. BLOCK. Well, it is not that it didn’t come up, it is that, remember our jurisdiction kicks in if we have determined or believe

that there may be a situation where the State is not substantially

enforcing the law, the HIPAA rules. We have no such indication in

Connecticut, nor do we have any such indication in California. So,

of course, it comes up in discussion, but until, and if, there is a situation where it appears that there may be circumstances where

the State is not substantially enforcing the HIPAA requirements,

we have no jurisdiction.

Mr. MURPHY. And last, Mr. Chairman——

Mr. CUMMINGS. The gentleman’s time is up.

Mr. MURPHY. And last, Mr. Chairman, just to mention, I do think

that conflict with State laws would be immediate evidence that a

State isn’t enforcing the Federal law, and I would just hope that

you would go back and take a look at some of these State laws to

make sure that your determinations are correct. Thank you.

Mr. CUMMINGS. Ms. Speier.

Ms. SPEIER. Thank you, Mr. Chairman. Ms. Block, we all work

for the taxpayers of this country. And they expect us to respond.

Now, you have a minimum of $400,000 of taxpayer’s funds in four

people that are supposed to be doing something to make sure that

the laws of the State and the country are being enforced. Now,

your comment to us was, well, you saw no problems in Connecticut

or California, so you haven’t taken any action. Let’s talk about

some cases that may not have been brought to you specifically, but

were brought to you in the media.

In December 2007, USA Today wrote an article in which they

talked about a woman’s insurance policy being canceled after she

had emergency surgery for a perforated ulcer. And it was canceled

by her insurer because the only thing that she disclosed on her application was that she was having heavy menstrual periods, a condition her doctor said was normal for a woman her age. So, based

on the fact that she was having heavy menstrual periods, her insurer canceled her. It was national media. What action did you

take in that case?

Ms. BLOCK. I have no indication that the State had failed to take

action. I don’t know that the individual had exhausted their State

remedies. I can’t really act simply on information, which is never

full and complete in a news media report. If that case was brought

to my attention, I would be happy to look into it and see whether

appropriate steps needed to be taken. I don’t even know what State

that incident occurred in?

Ms. SPEIER. Well, let’s talk about another case. This is a case in

South Carolina where a policyholder received a $15 million verdict

following an illegal rescission. The case disclosed an array of abusive practices. For example, the insurer’s computer system was preVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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programmed to trigger automatic fraud investigations based on

billing codes. The insurer then rescinded coverage based upon an

erroneous date written on a single form. Did you take any action

in the South Carolina case?

Ms. BLOCK. With all due respect, ma’am, I do not regulate the

individual insurance market.

Ms. SPEIER. No, we understand that, but you do have authority

over HIPAA.

Ms. BLOCK. No, the State, apparently, appropriate action was

taken in that case. You just said that the person received appropriate compensation.

Ms. SPEIER. Did you contact the South Carolina regulators to determine whether or not they had taken action against insurers in

this case?

Ms. BLOCK. It is not my responsibility to do that. It is my responsibility only to determine if, in fact, a State is substantially enforcing HIPAA rules, if a case is brought to my attention.

Ms. SPEIER. With all due respect, if it is in the national media,

it is brought to your attention. And, if you do not believe that is

brought to your attention if something appears in the national

media, then there is about $400,000 we can cut from the budget

right now. Thank you, Mr. Chairman.

Mr. CUMMINGS. Thank you very much. Ms. Brock, I just have one

question for you. Let me just pick up on what Ms. Speier just asked

you. There is an expectation of the people of this country that government is working for them, not against them. And they pay us

to solve their problems. And they have one life to live. This is no

dress rehearsal and this is their life. And I just have one question

for you. If right this second, Mr. and Mrs. Bleazard wrote on a

piece of paper, Dear Mrs. Block, we believe that the State of Utah

has not done what it is supposed to do in this regard, would that

trigger an investigation from you? That is all I want to know.

Ms. BLOCK. That certainly could trigger an investigation.

Mr. CUMMINGS. No, I didn’t say could. I said, would it? All we

are talking about is an investigation now, I didn’t say, conclusion,

investigation, because they are sitting here right now and they

want to know that their government is working for them. And you

just sat here and said you needed a complaint. And I am asking

you, these are just regular everyday citizens who paid their premiums, who did everything that they were supposed to do, and

they feel like they have been cheated. And I am asking you if right

now, if they scribbled on a piece of paper those words, would that

trigger an investigation?

Ms. BLOCK. That would certainly trigger my looking into the situation to determine whether the circumstances in that particular

case, in fact, triggered an investigation. If they would like to make

such a request, I would be very happy, you know, to entertain it.

Mr. CUMMINGS. Very well.

Mr. BILBRAY. Mr. Chairman.

Mr. CUMMINGS. Mr. Bilbray.

