if any, even unintentional, material misstatement or omission is discovered consumers may lose their health insurance, that conflicts with hipaa. now, clearly, when it comes to post claims unleaded writing protection against fraud it is important, there is evidence some companies are not nearly as careful as they should be in their initial medical under writing, and rely instead on post claims unwriting to catch their mistakes later. applications for coverage may as broad, vague -- ask broad, vague or confusing questions and make it difficult for consumers to answer accurately and dom plea or, policies, other follow-up that should owe -- occur may not, for example, if a 62-year-old, submits an application indicating absolutely no health problems or histories, that application may be considered in coverage issue, without any further investigation, at the time of application. market competition and

profitability create pressures on medical under brighters -- writers to do their jobs quickly and cheaply, however if it is allowed in health insurance it has to be completed up front before coverage is issued. the recent subprime mortgage scandal, where banks issued mortgages without adequate screening of consumers' financial status offers an analogy, when insurers issue medically under written coverage without carefully screening an applicant's health status and rely on post claims investigations to avoid incurring a loss, consumers are vulnerable 7 how, extends wif this is problem? it's hard to say, official data are lacking and that is troubling. the federal government has not kept track of the issue. at a hearing of the government oversight committee last year, a witness for the bush administration testified that she had not acted on press reports of inappropriate rescissions or even looked into them and did not appear aware -- to be aware of conflictsen current state law and testified

she had only four people on her staff, who worked part-time on hipaa, private insurance issues. inclusion, mr. chairman, this investigation into health insurance rescission has trained a spotlight on an important question, if the con enacts a law or an entire health care reform proposal, how will you know if that law is being followed? it is fundamentally important along with federal protections for health insurance you also enact reporting requirements on health insurers and plans so regulators can have access to complete and timely data, about how the market is go,,ing in order to monitor compliance with the law. congresswoman de lore row introduced a bill to create the federal office of health insurance oversight to establish reporting requirements on insurers and appropriates resources so the federal government and state insurance departments together can carry out those responsibilities. i hope the congress will follow

her leadership and make adequate oversight and important resources part of health care reform. >> thank you we'll go to questions, you threw you a bunch of statistics at us, i looked at the state of california alone and seems to me if i remember correctly in july of '08 anthem blue kroshgs a subsidiary of well point paid a $10,000 fine and had to restraint 1770, rescinded policies and february of '09, once again, california, anthem blue cross, one of your subsidiaries had to pay a $15 million fine, and reinstate over 2300 rescinded policies. and then another settlement, 5 million and another 450, and seems like in the last year you have had to reverse 4500 rescissions and pay a fine of

$30 million just in one state. is that true. >> i don't believe the numbers are exactly accurate. but, the press is accurate. the issue of rescission, first surfaced in this media, particularly in california, in '06 and '07 and shortly thereafter one of our regulators, initiated a -- an you a -- issued audit findings. we disputed the majority of those findings in our responses appended to that audit report, the regulator subs kwem changed. >> according to california department of management and health, in july of '08, last year -- july 17th, you entered into an agreement with california to -- 17 -- over 1700 people and a -- what a $10 million fine and in february, 2009, california department of insurance also put out a release indicating you

paid a $1 a million fine and had -- $15 million fine and in state 2300 people, that is just over 4,000 and $25 million in fines. right. >> i think the -- there was not a $15 million fine to the department of insurance. ear regardless of that -- regardless of that, companies enter in -- >> let me -- >> individuals enter into settlement agreements for a variety of reasons. >> i'll ask you, why don't you just vet these policies before you ever collect a premium, why don't you go through the policies and make sure there are no problems before you insure the people, only one state requires you to do that. and that is connecticut, right? >> chairman, we do investigate the applicants, we are very rigorous underwriting requirements. as we review an applicant's application, we rely on the

applicants to to be truthful in completing and it has shown over 99% of applicants are truthful in completing their application. we rely on that. >> wen when do you do the investigation, then, why are we getting these post-underwriting going on, why is that occurring. >> i would contend we don't participate in post-claim under writing. >> really. >> >> if there is a situation where -- over a pharmacy claim was received, or a pre-authorization for a hospital stay is received, or a claim that is received, that would hit either a specific diagnosis, that could lead to potential fraud, that would trigger an underwriter to investigation -- >> let me ask you, in the book there, i believe tab number 11. that is or document. you gave us well point provides the committee with a list of conditions that automatically lead to an investigation. post-underwriting. okay?

