issued mortgages without adequate screening of consumers' financial status offers an analogy.

if the congress enacts a law or an entire healthcare reform proposal, how would you know if that law is being followed? it is fundamentally important that along with federal protections for health insurance you also enact reporting requirements on health insurers and health plans so that regulators can have access to complete and timely data about how the market is working in order to monitor compliance with the law. congressman the laura has introduced a bill to create an office of, the federal office of health insurance oversight that establishes such reporting requirements on insurers and that appropriates resources so the federal government and state insurance departments together can carry out those responsibilities. i hope congress will follow her leadership and make adequate oversight enforcement resources part of healthcare reform. >> thank you and thank you all for your testimony. we will go to questions. mr. sassi, let me ask you this.

you threw a bunch of statistics gaddus but i was looking at the state of california alone and it seems to me if i remember correctly in july 2008 anthem lacrosse which is a subsidiary of wellpoint paid a 10,000-dollar fine and had to reinstate 1,770 rescinded policies and then in february of 09 once again california and then across had to pay 15 million-dollar fine to reinstate over 2300 rescinded policies and then another settlement, the 5 million another 450 so it seems like in the last year you have had to reverse 4500 decisions and pay a fine of $30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 premise is accurate. the issue of rescission circuits

and the media particularly in california i believe in those six and seven in shortly thereafter one of our regulators initiated a, and audits, a shoed audit findings. we disputed the majority of those findings and our response has appended to that audit report. the regulators subsequently did change. >> according to the department of management of health in july 08, last year, july 17, 2008 you entered into an agreement with california. that is over 1700 people in a 10 million-dollar fine and in february 2009 california department of insurance also put uttar ripley's-- release they paid 50 million-dollar fine and had to provide reinstates 2500 people so according to my map that is just over $4,025,000,000 in fines, right? >> yeah, there was not a

50 million-dollar fine to the department of insurance. irregardless of fact, companies enter into-- individuals enter into settlements. >> let me ask you this, why don't you just that these policies before you ever collect the premium? why do you go to these policies and make sure there are no problems before you enter the people? only one state requires you to do that and that is connecticut, right? >> chairman, we to investigate the up against. we are varied vigorous and underwriting requirements. as we review an application we rely on the applicants to be truthful in completing and our parents have shown that over 99% of applicants are truthful and completing their applications. we rely on that. >> wind you do the

investigation? why are we getting these post underwriting going on? what does that occur? >> i would contend that we don't participate in's climate the ready. if there is a situation where the deray pharmacy claim was received or a pre-authorization for a hospital stay is received or a claim, that would hit a three specific diagnosis that could lead to potential fraud, that would trigger an underwriter to investigate. >> let me ask you this. in the book right there and i believe it is tab number lupton, that is our document. you gave us wellpoint provided a list of conditions that automatically lead to an investigation post underwriting, okay? and for wellpoint, the list of conditions that trigger a recession investigation includes diseases ranging from heart disease and high blood pressure to diabetes and even pregnancy, so what did these conditions have in common that would cause

you to investigate patience with these conditions for a possible recession? you have 1400 different conditions which would trigger, according to your documents, trigger an investigation. >> chairman and investigation does not mean that rescission actually occurs. for example in 2008, there were over 16,000 fustigation and 92% of this were dismissed. in no action was taken. >> right but what you have 14 different investigations to trigger an investigation? what is the common theme that would trigger an investigation? >> i would say there is no common theme other then these are conditions that have the applicants disclosed their knowledge of the condition that the time of initial underwriting. we may have taken a different underwriting action so that is what the investigation really is about, is to determine that the applicant have the condition, did they know about the

condition? >> i thought you said they did prescreening before? >> we do. >> why would you have to go back? if you screen them before and there was no problem why would you have a list of 1400 divoting conditions that triggers investigation? if you are prescreening, if you are prescreening is good he would not need a list of 1400? >> there are those among us that are not truthful in completing their application. >> in 1400 different areas that applicants like? 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. >> if it is for a certain condition, right? heart is these? >> not necessarily. >> alright. my time is up. mr. walden.

>> thank you mr. chairman. i would just like to ask each of the company's present, is it your company's policy to deny coverage to any applicant that discloses that he or she has had previous policies rescinded? you heard some of the witnesses today sade look, once look at rescinded, no company is going to write me again on an individual policy. is that correct, mr. sassi? >> i am personally aware of that policy. >> mr. collins? >> sir, we do have that question on our application but i am not aware as to whether or not, what the underwriting guidelines are so we ask if you have been rescinded or decline by another carrier. >> but you 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 underwriting policy link to the. >> mr. hamm? >> yes we would not provide

coverage in the situation. >> so, do you ever look to see if they rescission, the circumstances of ground and other companies rescinding of the policy? before you just-- if they check the box and says yeah i was rescinded in the past? >> our under wert-- underwriting guidelines are that we would not issue the policy. >> mr. collins, can somebody tell you, is that your underwriting policy? the i don't know senator but i would be happy to give back with you on an answer. >> 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. >> eula biss lucette here in 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 u.s. settled some cases along those lines.