Mr. BILBRAY. You know, I don’t think that it is appropriate to

close this discussion without highlighting the fact that contrary to

what a lot of people in this city like to believe, the State and local

governments are the front line of protection and service to the peoVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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ple of the United States. Washington is not, and has never been

meant to be. It is meant to be that we end up, try to be, I agree

with you, the last line of defense when systems break down.

But I just have to say it, somebody who comes from almost 20

years of local government service, the biggest frustration I had as

a mayor, a county supervisor, as an air resources member trying

to protect the public, was the Federal Government always thinking

that they were the first line rather than the last line. And we just

got to understand that there are always going to be times that we

can sit in Washington and second-guess the men and women that

are serving the American people on the front line in cities, counties, and States, and always thinking that we could do it better.

History has proven that we don’t do it better.

Mr. CUMMINGS. I want to thank the gentleman for his statement.

With all due respect, let me just say this, and I will be extremely

brief, because Mr. Davis has asked me to try and move this hearing along, and I will do that. But, so that we will be clear, Ms.

Block, under sworn testimony, said a few moments ago that there

were certain things that were under her jurisdiction, No. 1. No. 2,

she said that there were certain things that would trigger an investigation of those things under her jurisdiction. That is No. 2.

No. 3, under her jurisdiction, what she has paid for, what she

has sworn is her job, I simply wanted to get some answers to a

question of a couple that, by the way, at the beginning of our

terms, we raise our hands and swear that we are going to protect

the American people, I want to make sure that this couple is protected. I am not saying the Federal Government can do it better,

or whatever, I am just basing that upon the sworn testimony that

was given here this morning.

Ms. Block, I just want to thank you very, very much, and you are

now dismissed. Thank you.

Our next witness is Ms. Stephanie W. Kanwit, who is special

counsel, to the America’s Health Insurance Plans, the trade association for the health insurance industry. Ms. Kanwit, am I pronouncing that correct?

Ms. KANWIT. You are, sir. Kanwit, thank you.

Mr. CUMMINGS. Good.

Ms. KANWIT. Thank you for asking.

Mr. CUMMINGS. She will explain the association’s policies. And

Ms. Kanwit, I know you just sat down, but I am going to have to

ask you to stand up.

[Witness sworn.]

Mr. CUMMINGS. We will now hear from you. And thank you very

much for being with us.

STATEMENT OF STEPHANIE KANWIT, SPECIAL COUNSEL,

AMERICA’S HEALTH INSURANCE PLANS

Ms. KANWIT. Thank you very much, Mr. Cummings, and members of the committee.

I am Stephanie Kanwit. I am special counsel for America’s

Health Insurance Plans, and we represent the 1,300 health insurance plans offering coverage to more than 200 million Americans.

I heard Chairman Waxman this morning say that one of the priVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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mary issues we are discussing is how to ensure that all Americans

have adequate health care coverage. We couldn’t agree more.

AHIP, my organization, believes that all Americans should have

access to coverage. And I want to tell you very briefly this morning

about two of our proposals for reinforming the individual health insurance market, which is what we are talking about.

No. 1, proposals to ensure that no individual falls through the

cracks, and No. 2, initiatives to give consumers in this market

peace of mind, including new consumer protections with regard to

rescissions and pre-existing conditions.

Just very quickly, my paper summarizes what the individual

market covers, who is in it. We believe that there are about 18 million people in there. We just took a survey in December 2007, so

it is very recent. We found that the individual market is both available and affordable, that 89 percent of applicants who apply and

go through the process are offered coverage, and the majority at either standard or preferred rates. But we want to go further.

We have heard some disturbing testimony this morning on rescissions in some very articulate testimony from the Connecticut

and California regulators. We know that rescissions are exceedingly rare. Our statistics say that it is two-tenths of 1 percent of

policies. Two tenths of 1 percent. We want to make them rarer still.

We want to make them extinct.

First, rescission would not be an issue at all if universal coverage

existed. So, we have proposed, just recently, a strategy for individual market reform that would guarantee access to health care coverage. That plan would be a public/private cooperative adventure,

and it would have States create what we call guaranteed access

plans to provide coverage, for those who are uninsured, with the

highest medical costs, and our plans correlatively, would do their

parts with a coverage safety net, and guarantee coverage to all applicants who aren’t eligible for the guaranteed access plans. And

there would be capped premiums on that.

Second, and very critically, our Board of Directors, last year, recommended important initiatives to enhance piece of mind to those

in the individual market. We have outlined in our testimony in

great detail the numerous consumer centric practices we are advocating. And chief among them, and the one that I am most proud

of, is the position that legislative drafting, which States can use to

enact legislation to provide consumers like the consumers we heard

testify this morning, with access to independent third party review,

third party review, which would resolve any disputes about medical

issues related to not only rescissions, but also pre-existing exclusions.

And our policy, or our proposal, goes even further than Connecticut’s, because it would be independent of the health plan, and it

would involve both a medical professional and an attorney who is

expert in that particular area. And any decision, any decision, and

this is critical, would be binding on the health plan.