and for well pointed, this list of conditions that trigger rescission investigation includes diseases ranging from heart disease and high blood pressure to diabetes and even pregnancy and what do these conditions have in common that would cause you to investigate patients with these conditions, for a possible rescission? you have 1400 different conditions, which would trigger or in your documents, which will trigger an investigation. >> chairman, an investigation does not mean that a rescission actually occurs. for example, in 2008, there were over 16,000 investigations triggered, 92% of those were dismissed. and, no action was taken. >> but why do you have 14 tifrn conditions, which trigger an investigation? what is the common theme amongst these 1400 that would trigger an investigation? >> i would say there is no common theme other than these are conditions that had the applicant disclosed their

knowledge of a condition at the time of the initial underwriting, we may have taken a different underwriting action. and, so that is what the investigation really is about. is to determine, did the applicant have the condition, did they know about the condition -- >> i thought you said you did pre-screening before, screened them beforehand. >> we do -- >> why do you have to go back, if you screened them before and there wasn't a problem why would you have a list of 1400 different conditions that you -- triggers an investigation. if you pre-screen, if your pre-screening is good you wouldn't need a list of 1400, with you. >> unfortunately, there are those among us that are not truthful in completing their application. >> so, 1400 different areas they lie, the applicants lie? or is it -- a cost issue, these are 1400 expensive areas, aren't they. >> rescission is not about cost. a pharmacy claim, that is $20,

could trigger something. >> sure, if it is for a certain condition, right, heart disease? >> no, not necessarily. >> okay. >> all right. my times up, mr. walden. >> thank you, mr. chairman. i would like to ask each of the companies presents, is it your company's policy to deny coverage to any applicant that discloses that he or she had previous policies resended? you heard some of the witnesses today say, look, once i get rescinded, no company is going to write me again, on an individual policy. is that correct, mr. sassi. >> i am personally unaware of that policial. >> mr. collins? >> sir, we do have the question on our application but i am not aware as to whether or not the -- what the underwriting guidelines are we ask have you been rescinded or dough kleined

by another carrier. >> don't know what happens with that information. >> no, sir i imagine it triggers an investigation but i don't know if there is an unwriting policy that is directly related to that, it is a black and white policy. >> yes. we would not provide coverage in that situation. >> so, do you ever look to see if a rescission -- the circumstances around another company's rescinding of a policy? before you just -- i mean, if they check the box and said yes. i was rescinded in the past. >> our underwriting guidelines are we would not issue the policy. >> wow. mr. collins? is that your under -- can somebody tell you from your -- >> -- is that your underwriting policy too, into i don't know, sir, i would be happy to get back to you with an answer on that. >> mr. sassi is that your company's policy. >> again, i am not aware of the policy, i would be happy to research it, and provide a response for the record.

>> you obviously sat here and heard the testimony of the prior witnesses. and some of the information we have seen indicates there are mistakes made in rescinding policies, at least from our standpoint and i think you have settled some cases along those lines. after hearing that testimony, at all, do you think it is -- it should be your company's policy to just not issue a private insurance policy to somebody who had been rescinded by another company? >> should that be the policy of your company? >> well, as i stated for the record, i'm not aware that that is a company policy. >> and i stipulate to that. should it be. >> it is a factor that should be considered. >> i'm hearing at least from mr. hamm it is your company's policy if they are rescinded by another company it is a no-go coming to your company, is that correct, right i heard you correctly. mr. collins do you think it

should be, once you find out whether it is or not, do you think it ought to be. >> well, sir, i think we should investigate the circumstances. >> i do, too, if somebody did lie on a prior form. that is one thing. if they are truthful on your form, though, should that -- because they made a mistake in the past, should they never be forgiven? that means they never have a shot at health insurance again? >> well -- >> let's take ms. horton's case. you know, i... you heard her situation. you heard her fear. she'll never get offered coverage again. is that right? >> i agree, it should be something that should be investigated. and considered.

