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Hearing Of The Oversight And Investigations Subcommittee Of The House Energy And Commerce Committee - Terminations Of Individual Health Policies By Insurance Companies

Chaired By: Bart Stupak

Witness Panel I: Robin Beaton, Policyholder; Wittney Horton, Policyholder; Peggy Raddatz, Relative Of Policyholder; Panel II: Don Hamm, CEO Assurant Health, Assurant; Richard Collins, CEO, Golden Rule Insurance Company, Unitedhealth Group; Brian A. Sassi, President And CEO, Consumer Business, Wellpoint, INC; Karen Pollitz, Research Professor, Georgetown University Health Policy Institute

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REP. STUPAK: (Sounds gavel.) Okay. Hearing will come to order. Today we have a hearing entitled, "Terminations of Individual Health Policies by Insurance Companies." The chairman, the ranking member, and the chairman emeritus will have five minutes for opening statement. Other members of the subcommittee will be recognized for three minutes.

Before we begin, I'm going to ask unanimous consent that the contents of our document binder be entered into the record, provided that the committee staff may redact any information that is business proprietary, relates to privacy concerns, or is law enforcement sensitive. Without objection the documents will be entered into the record. And we'll ask that a copy of our document binder be placed at the front table in case witnesses wish to refer to it.

I'm going to begin the opening statement. I will start with my opening statement for five minutes.

Every night across America, more than 45 million Americans go to sleep without health insurance coverage. They do so in fear of a nightmare scenario of developing a catastrophic illness and being unable to pay for treatment. It is this fear that has caused many hard-working Americans who are not covered by an employer or government-sponsored health care plan to purchase individual health insurance policies.

But those Americans fortunate enough to afford individual health care coverage are not immune from the nightmare scenario. That's because of a practice called health insurance rescission.

Here's what happened to one victim of rescission. Otto Raddatz was a 59-year-old restaurant owner from Illinois who was diagnosed with an aggressive form of non-Hodgkin lymphoma, a cancer of the immune system. He underwent intensive chemotherapy, and was told that he had to have a stem cell transplant in order to survive. With coverage provided by his individual insurance policy, he was scheduled to have the procedure performed, but then his insurance company suddenly told him it was going to cancel his insurance coverage. Otto could not pay for the transplant without health insurance. The stem cell transplant surgery was cancelled.

The insurance company told him that it found when he applied for his insurance he had not told the company about a test that had shown that he might have gallstones aneurysm, or weakness of the blood vessel wall. In fact, Otto's doctor had never told him about these test results. He didn't have any symptoms. And these conditions did not have anything to do with his cancer. But the insurance company was going to rescind his policy, effectively tearing up the contract, as if it never happened, and it would not pay for his stem cell transplant.

Otto, made a desperate plea to the Illinois Attorney General's Office seeking help to get his insurance company to reverse its decision. He told them, and I quote, "I was diagnosed with non- Hodgkins lymphoma. It's a matter of extreme urgency that I receive my transplant in three weeks. This is an urgent matter. Please help me so I can have my transplant scheduled. Any delay could threaten my life."

The Illinois Attorney General's Office launched an investigation, confirmed that Otto's doctor had never even told him about the test findings, and sent two letters to press the insurance company to reinstate his policy. The company relented and Otto received his stem cell transplant. He was able to live three more years before passing away earlier this year.

Otto was one of the lucky ones. This committee has concluded an investigation into the practice of health insurance rescission, and results are alarming. Over the past five years, almost 20,000 individuals, insurance policyholders have had their policies rescinded by three insurance companies who will testify today; Assurant, UnitedHealth Group, and WellPoint.

From a review of case files, the committee has identified a variety of abuses by insurance companies, including conducting investigation with an eye toward rescission in every case in which a policyholder submits a claim relating to leukemia, breast cancer, or any of a list of 1,400 serious or costly medical conditions. Rescinding policies based on alleged failure to disclose a health condition entirely unrelated to the policyholder's current medical problem.

Rescinding policies based on policyholders' failure to disclose a medical condition that their doctors never told them about. Rescinding policies based on innocent mistakes by policyholders in their applications. And rescinding coverage for all families for -- excuse me, rescinding coverage for all members of a family based on a failure to disclose medical condition of one family member.

The investigation has also found that at least one insurance company, WellPoint, evaluated employee performance based in part on the amount of money its employees saved the company through retroactive rescissions of health insurance policies. According to documents obtained by the committee, one WellPoint official was awarded a perfect score of five for exceptional performance based on having saved the company nearly $10 million through rescissions.