The other key initiative that we set forth in our testimony are

a number of principles. I made them seven separate principles

about rescissions. We believe that the health plans have very serious responsibilities. First of all, they should take responsibilities,

and you heard this reiterated in some of the testimony this mornVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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ing, for conducting a thorough, thorough review of questions asked

in an application. And if a plan failed to conduct that thorough review of unclear or questionable information, and failed to seek additional information, then the health plan cannot use that information as a basis for rescinding coverage.

Just quickly, on a final note, we are trying, our association, is

trying to come up with policy solutions that work, both immediately and in the long term. Our proposals, which we have detailed in the testimony, take account of State reform efforts over

the last 15 years. They were very well intentioned, but we cited a

report we just did last year by Milliman, which found that even

these well-intentioned State efforts at reform in the individual

market, and I am talking about guarantee issue, without a requirement for individual coverage, or community rating, had negative

consequences for consumers, higher premiums, decline in enrollment, and often and unfortunately an exodus of health insurers

from the market.

I am happy to take any questions this morning.

[The prepared statement of Ms. Kanwit follows:]

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Mr. CUMMINGS. Thank you very much for your testimony. Ms.

Kanwit, you have heard the testimony earlier; right? Have you

been here?

Ms. KANWIT. I did, sir. I have been here all morning.

Mr. CUMMINGS. And probably, all of those insurance companies

are part of your association, the ones that you heard mentioned?

Ms. KANWIT. I believe so, yes.

Mr. CUMMINGS. And, as I listen to your testimony, it was quite

impressive. And you were talking about things that, you all, would

propose. And I am just curious why haven’t you all done some of

those things? Some of these things, you don’t need us. My friends

constantly say in the Congress that if they can do it in private industry, let private industry do it. I have a couple sitting behind you, who is facing $100,000 plus

in bills, and counting, after having paid their premiums, and I am

sure they are saying, well, that all sounds nice, but what about us?

You follow what I am saying?

Ms. KANWIT. I do.

Mr. CUMMINGS. So why haven’t your folks done this before? I

mean, it sounds good, and it sounds like this is something that has

been on the drawing board, most of these things for awhile, or are

these things that just came up? When did you all come up with

these things?

Ms. KANWIT. Our Board, sir, came up with this last December.

We publicized this material last December. And it has been an

issue that has been discussed for a while. We are also, as you

heard this morning about the NAIC, we are working with them as

well on proposals here.

Mr. CUMMINGS. And so, when do you anticipate some of these

things to go into effect, because the people who are watching us on

television, and I know that you said it is only a very minuscule

number of people that may be affected by this, but those people are

in pain. Those people are suffering just like this couple is suffering.

And we have faces to put with the failure to institute these policies. And I am just curious, when do you anticipate that is going

to happen? Or any of them?

Ms. KANWIT. We hope to make again what happened to the

Bleazards this morning, for example, a never event. Some of our

health plans, for example, have already instituted these policies in

terms of the underwriting standards, but we are also working with

the State legislatures to implement the issue that I talked about,

the third-party review, which would obviate a lot of the problems

in this area. It has worked in the medical field, having external review, and this would be third-party review, for rescissions and preexisting conditions.

Mr. CUMMINGS. Now, the reason that the insurer gave for rescinding the policy that the husband Keith had, is that he failed

to provide information in the application about his medical issue

relating to his back. You heard that testimony? Yet, the relevant

section of the application was filled in by Keith’s insurance agent,

whom Heidi testified had complete knowledge of the medical history. And in any event, the medical history of Keith’s back has absolutely nothing to do with Heidi’s horrific mountain biking accident, exactly the kind of catastrophic event that health insurance

94

is supposed, and I am sure you would agree, to protect policyholders against.

And you testified that your industry has new initiatives designed

to give consumers peace of mind about their individual health insurance coverage. And I am just curious, why do you think insurers

treat people the way that they treated these folks? I mean, I am

sure in your discussions, you tried—I mean, in order for you all to

get to the recommendations, you had to, I guess, know that these

incidents take place. You also needed to know to even come up

with that third-party proposal, you had to know that there is some

problems here. And so, why is that? Why do you think that is, because they have their opinion, I am sure, but why do you think

that is?

Ms. KANWIT. Well, sir, we are trying to fix it. We want to make

sure that what happened to them does not happen again in the future. We are asking affirmatively, our member health plans, and

our Board supports this, to go back and do thorough up-front underwriting, and if that underwriting is not done, if that investigation is not done, if there is an unclear question, then the health

plan cannot rescind based on that information. And I am sure the

Chair knows that there are reasons to do underwriting, but you

wouldn’t need that if we had universal coverage.

Mr. CUMMINGS. And so, you don’t think that any of this has anything, I am just curious, I am not trying to put words in your

mouth, has anything to do with money?

Ms. KANWIT. I can’t speak to that, sir. I can’t speak to an individual situation. As a lawyer, I try not to opine in an area where I

don’t know the facts. I don’t know, except what I heard this morning in the testimony, which was very disturbing, I do not know the

facts.