>> most of your company policies approve a decision to rescind if an applicant made any material misrepresentations or omissions in the application, and i understand that, how does your company ensure the applicant was aware of the notation or condition found in his or her medical records and we have had testimony along those lines and we have seen them in the files where they say, you know, my doctor never told me that and we have letters from physicians, who say, that is correct. i make notes all the time in the medical files and i didn't tell the patient that. how -- where is this balance here? mr. hamm? >> we have a very fair and thorough process of determining if there was a material misrepresentation, a process involved, several layers review and a review panel in concluding a medical doctor and in that process we gather all the

available information with respect to a person's use of medical services, including medical records. as well as the information on their application. and, we'll do a detailed research, look at each situation, based on the facts, make a determination, whether there was material misrepresentation when the policy was under written. >> do you look at the case files? you look at the medical records, you communicate directly with the physician? >> we will communicate when it is necessary. >> well, but to determine the material misrepresentation, i mean, what happens in a case where the physician says, i never told the patient that? >> it is difficult to speak of hypothetical situations. it depends on this facts. but i can tell you that we would not rescind a policy if the applicant was not aware of the condition. >> mr. collins? >> sir, we afford the customer the right to appeal and we

accept statements and information from the customer, and their physicians with regards to the circumstances of the rescission. and we would take that into account. i think it is a fair -- fair minded people would say if a -- an individual did not know of a condition, that was noted in the medical record, then that would not be grounds for a rescission, normally. >> we also have a thorough process, when we nerve yatiniti investigation and reach out to the member and share with them the information we do have and ask them to provide us with any comments or other relevant information, and, all of that information is used in making a recommendation and all of that information is provided to our application review committee, that actually makes the rescission decision. we would not rescind the member that we could determine did not know of their condition. >> and mr. hamm's company a week-and-a-half or two weeks ago started the third party independent review opportunity,

correct. >> that is correct. we recently implemented that. >> i commend you for that and i think that is a good move. mr. collins, your company, mr. sassi do you have a similar sort of independent review panel? that an insured can go to, to make their case. >> we do not have an independent review panel. >> do you plan to have -- go that route, is that something that you are thinking about, or... >> it is under consideration, bought we haven't made that decision, sir. >> mr. sassi? >> congressman, we were the first insurer to implement an independent third party review. and we implemented that in july of 2008. >> okay, last july. all right. my time is expired, thank you, mr. chairman. >> thanks, on the third party view review, that was because california made you do it, right. >> no, absolutely not. >> really? okay. because in your opening statement, all -- you announced robust consumer protections, so i wanted to know what is this difference between announcing implementation and see if you implemented the robust consumer

protections, have you implemented the robust consumer protections you mentioned in your opening statement. >> yes. absolutely. in my written testimony to the subcommittee we have outlined ten recommendations, we have implemented 8 of those ten recommendations. >> 8 of the ten. okay. objections. mr. hamm you said you would not reject or resinned a contract for a policy holder if the policy holder had no knowledge of it that is the ravitz case, our last case, and he didn't have any idea he had gallstones and an aneurysm and your company rejected him. >> mr. chairman, i would really like to comment on that case but due to privacy concerns i'm not able to. but i can tell you that in situations when we uncover that the individual was not aware of the condition, we would not go forward with the rescission. >> but do all your cliendz ats