after hearing that testimony, do you think it should be our company's policy to just not issue a private insurance policy to somebody who has been rescinded by another company? should that be the policy of your company? >> well, as i stated for the record i am not aware that is a company policy. >> i stipulated that. >> a doctor should be considered >> but i'm hearing at least from mr. hamm that it is your company's policy that they are rescinded by another company it is a no go coming to your company. that is correct, right? i heard you correctly. mr. collins, once you find out whether it is are not come at you think it ought to be? ..

investigated and considered. >> most of your company policies approved the decision to rescind if an applicant made any material misrepresentations or omissions in the applications

and i understand that. how does your company ensure the applicant was aware of the condition or notation its? we have had testimony along those lines, and we have seen some in some of the files where they say you know, my doctor never told me that. and we have letters from physicians who say that's correct. i make notes of the time in the medical files. i didn't tell the patient that. where's the balance here? mr. hamm? >> we have a very fair and thorough process determining if there was a material misrepresentation. the process revolves several layers of review and a review panel including a medical doctor. in the process we gather all the available information with respect to persons use of medical services including medical records as well as the information on their application. and we will do a detailed research and look at each situation based on the facts make a determination whether

there was material misrepresentation when the policy was underwritten. >> do you look at the case files, do you look at the records, you communicate directly with the physician? >> we will communicate when it is necessary. >> to determine material misrepresentation? what happens if the physician says i never told a patient that? >> it's difficult to speak of i apathetic called the situation. depends on the fact of the time i can tell you we do not rescinded policy of the applicant was not aware of the condition. >> mr. collins? >> senator, we afford the customer the right to appeal and we accept statements and information from the customer and physicians with regards to the circumstances of the recession and we would take that into account. i think this fair minded people would say if an individual did not know of a condition of was

noted in the medical record then that would not be grounds for recision normally. >> mr. sassi? >> we also have a thorough process when we initiated the recision investigation we reach out to the member and share 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 making a recommendation and all that information is provided to our application review committee that actually makes the revision decision. we would not rescind a member that we could determine did not know of their condition. >> in mr. hamm's company a week and a half or two weeks ago started this independent third party review opportunity, correct? >> that is correct. we recently implemented that. >> and i commend you for that. that was a good move. in your company mr. sassi, do you have an independent review panel that an inch word could go

to? >> no sir, we do not have an independent review panel. >> do you plan to go that route? is it something worth á%g r >> yes, absolutely. in my written testimony to the committee we outlined ten recommendations. we have implemented eight of the ten recommendations.

>> eight of the tama, are there. okay. mr. hamm, you said you would not reject or rescinded contract of the policy holder had no knowledge but that was the raddatz case. he had no 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 am not able to but i can tell you that in situations where we uncovered that the individual was not aware of the condition we would not go forward with precision. >> do all of your clients and policyholders have to get a hold of the attorney general to get it done? that's what raddatz had to do a duty like him twice. >> we have a very detailed appeals process. in fact, after the three levels review and the entire committee voting for recision we notify the customer, we give them 15

days, we delayed the recision giving them an opportunity to respond with additional information and when it does come in we have a different underwriter look at the appeal and they may appeal as many times as they would like. >> raddatz only had two or three weeks to get his stem cell. >> we go through the process as fast as possible. >> i apologize i didn't see you there, you changed the color of your suit. i will go to your four questions. >> california was -- michigan was still in the indian territory. we don't need to be overlooked. [laughter] we didn't win that argument though. normally, we are confronted with the question do we need new federal legislation? and the gentleman from the insurance industry have all human formally told us that if we will pass a federal mandate

having everybody mandatory elite in the insurance pool that all of these problems will go away. what i find interesting, is you brought up a question that nobody has seemed to answer. in your testimony you point out in 1996, the hipaa revisions required individual health insurance policies that not only is it a guarantee of free nobility, but you say continuation enforced. now do you interpret that phrase to mean the mom cancellation that we have been talking about? >> yes. >> and if so, if that is the law that has been in place since 1996 means why are we having this discussion? >> well i am 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 will enforce and the only exceptions among the ones we are talking about today are fraud and that is inconsistent with what these other kind of post-claims underwriting guide lines or provisions that are in state law provide for, which say fraud is the only defense or the only reason for canceling after a two year period. savitt essentially new policyholders can never 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, material just means it matters. it doesn't man was fraudulent. it just means it matters to the insurance industry. that can become the basis for challenging coverage. sometimes coverage is rescinded, sometimes it is terminated going forward. summary and chores will present a policy because they don't want

to get into arguments with doctors and hospitals to get the money back so they cancel the policy going forward and sometimes a pre-x. >> none of the five exceptions to that 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 applicability of the section 27428 of the public health service act as it relates to the issue we are talking about today as to whether or not in fact does preclude cancellation for whatever we might call it, whether we call it post review

