Rescission Case #2

In this case, involving Blue Shield of California and Steven Hailey, a health insurance rescission was upheld by court review.  The case demonstrates the desperation of those who cannot find health coverage because of pre-existing health conditions, and the personal and societal impact that comes from allowing small group and individual health plans to exclude coverage for pre-existing conditions.  As I've written when asking "Should Health Insurance Be Sold For Profit?", the enforcement of pre-existing condition exclusions is mostly limited to the small group and individual health insurance market.  It doesn't happen in government run health plans like Medicare, Medicaid, CHAMPUS or the VA, nor does it happen in large group health plans.

In this case, Mr. Hailey, who had been covered through his wife's small group health insurance policy for nearly seven years, was badly injured in an auto accident.  While recovering at home, and facing medical and hospital bills of more than $450,000, of which Blue Shield had already paid $104,000, Blue Shield rescinded Mr. Hailey's coverage, because his wife had understated his weight on his application for insurance by some 45 pounds, and had omitted important parts of his medical history, dating to childhood, that would have been grounds for the insurer to decline coverage initially.

Eight years after the auto accident and rescission decision by Blue Shield, Orange County Superior Court Judge Peter J. Polos ruled in favor of Blue Shield on every issue, finding that the Hailey's willfully omitted and willfully mis-represented information on their application for insurance, and that Blue Shield's rescission investigation was timely and its investigation procedures were reasonable.  Mr. Hailey had many "health issues," as reported here.  These included heart problems, shortness of breath, acid reflux, obesity, swallowing difficulties and he took several prescription drugs for these problems, which would have caused Blue Shield to decline coverage for Mr. Hailey had these conditions been disclosed.  

What of the societal impact?  Mr. Hailey's problems will be covered with no questions asked by Medicare if he lives to age 65.  If the Hailey's were poor enough to quality for Medicaid, his problems would be covered.  If Mr. or Mrs. Hailey worked for a large employer, his problems would be covered.  It is only because Mr. Hailey is self-employed, and Mrs. Hailey works for a small business that underwriting of Mr. Hailey's health occurs, and an intrusive health insurance application must be completed to obtain health insurance coverage.  To its credit, Blue Shield is reported here, to have offered an alternative policy, with a different premium (likely a higher premium for less coverage) that would have provided coverage from the beginning.  There is no word as to whether Hailey purchased such coverage.  If he did not, or could not afford such coverage, or if he did buy the coverage, but it left him with large deductible, co-pay and coinsurance obligations, it is not unreasonable to expect that his medical debts will be discharged through bankruptcy, and these costs will be spread among those of us who have health insurance.  

What of the personal impact?  Blue Shield garnished the wages of Mrs. Hailey to recover the $104,000 that it had paid out, and the Hailey's were left with half a million dollars worth of health expenses.  Because of the rescission, Mr. Hailey's health was adversely affected.  Because he waited so long for surgery to repair an injured urethra, his bladder stopped working, and he had to depend on an implanted catheter to drain urine into a bag strapped to his body.

Blue Shield of California's news release, issued on May 28, 2009, concludes:

While we are very pleased with today's victory, we acknowledge that the healthcare system needs to be reformed. We will continue our longstanding advocacy of universal health coverage regardless of pre-existing conditions because we believe everyone has a right to quality health care.

Once the Patient Protection and Affordable Care Act has become fully effective, we will see the end of tragic stories like this one involving the Haileys and Blue Shield.