policyholders have to get ahold of the attorney general to do that, you denied him twice. >> we have a detailed appeals process and in fact after the three levels review and the entire committee voting for rescission we notify the customer and give them 15 days and we delay the radio significance, giving them an opportunity to respond back to us, with additional information and when it comes in a different underwriter looks at the appeal and they may appeal as many times as they would like. >> he had only two or three weeks to gets the stem cell -- >> we go through the process as fast as possible. >> i apologize, you will go to you for questions, please. >> i have to remind the chairman, georgia was the fourth state permitted to the union when michigan was still underian territory, we don't need to be overlooked. thank you. we didn't win that argument, though.

normally, we are confronted here with the question of do we need new federal legislation? and the gentleman from the insurance industry -- gentlemen from the insurance industry have all formally told us that if we will pass a federal mandate of having everybody mandatorily in the insurance pool, all of these problems will go away. what i find interesting, ms ms. pollitz is you brought up a question nobody has seemed to answer. in your testimony you point out that in 1996, the hipaa provisions required that in individual health insurance policies, that not only is it a guarantee of renewability, but you say, continuation in force. now, do you interprets that phrase to mean the noncancelability we have been talking about here? >> yes, sir. >> and if that is what the law that has been in place since

1996 means, why are we having this discussion? >> well, i'm not sure if i can answer the second question but i think -- i should say i am not an attorney. i just read english, and the words say, continue in force and this only exceptions that -- among the ones we are talking about today are fraud. and that is inconsistent with what these other kinds of post-claims under writing guidelines or provisions that are in state law provide for which say that fraud is the only defense, or the only reason for cancelling after a two year period. so, essentially, new policyholders, can't ever quite be sure if they are really covered. the insurance industry kind of gets a do-over and gets to look again, and any material omission, whether -- material just means it matters. it doesn't mean that it was

fraudulent it just means it matters to the insurance company and sometimes it is rescind and sometimes terminated going forward and some insurers won't rescind the policy because they don't want to get into an argument with doctors and hospitals who may already have been paid to try and get this money back and will just cancel the policy going forward and sometimes, the pre--ex will be imposed. but, with respect to cancellation and rescission, i think the congress spoke on this in 1996 and -- >> none of the five exceptions to that -- >> no. >> fit the discussions here unless it is elevated to the level of fraud. >> that is correct. >> and i would ask the entire panel, are you aware of any court interpretation or any question that has ever been raised as to the amp battle of this section -- am ability of the section of the public health service act as it relates to the issue we are talking to you here

today as to whether or not it in fact does preclude cancellation for whatever we might call it, whether we call it post-review underwriting. >> congressman, may i speak to that? this is a legal issue. but i don't believe that rescission is considered a nonrenewal. >> well, but it doesn't just stop when it says shall renew. it says or continue in force. i guess if you read the phrase or continue in force, to mean the same as renew, then it would actually be a redundant phrase with the -- which the law does not favor redundancy. is this -- has it ever been challenged, anybody know if it has been raised before? >> i have no knowledge, sir. >> okay. well, let me go then to the second part of my question. and that is, we then go to the

states having their statutory periods, generally, two years, as has been pointed out, for review. but, mr. hamm you pointed out that under your policies, i believe you said that you give the potential customer ten days to review the application, and to notify the company of any errors and ten days to just say, we don't want to have the policy in effect. are there any states that currently have in place a period of time for insurance companies to mandatorily review for these kinds of misstatements, in other words, review the medical records within a given time other than the two-year period? do any states have a shorter timeframe? >> i am not aware of that. we comply with all of the state statutes and i think almost all states we have a ten-day free look where we send the customer a copy of their application, remind them that they are attesting to the accuracy of it,

