Denise Wheeler, an artist in Laguna Beach, Calif., thought she and her family had health insurance.
So did Tony Seals, a self-employed businessman in nearby Riverside. Across the country in Connecticut, Maria Locker and Linda Gaskill each bought short-term insurance policies to protect themselves against catastrophic costs.
But each was left with tens of thousands in unpaid medical bills when their insurers — all major companies — retroactively canceled their policies after they faced expensive health problems. "It's the most devastating thing that's ever happened to us," says Seals, 43.
Their stories illustrate a little-recognized fact about insurance purchased by individuals: Even after being approved, policyholders can see their coverage amended to exclude certain medical conditions or revoked entirely, sometimes long after the policies are issued.
"Insurers love to market the promise, 'We'll take care of you. Just sign here,' " says Karen Pollitz of the Institute for Health Care Research and Policy at Georgetown University. "Then there is all this opportunity for the insurer not to keep the promise, and you don't find out until it's too late."
Insurers say they rarely revoke policies, and generally do so only because of misleading or omitted information on applications. One large insurer, Blue Cross of California, says it revokes less than one-half of 1% of all individual policies each year. Requiring complete medical details and honesty on the part of applicants, insurers say, is necessary to control costs and weed out fraud.
"Our objective as an industry is to provide as affordable a product as possible," says Mohit Ghose of America's Health Insurance Plans, the industry association. "We have to rely on the medical record information supplied by the applicant."
Concern may grow as more people join the individual market, which now includes more than 16 million people nationwide. People buy individual policies because their employer doesn't offer health insurance — as is the case with about 39% of all employers; or because they retire before Medicare eligibility; or because they are self-employed, between jobs or jobless.
In California and Connecticut, high-profile disputes about after-the-fact cancellations are ongoing. The disputes come amid renewed interest in the uninsured in Washington, D.C., and in many states, as politicians from governors to President Bush call for ways to make it financially easier for people to buy insurance on the individual market.
'Gaming' the system?
But the individual market has hurdles that are not just financial: Insurers in most states can pick and choose whom to cover, often turning down those with medical problems in a process called underwriting. Even if they don't thoroughly check medical records before issuing a policy, insurers can "look back," sometimes for a decade or more, at a policyholder's records to check facts on the application.
Critics of the industry say the practice is overused.
"The newest tool insurers have found is to check into every sick person who files an expensive claim to see if there's an argument that they lied on their enrollment application," says Jamie Court of the Los Angeles-based advocacy group Foundation for Taxpayer & Consumer Rights.
Nationwide, data collected by the federal Agency for Health Care Research and Policy show that about 1% of people in the individual market have claims that total more than $30,000 in a given year.