Mr. CUMMINGS. All right. Mr. Davis.

Mr. DAVIS OF VIRGINIA. Ms. Kanwit, thank you very much. The

facts of the case we heard this morning, that were pretty devastating to whoever was insuring, and I think that is the kind of thing

that we don’t want happening within the industry. You would

agree with that from the facts that were presented here?

Ms. KANWIT. I agree. We are trying to make it never happen

again, a never event, as they would say.

Mr. DAVIS OF VIRGINIA. Do you think that the proposed external

panel review could mitigate harm done in cases like this?

Ms. KANWIT. Absolutely. I think it absolutely would have. I also

want to point out that the Utah couple this morning who testified,

had their policy been rescinded under our proposal, they would

have gone into the guaranteed access plan that we are supporting

very strongly here, where the State and the private plans would

get together and assure coverage for every single person, so no one

falls between the cracks.

Mr. DAVIS OF VIRGINIA. Look, there are good insurance companies, and there are bad insurance companies, just like good lawyers, bad lawyers, good Congressmen—I mean, whatever, but if you

have to take a look at, and I am not going to get into names, but

I think in those bad situations, getting some kind of instant appeal

to an independent panel is the appropriate resolution quickly. And

the difficulties with some of the other things suggested today, we

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are just going to put on an army of investigators, and this like

doesn’t necessarily bring this to any kind of climate, it doesn’t

bring it to a conclusion.

Additional policing may be part of what we need, maybe, we need

to bring CMS into this. That is something we can look at, but ultimately if you are the consumer out there, and you have an injury,

and you have a dispute, you don’t want to have to go to court. You

know, you don’t want to have to go on a contingent—nobody gets

anything out of that over the short term. And so, that is what intrigues me about this. Now, can this be instituted, it could be instituted voluntarily as part of policies, but do you suggest we do this

legislatively?

Ms. KANWIT. We are suggesting that we do this, Mr. Davis, by

State legislation, but you are absolutely right, it could be done relatively quickly and expeditiously. And, as I said, it has worked in

the medical external review area, and it is a variation of that.

Mr. DAVIS OF VIRGINIA. From an insurer’s perspective, is there

a difference between rescissions and post-claims underwriting?

Ms. KANWIT. Yes, there is. There are different principles. Postclaims underwriting is a review of the policy after the policy has

been issued, which can result in rescissions, but may also result in,

for example, additional limitations, pre-existing conditions, or higher premiums. You know, you didn’t tell us about your back problem

2 years ago and, therefore we are going to issue the policy, but at

a slightly higher rate. So, they are not quite analogous.

Mr. DAVIS OF VIRGINIA. So, post-claims underwriting, you feel is

an appropriate industry practice?

Ms. KANWIT. I think it is necessary when you have the individual

market that we have now. As I said, AHIP, and our members, and

our Board, would like to make it—if you had universal coverage,

we would work with the States and the Federal Government to

consider how we could do guaranteed issue and you would never

need to talk about rescissions, or pre-existing conditions.

Mr. DAVIS OF VIRGINIA. On an earlier panel, Mr. Lembo, you

heard him state that associating fraud and rescissions is a red herring, that basically he didn’t think there was a lot of fraud in this.

There was a small bit of this. Do you agree with that statement,

or what has been the experience of the industry?

Ms. KANWIT. I can’t speak for the whole industry, but I used to

work for one company in the industry. And there is some fraud.

People need to be careful, because all consumers are paying for

that kind of fraud. And again, with universal coverage, you

wouldn’t have to worry about that.

Mr. DAVIS OF VIRGINIA. Did some of this originate with the consumer? How about the underwriter? Does it exist there some times,

where the underwriter is just interested in selling a policy?

Ms. KANWIT. That could be possible as well, yes.

Mr. DAVIS OF VIRGINIA. It can go up the chain. All right. Well,

I am intrigued by this. I hope that we can get more information

out on this so that consumers can have some independent appeal

in a case like this and not have to hold the court system to do it.

And I appreciate your being here today. And I just hope we can get

some resolution to these issues.

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Mr. ISSA. Just following up on the ranking member’s question,

when you have an independent insurance agent writing, a bonded

agent, would one of the other reforms be that because that is a

bonded agent and the insurance company who works with them

could seek reimbursement for their wrongful act, would it be reasonable for claims made against failures by that bonded agent to

be paid?

In other words, that these two individuals still seated behind you

would not find themselves, because of a failure of the bonded agent

but rather that person’s bond would be where you would seek to

get reimbursement. You know, often insurance companies look at

themselves as simply a mover of dollars. In their case, it seems like

they were a victim of the gentleman’s friend, but somebody who

failed to do their job properly. How would you comment on that on

behalf of, if you will, your industry?

Ms. KANWIT. That could work, but the consumer is responsible

for the statements of an agent. But in that particular situation, you

could possibly find some recompense there.