underwriting -- >> con gutzman, may i speak to that? >> yes. >> this is a legal issue, but i do not believe recision is considered a monreal one. >> well, but it doesn't just stop when it says shall renew. it says or continue in force. i guess if you raise the phrase continue in force that means the same as renew then it would actually be a redundant phrase which the wall generally does not favor redundancy. has the suburban challenge, ms. pollitz, anybody ever known of this being raised before? >> i have no knowledge. >> let me go into the second part of my question, and that is we then go to the states having their statutory period generally two years as has been pointed out for the review. but mr. hamm, you pointed out under your policies i believe

you said you gave the potential customer ten days to review the application and notify the company of any errors and ten days to just say we don't want to have the policy in affect. are there any states that currently have in place a period of time for insurance companies to mandatory early review for these kind of miss statements? in other words, review the medical records other than the two-year period? do any states have a shorter timeframe? >> i am not aware of that. we comply with all state statutes and i think it is almost all states we have attend a look where we send the customer a copy of the application, reminded them that they are attesting to the accuracy, ask them if they have any questions or changes, and then as part of the policy and welcome letter we reinforced the importance we received will be disclosed information appropriately. >> if something was went to be

rejected based on information that was in an application or information of medical records that for whatever reason were not disclosed, it seems to me to years is a rather lengthy period of time, and in practical application, it seems even in that to your period it takes some other triggering mechanism to institute the review that there is no normally dictated review on the applications on less something triggers it or brings it to your attention. should there be a time frame shorter than this to your period and should there be a review that takes place prior to the triggering act taking place? >> let me clarify that we do not post claims under light. we ask information of every single applicant of the company and 88% of the time we receive additional the information from

them and we ask them to fully disclose all the information. it is only when we are aware subsequently that there was information that was omitted or inaccurate that we would investigate whether a recession would be made. >> but that would be the trigger an act. and you wouldn't know about that unless something in bye way of a pharmaceutical being prescribed or an office visit in the doctor's office or hospitalization -- >> that is correct. >> when asking is as you give the policyholder ten days to figure out if it is correct should there be a comparable, maybe longer -- obviously i think longer -- period of time and which the company, without some triggering act, should be required to review the applications and say hey, we think there's something wrong or ask for additional information, rather than waiting until people get in a posture where they probably are on insurable at the

time the issue is raised? >> something to discuss and give thought to. >> thank you, mr. chairman. >> mr. burgess for questions. >> thank you, mr. chairman. that's the last point of mr. deal's is excellent and likely would have eliminated the problem for at least one of the three witnesses we had in front of us this morning but let me just ask mr. hamm and mr. sassi, if you're to hear the witnesses of the individuals that testified, what do you think after hearing that? is that something that -- and again, coming from this at the perspective as a customer of the insurance market at one time and maybe 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 opening comments of the chairman of the subcommittee this morning. 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. >> i would be glad to respond to that and i have to say i felt bad and i have a lot of empathy for the people impacted and i know in my own life i have dealt with the cancer and i just have a lot of sympathy and concern for the people and it's my hope that there will be changes made that this will no longer be necessary. it's just that today when we have a voluntary system of insurance where people choose we have to collect information up front to underwrite, and if we didn't have that process, then people would wait until they had a health condition before applying for coverage and the rates would be much higher than today. i chaired the group that put forth proposals and in our proposal, we suggest that the country should move towards a

guarantee issued environment with no pre-existing conditions being excluded as long as everyone is required to participate. if everyone participates there's no need for recision and increase for those covered. >> you have brought that up. what do you do with the segment of society that isn't going to participate? negative segment of the society will exist whether it's the individuals without the benefit of social security number, whenever that number is, 10 million, 12 million. people who just don't comply. we live in a free country and they don't like mandates. but the people who don't conduct the with irs people are willing to fly under their radar. what then will these people be rate on whether or not they had a pre-existing condition or are they absorbed 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 that don't have the means 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 to make that happen. >> you and i will fundamentally disagree and the approach taken by congress with the development of the party program and medicare for the false initially rolling it out, creating programs people actually want and that are actually useful will be a better way of going about that. the coverage rates for prescription drugs among the seniors now in excess of 90% of high satisfaction and clearly in my mind that is a better strategy than simply layering another mandate on the american people or the employers of america but i don't disagree something needs to happen and let me just take this to a different level and again i want

to pose this question to all free and i would like an answer from all three on this. if there were a system of universal coverage without government intervention in the marketplace, is there a better way to accomplish the goal of universal coverage without that excess market manipulation by the government? insurance companies have used evers methods to deny or cancel policies of the individual market apparently it happens all so in other markets to the extent this has been allowed into law. the business interest almost dictate the actions get some of us have argued if we let the market work you could make an innovative product for all. so here is my question. will you today publicly clearly come it right now regardless of what happens in washington, whatever decision we reached on health reform you will design a product for all populations regardless claims history but also economic status and i would like a