These practices reveal that when an insurance company receives a claim for an expensive, life-saving treatment, some of them will look for a way, any way, to avoid having to pay for it. This is eerily similar to what we found last year in our investigation of long term care health insurance policies where unscrupulous sales people would sell policies to seniors, then change or revoke the policies once the enrollee was locked into a plan and making payments.

The companies who engage in these rescission practices argue that they are entirely legal, and to an extent they are. But that goes against the whole point of insurance. When times are good, the insurance company is happy to sign you up and take your money in the form of premiums. But when times are bad, and you are afflicted with cancer or some other life-threatening disease, it is supposed to honor its commitment and stand with you in your time of need.

Instead, some of these companies use a technicality to justify breaking its promise, at a time when patients are too weak to fight back. I'd also like to mention and compliment the staff on their supplemental information regarding the individual health insurance market. It's attached to my opening statement, and will be part of the record.

Today, we will hear from victims of this practice of rescissions, as well as three of the leading companies that engage in it. We hope to learn more about this problem so that we in Congress, perhaps through a comprehensive national health care reform bill, can curb abuses and put an end to this unconscionable practice once and for all.

I'd next like to turn to my ranking member, Mr. Walden from Oregon for an opening statement, please.

REP. GREG WALDEN (R-OR): Thank you, Mr. Chairman.

Before I give my opening statement I just want to clarify something. You indicated in your opening statement you do plan to put this supplemental information in the record. I thought you --

REP. STUPAK: Yes, sir. I'm going to attach as part of my opening statement. This is the supplemental information regarding the individual health insurance market, dated June 16th. I realize lot of members haven't had time to look at it, I know they were putting it together last night. In the last couple of days they went through about 50,000 pages. And it just helps members for questioning. So I wanted to put it in there because it is supplemental, and members can use it in questioning witnesses.

REP. WALDEN: I -- okay, I misunderstood what you were saying then. I thought you told me you weren't going to put it in since the minority didn't see this until 9:20 this morning, or -- (cross talk.)

REP. STUPAK: Right. I wasn't going to put it in as part of the document binder. So I'll put it as part of my opening statement, and then it's attributable to me, and the majority side, and not the minority side. Because as you had indicated, it's on committee stationery, and Mr. Barton had not had time to see it, so I did not want to say that Mr. Barton approved it --

REP. WALDEN: Yeah, I did --

REP. STUPAK: -- so I just made it part of my opening statement.

REP. WALDEN: Okay. I appreciate that.

REP. STUPAK: Thank you.

REP. WALDEN: I hope in the future we can work those things out in advance, as we have in most hearings in the past.

REP. STUPAK: I agree.

REP. WALDEN: Today's hearing is the second in a series of hearings, investigating the individual health insurance market. Approximately 16 million Americans have individual health insurance policies. Once people apply and are issued their insurance cards, they breathe a sigh of relief and figure their health cares are covered.

Unfortunately, that sigh of relief may turn into a frenzied panic if the Friday before the Monday a patient is to undergo a double mastectomy, she receives a call from her insurance company saying her insurance has been cancelled, and they'll no longer pay any claims. This is what happened to one of our witnesses here today, Ms. Robin Beaton from Texas, ranking member Barton's constituent.

We'll also hear from Ms. Horton and Ms. Raddatz, where the threat or actual termination of insurance policy has caused pain, frustration, and great expense. Well, we may be here to discuss valid uses for, and procedural aspects of rescissions, medical underwriting, and other corporate practices. There are some actions we should no longer allow insurance companies to do. Playing gotcha with policyholders who have serious illnesses and huge expenses must stop.

Insurance companies cannot wait until customers are sick or filing claims to verify their medical history and decide whether or not they want them as a customer. This is what they're supposed to be doing when they signed the member up. If the company does not conduct a review of unclear or incomplete information on the application, then the plan should not use subsequently acquired information as a basis for rescinding coverage. This practice is known as post-claims underwriting.

The company should conduct its due diligence at the time the application is filled out and submitted prior to issuing coverage. Rescission should not be a license to find loopholes by investigating someone's medical history whenever they file a claim well after being accepted for coverage. Not if the company hurried through the application process. Not if the company blindly accepted most applicants. And not if the company gladly collected their money with no questions asked. This is inappropriate and it should be stopped.