Mr. CUMMINGS. The gentleman’s time has expired. Mr. Kucinich.

Mr. KUCINICH. Thank you very much for appearing before this

committee. In looking at your prepared remarks, I continue to see

where you express an interest in making sure that no one falls

through the cracks of the health care system. How do you square

that with the industry policy of canceling people’s health care? I

mean, if you are concerned that they don’t fall through the cracks,

doesn’t the industry’s policies, basically, push people into the

cracks?

Ms. KANWIT. I don’t believe so, Mr. Kucinich. One of our problems is that, and this is a serious problem for all of us, have, whatever the number is, 45, 47 million Americans uninsured. We have

kind of a patchwork system whereby you heard this morning, Ms.

Block testified the States have primary authority to regulate under

McCarran-Ferguson, and the Federal Government has some authority.

Mr. KUCINICH. Why do you think people don’t have insurance?

You are in the insurance business, why do you think it is that people don’t have insurance?

Ms. KANWIT. I think that some of it is costs. I think some of it

is that people choose not to buy insurance. We all have to work together to get universal coverage.

Mr. KUCINICH. And do you think people don’t have insurance because they can’t pay for it, that it is unaffordable, that it is not accessible to them?

Ms. KANWIT. Currently, absolutely.

Mr. KUCINICH. The price of insurance is too high; do you think?

Ms. KANWIT. As I said, it is cost as well, and that is what our

guarantee——

Mr. KUCINICH. People just can’t afford it, I mean, it is too high.

The industry charges too much; right?

Ms. KANWIT. Well, the industry charges what it needs to pay out

in claims for a system which—the Commonwealth Fund just came

out with a report this morning that talked about the number of

procedures that are done in the United States, costly procedures

that are not medically useful.

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Mr. KUCINICH. What is the profit rate of the industry, of private

insurers?

Ms. KANWIT. I believe, sir, that it is about 2 percent.

Mr. KUCINICH. Two percent. Does that 2 percent reflect audited

figures that relate to their true costs, or does it reflect after paying

money for salaries to their executives?

Ms. KANWIT. Those are the profit figures. I can’t——

Mr. KUCINICH. Are there people who run health insurance companies who make millions of dollars a year to run those companies?

Ms. KANWIT. I believe some of them do, yes.

Mr. KUCINICH. That is included in the cost of operation; isn’t that

correct?

Ms. KANWIT. So are all the claims fees, and all of the medical

claims, yes.

Mr. KUCINICH. Now, the neurosurgeon in the hospital and the

physical rehabilitation unit that delivered this care to Heidi that

has been talked about, making it possible for her to resume a normal life, and even travel to Washington to testify, they delivered

excellent care, but yet her insurance policy was rescinded and

Heidi and Keith don’t have the savings to pay $100,000 in medical

bills, so the providers are left holding the bag. How does the industry justify treating physicians and hospitals that way?

Ms. KANWIT. Well, I can’t speak for the industry or the particular

cases. I mentioned to Mr. Cummings I don’t know all the facts except what I have heard this morning. We want to make the situations, such as that testimony this morning, not occur again.

Mr. KUCINICH. Should insurers be permitted to tell hospitals individuals are covered, and then later rescind the coverage, and

stick the hospital with six figure bills that are likely not to be paid?

Ms. KANWIT. That should not happen and under our proposal

would not happen.

Mr. KUCINICH. Now, in northeast Ohio, Mr. Chairman and Ms.

Kanwit, Metro Health has been struggling with enormous growth

and the cost of uncompensated care. In 2007, they were left with

$10 million in bad debt alone, which does not include uncompensated care. This is a huge financial burden on doctors and hospitals, but it happens, you know, to make money for the insurance

industry. I want to know how much of this practice of rescission

is costing Metro Health and public hospitals like it?

Ms. KANWIT. Probably, very little sir, because rescission is so

rare, and 99.99 percent of people do not have their individual policies rescinded. It occurs so infrequently. It is not the bulk of the

issues that are a serious problem under uncompensated care. That

is a cost-shifting issue that again we have to take care of in the

American health care system.

Mr. KUCINICH. Well, I look forward to exploring this further, because we may have uncovered yet another creative but until now

virtually invisible way that the insurance industry makes money

by denying care. You know, I think, Mr. Chairman, that this industry is the problem not the solution. Other countries have decided

to get rid of their for-profit insurance industry and leave the care

to patients and doctors without insurance companies intervening,

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eryone, improving the quality of care, and saving substantial

amounts of money.

Mr. CUMMINGS. The gentleman’s time is up.

Mr. KUCINICH. I would like to state that H.R. 676 is an important part of that. The U.S. Conference of Mayors supports it, and

91 sponsors in the House. Thank you for being here, Ms. Kanwit.

I hope that in the future we can have a not-for-profit health care

system, which would make your presence here not necessary.

Thank you.