ask them if they have any questions or changes, and -- and then as part of the policy in the welcome letter we reinforce the importance we receive all of the disclosed information appropriately. >> if, though, something was going to be rejected, based on information that was in an application or information in the medical records that we either, for whatever reason, not disclose, seems to me, two years is a -- rather lengthy period of time, and, in practical application seems that even in that two-year period it takes some other triggering mechanism to institute the review. that this is no normally, dictated review of the applications unless something triggers it, or brings it to your attention. should there be a timeframe shorter than the two year period, and should there be a review that takes place prior to

a triggering act taking place? >> let me clarify that we do not post-claims under write. we ask information of every, single applicant to the company, in 80% of the time, receive additional information from them, and, we ask for them to fully disclose all of their information. it is only when we are aware, subsequently, that there was some information that was omitted or inaccurate, that we would investigate whether a rescission should be made. >> but that would be the triggering act. you wouldn't know about that, unless something by way of a pharmaceutical being prescribed or an office visit in the doctor's office or a hospitalization. >> that is correct. >> what i'm asking is, just as you give the policy holder ten days to review the application, to figure out if it is correct, should there be a comparable, maybe longer, obviously, i think longer, period of time, in which the company without some triggering act, should be

required to review the applications and say, hey, we think there is something wrong or ask for additional information, rather than waiting until people get into a posture where they probably are uninsurable, at the time the issue was raised. >> something to discuss, and give thought to. >> thank you, mr. chairman. >> mr. burgess, for questions. >> thank you, mr. chairman. and that is -- last point, mr. deal's is an excellent one and likely would have eliminated the problem for at least one of the three witnesseds that we had in front of us this morning. but, let me just ask, mr. hamm, and mr. sassi and mr. collins, after you were here and heard the testimony of the three individuals, who testified, what do you think, after hearing that? is that something that -- and began, i am coming from a perspective of someone who supports the individual insurance market, i was a customer of the individual insurance market at one time and may be again in the future. i recognize the value that you

bring. and i want you to be able to continue to do the type of business that you do, but you heard the comments, the opening comments of the chairman of the subcommittee this morning, and there is a move afoot to do things in a way that would be very difficult for you to do business in the future, and i for one would not like to see that happen. but tell me what your impressions are, after hearing the testimony that you heard this morning. >> i would be glad to respond to that, congressman, and i have to say i really felt bad. i have a lot of empathy for the people that are impacted and i know in my own life i have dealt with the cancer, and i just have a lot of empathy an concern for the people, and it is my hope that there will be changes made that this will no longer be necessary. it is just that today when we have a roll terry system of insurance where people choose, we have to collect information up front to underwrite and if we didn't have the process people would wait until they had a

health condition before applying for coverage and the rates would be much, much, much higher than they are today. i chaired the group with ahip that put forth reform proposals and in our proposal we suggest the country should move towards a guarantee issue environment with no preexisting conditions being excluded, as long as everyone is required to participate. and if everyone participates and there is no need for rescission and price increase for those currently covered. >> you brought that up. what do you do with the segment of society that is not going to participated? i mean, there will be -- that segment of society will exist. whether it is this individuals, who are in the c i-country without the benefit of a social security number, whatever that number is, 10, 12 million, and people who don't comply. we live in a free country and don't like mandates and look at the people who don't comply with the mandate of the irs now, knowing the penalties out there waiting for them if they get caught and people are perfectly willing to fly beneath the

radar. what then will these people be rated on whether or not they had a preexisting condition or are be a served by the tax paying public who does play by the rules, and pays their bills on time. >> we believe that the requirement to purchase insurance should be enforced. we believe those who don't have the middle easterns should be subsidized and we would look forward to working with congress to find a solution that is workable for all americans. but, i believe every american must have access to high quality health care. and we have to work together to find out, how we can make that happen. >> you and i will fund men attempt disagree on that point and i think the approach that was taken by congress, in the development of the part d program and medicare for all of this faults initially rolling it out, creating programs that people actually want, they are actually useful for people, will be a better day of going about that and the coverage rates for prescription drugs amongst seniors now in excess of 90% with a high satisfaction rate, and clearly, in my mind, at