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My Insurer Is Retroactively Cancelling My Health Coverage. Is This Legal?

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Updated May 22, 2013

Question: My Insurer Is Retroactively Cancelling My Health Coverage. Is This Legal?
Answer:

A recent article in USAToday serves as a reminder that health insurance coverage is not an absolute guarantee of protection from financial loss in the event of illness. Some consumers have had their health insurance retroactively cancelled upon diagnosis of serious illness, leaving the patients with thousands of dollars in uncovered medical expenses.

The law does allow insurers to retroactively cancel health coverage, but only if the consumer has committed some sort of fraud, such as willfully making a "material misrepresentation" (lying or omitting key facts) on the application form.

Insurers argue that they rely on the consumer to fully disclose all potential health problems so that they can make an informed decision as to whether they will offer coverage and at what rate. When a consumer fails to disclose a medical condition and is later diagnosed with a serious illness, the insurance company feels it has been defrauded because it relied on false information when it offered the health coverage in the first place.

From the consumer's perspective, this failure to disclose is often an honest mistake - perhaps the patient misunderstood his diagnosis, or once had a medical condition which was completely cured and long since forgotten. Some consumers have gone to court to fight this retroactive cancellation, accusing insurers of deliberately making the application form too confusing and vague, so that any response on the form could be interpreted as a misrepresentation. The results of these lawsuits are still pending.

Fortunately, cancellation of health coverage is rare - less than 0.5% of all policies are cancelled each year. The best way to avoid being one of the very small minority of folks who have this problem is to fully disclose every medical condition you have ever had, even if it is cured or you think it is unimportant. Some consumers fear that full disclosure may decrease their chances of being offered an affordable policy - but what good is an affordable policy if it can later be retroactively cancelled?

If your insurer has retroactively cancelled your insurance coverage and you believe you are being treated unfairly, you may wish to consult with an attorney - this is an area of law which appears to be unsettled and an attorney can advise you as to whether your rights are being violated. You could also try to resolve the issue administratively by contacting your state's Department of Insurance and filing a complaint against your insurer.

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