Mr. CUMMINGS. Thank you very much. Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman. You know, the amazing

thing about this committee is that we have virtually no jurisdiction

in this area, but we are asserting ourselves, and perhaps the best

reason is that if your member companies, and government, and the

people fail to resolve this, Mr. Kucinich’s bill will become law.

And, it is very clear that we do have to choose between dealing

with the 45 to 47 million uninsured, dealing with people who may

have pre-existing conditions, but they have to be able to get insured, or they are going to fall not only into personal bankruptcy,

but they are going to fall back on to the State anyway.

You know, I, for one, believe that we have a universal health

care system. It is the worst possible universal health care system,

but what it really says is, everyone will have insurance but that

it will be at the emergency room. As a Californian, and I am particularly sensitive to the fact that it is very expensive to deliver

that care the wrong way, rather than the right way. On the earlier

panel that I had hoped to have you on at the same time, I asked

a series of questions and they were probably less tough on the regulators than they will be on you.

The first one would be, why wouldn’t it be fair for a State or, if

you will, all States to simply assign to every company based on

their percentage in the market, cases with pre-existing conditions

and essentially, either with or without some participation, financial

participation of the State, say this is the cost of doing business?

You know, as you said, there is this two-tenths of 1 percent. If

you got only your fair share of all the high risks at a particular

company, and everybody took part of that two-tenths, wouldn’t we

effectively cover pre-existing conditions, get people insured. And

the rest of America, or the rest of the State, the 99.8 percent would

have a relatively small increase, if assigned risks were part of the

scheme. And, I know, you have a proposal for a universal health

care, but just dealing with the man and woman behind you, who

today have no insurance and, in fact, have a widely exposed preexisting condition that puts them in the worst possible position in

their home State.

Ms. KANWIT. Well, I mentioned, Representative Issa, this morning that we had done this Milliman study that talks about some

of the State attempts at reform, all of these well-intentioned reforms, such as guarantee issue, which is what I believe you are referring to right here, that everyone who applied would get insurance. And unfortunately, as I said, the data show that those kinds

of reforms raise prices, drive insurers out of the market, and make

insurance less rather than more affordable. One of the

problems——

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Mr. ISSA. But my question was narrow for a reason. As a Californian, one out of every nine people there, now with due respect to

the earlier witnesses, that might be true in Utah, if Utah were the

only State to do it, but to say that insurance companies will leave

California if California were to enact that, let’s say, California,

Florida, New York, and Texas, I think you would get to a point

where you couldn’t afford to be in insurance, and more importantly,

I accept your statement that you are going to raise prices. But if,

in fact, what we are talking about is a fraction of 1 percent, and

not all of them, because somebody has hypertension, or has a bad

back, or something, not all of them are going to represent large

amounts. Some are going to be cancer survivors, who are in remission but find themselves in a very difficult situation, so there will

be some.

So my question to you is, looking at it as a National, where

would your insurance companies go? They wouldn’t go. So, now the

question is, how much would that raise the cost? And I would be

more than happy to accept an estimate for the record, because I

have one or two more quick questions that I need to ask.

And one of them is, what would be the effect if, in fact, State Unemployment Insurance became part of that legacy in that when

someone lost their job, they would be covered by the State as part

of unemployment, and then would, in fact, come back to you without a gap of insurance? Would that, which is not on the books in

any State that I know of, but is part of what Governor

Schwarzenegger was trying to do in a comprehensive way, and

Congressmen Speier probably knows more about it than I do, having just come from there, would those kinds of things, active from

large States, like California, be effective or at least be helpful?

Ms. KANWIT. Your first question about is raising the cost for just

this small percentage. But it is not just the small percentage of

people, very small, who have their policies rescinded, or canceled,

or have pre-existing conditions imposed on them, it is all of how do

we get the 47 million, the one out of nine Californians, included in

the system, which is why we want coverage for all, and believe that

is the way to go to keep prices affordable for everyone by a combination of private and public funding, and our guaranteed access

proposal works for that.

On your workman’s compensation question, that is a more

difficult——

Mr. ISSA. Not workman’s comp, unemployment insurance.

Ms. KANWIT. I’m sorry. Oh, unemployment insurance.

Mr. ISSA. Workman’s comp should already be——

Mr. CUMMINGS. The gentleman’s time is up. I have been very

courteous, but I will allow you to answer the question.

Ms. KANWIT. Well, to be honest, I don’t know the answer to the

question, because you still have, Mr. Issa, the issue of who is going

to pay for insurance for some of those folks who are of moderate

means? And that is going to be an issue as well. What we have

tried try to do with our guaranteed access plan is have the publicprivate funding there to make sure that they are all covered.

Mr. ISSA. Thank you for your indulgence, Mr. Chairman.

Mr. CUMMINGS. Thank you very much. Mr. Sarbanes.

