Step Off, Mr. Grinch!

A California appeals court issued a rather remarkable decision yesterday, giving people fortunate enough to have health insurance a rather nice present, according to an article in today's Los Angeles Times. Here's the lede:

California health insurers have a duty to check the accuracy of applications for coverage before issuing policies -- and should not wait until patients run up big medical bills, a state appeals court ruled Monday.

The court also said insurers could not cancel a medical policy unless they showed that the policyholder willfully misrepresented his health or that the company had investigated the application before it issued coverage.

The unanimous decision by a panel of the 4th District Court of Appeal in Santa Ana is the latest blow to California insurance companies and the way they handle policy cancellations after patients get sick and amass major medical claims.

The decision will allow a case involving cancellation of a policy several months after the policy holder was in a car cash and was seriously injured to proceed to a jury trial. Given the language of the appellate decision, the insurance company, in this case Blue Shield, has an almost insurmountable burden of proof. Given the facts in the case, that is as it should be.

"These facts raise the specter that Blue Shield does not immediately rescind health care contracts upon learning of potential grounds for rescission, but waits until after the claims submitted under that contract exceed the monthly premiums being collected," the court wrote.

A health plan, the court went on, "may not adopt a 'wait and see' attitude after learning of facts justifying rescission." The court said companies could not continue to "collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses."

Merry Christmas.