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Blue Cross on the hot seat
Blue Cross of California is being sued by some former policyholders for canceling or rescinding (in insurancespeak) their insurance policies after the policies were issued. Blue Cross claims that their applications for coverage contained errors or omissions that, if divulged, would have caused Blue Cross to deny coverage initially.
Some angry consumers claim that Blue Cross looks for any inconsistencies in the applications of customers who make expensive claims shortly after obtaining coverage. The conspiratory flames have been fanned by Blue Cross employees who have detailed in sworn depositions that look-back underwriting units do indeed exist to look into these applications.
Reacting to the pressure, Blue Cross has announced changes, including creating an ombudsman and revising its appeal process  but maintained that it had done nothing wrong See Los Angeles Times Article "Blue Cross Moves to Quell Furor".
This underwriting issue is a slippery slope for health insurance carriers that sell individual policies. In order to generate more sales, Blue Cross of California is among those insurance companies that make the application process as easy as possible for the applicant, basically accepting whatever the applicant says. Other insurance companies do stringent underwriting before issuing coverage, often requesting medical records, checking on prior claims, and looking into public information like DMV records (any DUIs?). Such intense underwriting hurts sales because often applications are delayed for weeks, causing applicants to shop elsewhere. Consumers and brokers alike prefer the Blue Cross approach to application processing.
Like most horror stories, rescisions are rare. HealthcareShopper.com does more health insurance business in California that any other state. We place most of our business with Blue Cross - that amounts several thousand policies over the past five years. As far as I know, only one policy written by our agency has been rescinded in that period of time.
Posted by Phil Daigle on September 20, 2006 12:43 PM
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