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Mr. SARBANES. Thank you, Mr. Chairman. Just on the pre-existing condition thing. Right now, there is a lot of employers, I guess,

leaving sort of the individual versus group insurance distinction

aside for a moment, there is a lot of employers where presumably

you have some workers who might have moved on to another job

that are staying in the job because of a pre-existing condition and

understanding that if they move somewhere else, they may not get

that covered. So, the employer that person is staying with, just for

the purposes of keeping their insurance in place, is going to face

higher costs that drive up the premiums associated with that plan,

where if you had a system that was more seamless where people

felt they could move without facing this situation related to pre-existing condition, in theory across the board, it would sort of come

out in the wash; right? Does that make sense?

Ms. KANWIT. Well, it would be better for everybody. As a matter

of fact, our proposal talks, Mr. Sarbanes, about pre-existing conditions, and said, we are recommending a one-time open enrollment

plus the third-party review that I talked about with rescissions to

apply to pre-existing conditions as well. And by the way, HIPAA

provides some protection on that in terms of the portability of your

continuous coverage, credible coverage, the continuation of that has

made a huge difference in the market.

Mr. SARBANES. Let me ask you again about this distinction between instances where rescission is pursued when there is evidence

that somebody fraudulently, or willfully, misrepresented information on their application versus a situation where they just made

an innocent mistake, because, I guess, California is a State that requires that there is evidence of willful misrepresentation, or fraud,

in order to justify a rescission, but there is other States that do not

approach it that way; right?

Ms. KANWIT. Exactly right. Some States have laws that say it

can be just a misrepresentation, negligent or otherwise, or omission, whereas a few States say it has to be actual fraud. And, as

you heard this morning, California did that with a case called

Healy.

Mr. SARBANES. Right. The proposal that the AHIP put forward,

you know, as part of these principles, and so forth, where do, you

all, stand on that question?

Ms. KANWIT. We are not opining on whether it should be fraudulent or whatever. I mean what we are ultimately hoping is that you

don’t need rescission at all. We want coverage——

Mr. SARBANES. Why wouldn’t you? Why wouldn’t you opine on

that?

Ms. KANWIT. Well, because you don’t need to underwrite, if you

have coverage for everyone. If 100 percent of the market is covered,

underwriting is never necessary. Underwriting is only necessary

when you have a market such as this, which is voluntary, and consumers get to choose, if, and when, they want to buy health insurance. And it really isn’t fair to everyone else in the market, and

everyone else who has to afford premiums, if a person can find out

if he or she needs major medical services, and then decide to buy

a health insurance policy.

Mr. SARBANES. But why wouldn’t you under the circumstances

that currently exist, why wouldn’t your association want to encourVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00104 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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age a practice that only seeks to rescind in circumstances where

there is a willful misrepresentation or fraud? Why wouldn’t you

take that position?

Ms. KANWIT. Well, we might. We just haven’t taken that position,

because we really don’t go there. We figure that is really up to

State insurance law to define the situations. We are more interested in the 20,000 foot policy view of how to make it rare or nonexistent.

Mr. SARBANES. Well, I would encourage you to incorporate that

into your policy. I don’t quite see how the policy can be considered

a rigorous one without that component to it. And one of the things

that you have talked about is that, you know, one way to pre-empt

this situation and rescission, or avoid it, is to do a good thorough

review of the initial application; correct?

Ms. KANWIT. Right.

Mr. SARBANES. So that all of the analysis is done there. And I

would suggest to you that it is an incentive to do that work on the

front-end, if an insurer knows that the only basis for which they

can rescind later would be willful misrepresentation, because you

would catch the innocent mistakes presumably. Right?

Ms. KANWIT. Right.

Mr. SARBANES. If you were doing a thorough review up-front. So,

one of the reasons I am encouraging you to follow the example in

the voluntary policy that you are putting forth of States like California, who have made it a requirement that it has to be a willful

misrepresentation, as I think that actually encourages the insurers

to do the up-front work much more diligently, and in the absence

of that policy, they won’t be back in the same situation again.

Thank you, Mr. Chairman.

Mr. CUMMINGS. Thank you very much. Let me make one correction. Mr. Issa made a statement with regard to the jurisdiction of

this committee, and I want to make it clear that under the House

rules, this committee has express jurisdiction to conduct oversight

over virtually any subject under the legislative jurisdiction of the

standing House committees. And I just want to make that very

clear. Ms. Speier.

Ms. SPEIER. Thank you, Mr. Chairman. Ms. Kanwit, I was very

impressed by your testimony. And you obviously understand the

issue of the insured and the importance of trying to make it universal in nature. When I chaired the Senate Insurance Committee in

California, we had, from time to time, occasion to engage insurers

through their trade associations on issues whether it was health

care, or a particular policy that was undertaken by the health insurers that we found to be problematic, but the trade association

actually agreed was a problem, and we were able to on a case-bycase basis actually resolve those issues working with the trade association. Is Regence Blue Cross and Blue Shield one of your members?

Ms. KANWIT. Yes, it is.

