“Rescission” is the technical term for canceling coverage by an insurer on grounds that the company was misled by its policyholder. Many insurance experts believe this is among the most offensive practices in an insurance industry that already suffers from distrust and a distinct lack of popularity among the American public. Stories of cancellations that have become public have caused outrage among regulators, analysts, and doctors, and certainly among lawyers who practice insurance law on the victims’ side. It appears that insurers are much too eager to get rid of policyholders who have medical problems so the companies can make more profits.
No one claims to know how often policies are canceled — in large part, Congressional investigators say, because insurance companies are regulated by a patchwork of state laws and policies. But the practice is common enough to have resulted in lots of lawsuits and some state regulatory action. Health insurers use their power and their resources to deny benefits to folks who are most in need of care. But insurance company officials say they need to be able to cancel policies to control fraud, which they claim by some estimates, to be as much as $100 billion annually.
Insurance regulators have said that many omissions by policyholders on their applications appear to be honest mistakes on forms that are needlessly complex and hard for a lay person to understand. Others result from a lack of information given to patients by their doctors. In many cases it’s been revealed that insurers pay bonuses to personnel who find ways to cancel polices.
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