Qualifying event | Health care coverage

In today's economy, especially with health care insurers under high scrutiny, family law practitioners and families in transition need to be very clear about what is a "qualifying event" that may cause rescission of health care insurance in the future and also, perhaps, efforts by the insurer to recoup payments made for past medical treatments. In particular, folks should be aware that by the express terms of ERISA, the federal law governing employer-provided insurance, entry of a judgment of separate maintenance, as well as a divorce, is a "qualifying event" that means an employee's spouse or former spouse is no longer entitled to be covered under the employer insurance plan.

Failing to inform the insurer of entry of the judgment of separate maintenance with the intent that a spouse will continue to be insured without paying for COBRA reinstatement may have dire future ramifications. Divorce or legal separation of the covered employee is a "triggering event" or "qualifying event" according to the  Department of Labor website. While it is true that some employers overlook judgments of separate maintenance as a qualifying event that triggers the need for a COBRA reinstatement, that doesn't mean that insurers will overlook an opportunity to audit or contest health care coverage when a diagnosis appears in a health record that indicates expensive treatment will be needed in the future. Imagine, as Reuters explained today, the devastating consequences of falling ill and having your health care coverage pulled out from under you after a devastating diagnosis.

Industry policies and practices under scrutiny.    Reuters reports on March 17, 2010 about a case that highlighted insurance industry policies and practices that allegedly target patients who have diagnoses that will result in catastrophic health care costs in efforts to find any possible excuse to rescind the patient's health care coverage. Here is the bare bones background of the case Reuters featured:

In May, 2002, Jerome Mitchell, a 17-year old college freshman from rural South Carolina, learned he had contracted HIV. The news, of course, was devastating, but Mitchell believed that he had one thing going for him: On his own initiative, in anticipation of his first year in college, he had purchased his own health insurance.

Shortly after his diagnosis, however, his insurance company, Fortis, revoked his policy. Mitchell was told that without further treatment his HIV would become full-blown AIDS within a year or two and he would most likely die within two years after that.

Mitchell hired an attorney, hoping to prove a mistake and get reinstated.  -- not because he wanted to sue anyone; on the contrary, the shy African-American teenager expected his insurance was canceled by mistake and would be reinstated once he set the company straight. The insurer ignored the lawyer's letters and Mitchell sued.

The jury in the lower court in South Carolina ordered the insurer to pay Mitchell $15 million for wrongly revoking his heath insurance policy. In September 2009, the South Carolina Supreme Court upheld the lower court's verdict, although the court reduced the amount to be paid him to $10 million.

This jury verdict exposed wrongdoing by the insurer that could have repercussions for the entire health insurance industry. Here's what Mitchell's lawyer learned about the insurer, according to the Reuter's account:

"Previously undisclosed records from Mitchell's case reveal that Fortis had a company policy of targeting policyholders with HIV. A computer program and algorithm targeted every policyholder recently diagnosed with HIV for an automatic fraud investigation, as the company searched for any pretext to revoke their policy. As was the case with Mitchell, their insurance policies often were canceled on erroneous information, the flimsiest of evidence, or for no good reason at all, according to the court documents and interviews with state and federal investigators."

Rescission.     The Reuters account stated that "insurance companies have long engaged in the practice of 'rescission,' whereby they investigate policyholders shortly after they've been diagnosed with life-threatening illnesses. But government regulators and investigators who have overseen the actions of Assurant and other health insurance companies say it is unprecedented for a company to single out people with HIV."

The smoking gun: According to Reuters, the insurer canceled Mitchell's health insurance based on a single erroneous note from a nurse in his medical records that indicated that he might have been diagnosed prior to his obtaining his insurance policy. When the company's investigators discovered the note, they ceased further review of Mitchell's records for evidence to the contrary, including the records containing the doctor's diagnosis. In a detailed order that is part of the public record, the judge suggested that the insurer should have realized the date in the note was incorrect. "Not only did [the insurer] choose to rely on one false and unreliable snippet of information containing an erroneous date to the exclusion of other information which would have revealed that date to be erroneous, [the insurer] refused to conduct any further investigation even after it was on notice the evidence which aroused its suspicion to be false," the judge noted, adding that the insurer  "gambled" with Mitchell's life.

The insurer has defended its practices. According to Reuters, however, research exists showing this practice of rescission to be widespread, resulting in cancellation of the insurance of policy holders after diagnoses with costly or life-threatening illnesses, citing a California study showing that all 90 of the cases of rescission examined demonstrated that "there was no evidence (that Blue Cross), before rescinding coverage, investigated or established that the applicant's omission/misrepresentation was willful," the DMHC report said.

According to the South Carolina judge, in Mitchell's case, the insurer "pre-programed its computer to recognize the billing codes for expensive health conditions, which triggers an automatic fraud investigation by its "Cost Containment" division whenever such a code is recognized." The focus was on diagnoses, such as HIV which would result in high treatment costs.

You may read the Reuters column here. Insurer targeted HIV patients to drop coverage Byline: Murray Waas (Additional reporting by Lewis Krauskopf, editing by Jim Impoco and Claudia Parsons).

Comments

[Melissa F. Brown]

Jeanne: Thank you for writing about the important topic of qualifying events in divorce cases that may trigger ERISA and cause the clock to tick on when insurance coverage may end. I disagree with one aspect of your column. I wrote an article about COBRA, http://scdivorcelaw.com/wp-content/uploads/2009/08/Cobra-Do-Not-Let-It-Bite-You-or-Your-Client-00027431.PDF, and my research indicates that legal separations and divorces are triggering events but orders of separate maintenance are a loophole. SC does not have legal separations so this loophole is valuable to SC litigants who obtain an Order of Separate Maintenance and Support. While all financial and child related issues in their marriages are resolved, they remain married and can remain on their spouse's insurance and ERISA's triggering events are not triggered. If you have discovered law to the contrary, please let me know because I will update my article.

Thanks!
Melissa

[Jeanne M Hannah]

Melissa, I am relying upon federal law. ERISA trumps state law. I believe that the federal resources cited above are clear on what constitutes a qualifying event per ERISA.

In Michigan, employers have often overlooked this ERISA requirement. My point was -- we cannot continue to rely upon this since insurers are becoming even more proactive about investigating to avoid payment of catastrophic claims.