Ms. SPEIER. All right. I guess I am going to ask you a very specific question then. Having seen it happen in California, and it happened very successfully, I would like to ask you to use your authority and the benefit of your trade association to go back to Regence

Blue Cross and Blue Shield on behalf of Mr. and Mrs. Bleazard, beVerDate 11-MAY-2000 16:40 Jan 30, 2009 Jkt 000000 PO 00000 Frm 00105 Fmt 6633 Sfmt 6633 C:\DOCS\46428.TXT KATIE PsN: KATIE
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cause by your own testimony here this morning, you have indicated

that you think that rescission was wrong, and you want to see rescissions become extinct and, clearly, the mountain bike accident

that happened to Mrs. Bleazard had nothing to do with that application, and they acted in good faith in filling out that application,

and their agent did as well. So I would like to ask you if you would

take this case to Regence Blue Cross and attempt to resolve it.

Ms. KANWIT. Absolutely. We will do that.

Ms. SPEIER. I thank you very much.

Chairman WAXMAN [presiding]. Ms. Kanwit, you set out some

principles, in fact, seven principles, that you describe as the ‘‘cornerstones of what we believe are the responsibilities of health

plans to ensure consumer-centric rescission practices.’’ As I understand it, these seven principles were approved by the AHIP Board

last November. Can you tell us how many of AHIP’s 1,300 members have adopted all seven of these principles? And can you tell

us how many are planning to adopt these principles?

Ms. KANWIT. They were adopted by the Board, Mr. Waxman, in

December. I don’t have figures for you. I would note that of the

1,300 members, many of them, the majority, I would guess, do not

even write policies in the individual market, so they wouldn’t even

be relative to them. Rescission doesn’t occur in the group market

by and large, because the group market is not underwritten, so

they don’t even apply. But I don’t have an exact figure for you

about who has adopted, and who hasn’t. I will say that our Board

of Directors made up of the presidents of all of our big member

companies have adopted these principles and believe that this is

the way to go.

Chairman WAXMAN. Well, the reason I asked this question is

that judging from their actions, it doesn’t seem like all your members are on board. Let’s take the rescission of Heidi and Keith

Bleazard’s coverage. Your principle six States that, ‘‘information

about a health condition or treatment arising subsequent to the

issuance of the policy may not be used as the basis for a proposed

rescission,’’ so it is clear to me that the Bleazards’ policy was rescinded because Heidi had a serious mountain biking accident that

resulted in medical bills in excess of $100,000, and this accident

clearly happened subsequent to the issuance of the policy. So under

principle six, it can’t be the basis of rescinding the policy, yet the

policy was rescinded anyway. I thank you very much for your testimony, and helping us deal with this insurance issue, and trying to

understand it further.

Ms. KANWIT. Thank you, Mr. Chairman.

Chairman WAXMAN. We have all learned a lot at today’s hearing

about the abusive practices of some insurance companies, which

are dropping coverage for sick people just when they need it the

most. We have also discovered that there is much we don’t know

about the nature of these business practices and the scope of this

problem throughout the country. It is important that this committee find answers to these important questions. And so, we will be

opening an investigation into the practice of post-claims underwriting by private health insurers. I thank you very much. Mr.

Cummings.

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Mr. CUMMINGS. Thank you very much, Mr. Chairman. I will be

very brief. I, first of all, want to thank our newest Member, Ms.

Speier, for her question. Mr. Chairman, as I sat here, I could not

help but look at the Bleazards and the first slight smile that I saw

come from them is when Ms. Speier asked the question, would Ms.

Kanwit look into their case? And Ms. Kanwit, I just want to followup, and I want to thank you Ms. Speier for raising that. I am hoping that you will look into their case and try to help them.

Behind you are sitting two people who are in pain. You can call

it 2 percent, you can call it whatever you want to call it, but the

fact is that they are Americans who are suffering. And we are concerned about the 2 whatever percent of a percent that you are talking about, because they are the ones that have to pay the bills.

They are the ones who have to figure out a way out of no way.

They are the ones who have to wake up at 4 a.m., trying to figure

out why did they pay the premiums, but yet still when trouble

comes, the insurance company is not there.

And so, I know you talked about some things that you all want

to do, but I am very pleased to hear that you are going to look into

their case. And we are hoping, like you hope, that we won’t have

to have these hearings in the future, and so that we can address

these problems up front, and I want to thank you.

Chairman WAXMAN. Thank you, everyone involved, and I do

want to welcome Ms. Speier to her very first meeting of our committee. We are delighted that you are now a member of this committee, and, as I pointed out, you began your tenure as a Member

of Congress just a few months ago, but you bring many years of

legislative experience to the table from your service as a former

counsel to the late Representative Leo Ryan, and from your experience in the California State Legislature, which from my own experience is a good training ground for Congress.

So we are delighted that you are here. Your commitment to improving health care, protecting privacy, looking out for American

consumers is certainly going to be an asset to this committee. And

I know all Members are looking forward to working with you.

That concludes our hearing for today. And we are going to stand

adjourned.

[Whereupon, at 12:15 p.m., the committee was adjourned.]

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