I understand that companies just like the federal government need ways to protect themselves from insurance fraud, which does occur. Some applicants willfully lie on the application to get insurance and pay lower premiums. This increases the cost of coverage for the insurers and other policyholders.

When a company discovers this behavior and believes rescission is the appropriate action, the burden must rest on the insurer. The company should prove the insurer -- insured failed to disclose material information that he or she was aware of at the time of the contract that would have resulted in different contracts altogether.

After all, the company has the money, employees, and resources to meet that burden. They are the ones making the assertion. And they are the ones ultimately denying the coverage.

It's not enough for companies just to send a letter to the insured stating that an investigation into their file has begun, and if they choose to, send in any additional information to the company. Company needs to attempt to communicate directly with the insured, his or her doctor, and review all pertinent information to prove the insurer did make a material misstatement.

Majority requested all case files that resulted in rescission in 2007 in four states. For United this was 206 case files, for Assurant this was 321 case files, and for WellPoint this was 742 case files. To date the committee has received more than 650 of these case files.

My staff had the opportunity to review several of these files, including working all weekend. In some there is a documentation or evidence that the insured intentionally withheld pertinent medical information that would have affected their coverage. In others, it's unclear whether the applicant was even aware of the condition or notation cited by an investigator in an old medical chart as evidence to rescind.

Today three individual policyholders will explain their stories and illustrate how they were unaware of conditions, symptoms, or other possible diagnosis that were written in a medical chart, but never expressed to the patient. So you have to ask yourself, can the person make a material omission or a misstatement if he or she was not aware of a fact? I don't think so. But if I'm wrong, I want to companies to explain it to me.

2008 and 2009, these companies entered into settlement agreements with rescinded policyholders and providers in sums topping tens of millions of dollars. Some of the companies remain in litigation with other rescinded policyholders. I also recognize some of these companies have initiated internal reforms. These include steps to improve their application process, improve communication with the insured during the investigation and rescission process, and offer independent third-party review of rescission decisions if requested by the policyholder.

I want to know what appropriate actions Congress can take, and what else these companies can do better to ensure that all Americans have access to health care coverage. Health care reform is coming, and we need to have a better understanding of the individual health insurance market and its practices. We need to figure out first and foremost how to make quality health insurance affordable and reliable, while keeping protections in place to combat insurance fraud.

I hope that as this process moves forward we work in a bipartisan way to design a system that achieves the ultimate goal, getting those who need medical care the attention they need. Thank you.

REP. STUPAK: Thank you, Mr. Walden.

Mr. Waxman for an opening statement, please.

REP. HENRY WAXMAN (D-CA): Thank you very much, Mr. Chairman.

Today we're going to hear the results of a year-long congressional investigation into abuses in the individual insurance market. We began this investigation last year when I served as chairman of the House Oversight Committee, and we continued it this year with Chairman Stupak's leadership as the chairman of the oversight subcommittee of Energy and Commerce.

As part of this investigation we conducted a 50-state survey of insurance commissioners, and we sent document requests to some of the largest companies that offer individual health insurance. We received more than 116,000 pages of documents, and our staff talked with many policyholders who had their insurance policies cancelled after they became ill, some of them are here today to testify. And I thank them very much for being here.

Overall, what we found is that the market for individual health insurance in the United States is fundamentally flawed. One of the biggest problems is that most states allow individual health insurance policies to deny coverage to people with preexisting conditions. So if you lose your job and you can't qualify for a government program like Medicare or Medicaid, it's nearly impossible to get health insurance if you're sick or have an illness.

This creates a perverse incentive. In the United States, insurance companies compete based on who is best at avoiding people who need life-saving health care. And this incentive manifests itself in a wide variety of controversial practices by the insurance companies. When -- we know that if people apply for insurance policies, and they put down that they have some preexisting condition, they're going to be denied.

But what we found is that when people with individual policies become ill and then they submit their claims for expensive treatments, then insurance companies launch an investigation. They scour the policyholder's original insurance application and the person's medical records to find any discrepancy, any omission, or any misstatement that could allow them to cancel the policy. They try to find something -- anything -- so they can say that this individual was not truthful in that original application.

It doesn't have to even relate to the medical care the person is seeking, and often it doesn't. You might need chemotherapy for lymphoma, but then when the insurance companies find that your coverage was based on a failure to disclose gallstones, well, they want to cancel your policy, after the fact.

It may come as surprise to most people, but the insurance companies believe they are entitled to cancel the policies even when these omissions or discrepancies are completely unintentional. And they believe that they have the right to cancel policies even when someone else, like an agent who sold the policy, was responsible for the discrepancy in the first place. In addition, they can terminate coverage not just for the primary policyholder, but they go to terminate the policies for the entire family, including innocent children who did nothing wrong.

Some insurance companies launch these investigations every single time a policyholder becomes ill with a certain condition. In other words, if you happen to have ovarian cancer you should prepare -- be prepared to be investigated. It's the same with other conditions such as leukemia.

In the written statement for today the three insurance companies downplay the significance of these practices, arguing that rescissions are relatively rare. But these three companies save more than $300 million over the past five years as a result of rescissions. And I'm sure they view this amount as significant. More importantly however, these terminations are extremely significant to the tens of thousands of people who needed healthcare and couldn't get it during these five years because their policies were rescinded.

In my opinion of course the solution to these problems is to pass comprehensive health reform legislation. And based on the written testimony, I think the three insurance companies testifying here today agree with that assessment. But until that happens, insurance companies deny people coverage if they have a preexisting condition, and then afterwards if they gave them the coverage for insurance, they want to see if there is some reason they can rescind it after the fact, after they've already given out the insurance to see if they can rescind that policy. I think it's shocking, it's inexcusable, it's a system that we have in place, and we've got to stop.

Mr. Chairman, I'm pleased that you're holding this hearing. And I thank you for the time allotted to me.

REP. STUPAK: Thank you, Mr. Waxman.

Mr. Barton for opening statement, please.

REP. JOE BARTON (R-TX): Thank you, Mr. Chairman.

This is my month for witnesses from Waxahachie, Texas. Last week we had Mr. Frank Blankenbeckler, who is the owner of Carlisle Chevrolet in Waxahachie. Today we have Ms. Robin Beaton who is a citizen of Waxahachie. So I want to extend to her, very best wishes, and let her and the other two panelists from this first panel know that there is nothing to be afraid of. You speak for tens of thousands if not hundreds of thousands of American citizens. And the country is very interested through the auspices of this hearing to hear your story. So we appreciate all three of you being here.

This is an important hearing. It addresses part of the need to reform our health care system. We're going to hear today about a problem under the current system that can occur in the handling of individual health insurance policies when claims are actually submitted for coverage under those policies.

As I just said, I want to extend a warm welcome to our first panel of witnesses. Each of you has a personal story that you wish to share. And we know that it's a story that is worth hearing. We also know that it takes courage to testify. And as I just said, there is nothing to be afraid of at this hearing today.

We hear problems as congressmen and women when our constituents tell us what those problems actually are. Today we are going to hear from one of my constituents, Ms. Robin Beaton. No one should have to go through what she's had to go through, the last several years. In June of last year she was diagnosed with an aggressive form of breast cancer, and her doctor said that she needed immediate surgery.

The Friday before the Monday that she was to undergo a double mastectomy, she received a letter from her carrier, Blue Cross of Texas, that rescinded her insurance policy. The letter stated that the company would not pay for the surgery. The letter further informed Ms. Beaton that an investigation into her claim for befits, when the company had thoroughly reviewed her medical records that she submitted when she applied for the coverage, and that they discovered that she had misinformed them on several pieces of information.

One of them was that she didn't list her weight accurately. And the other, that she failed to disclose some medication that she had taken for a preexisting heart condition. The record will show that she was not taking that medication at the time that she submitted her initial application for coverage.

Robin's claim in June of 2008 was not for weight control, it was not for a heart condition. It was for cancer surgery, double mastectomy for breast cancer.

Yet her policy was rescinded three days before that surgery was scheduled to take place. It was bad enough that she had to deal with the trauma of breast cancer. But to be denied coverage right before potentially life-saving surgery, quite frankly is something that no human being should have to undergo.

She had no insurance and no way to pay for her scheduled surgery. So obviously it was postponed. She called my office, my staff went to work. They had several conference calls with officials of Blue Cross Blue Shield. In those conference calls Blue Cross and Blue Shield was unyielding. They were adamant. They went to the counsel, the general counsel of Blue Cross Blue Shield, and that individual said there was no way they were going to reinstate her coverage.

Never take no for an answer. I called the president of Blue Cross Blue Shield. I appealed to him personally, gave him the facts as I knew them, and he promised that he would personally investigate Ms. Beaton's case. And he had further promised that if the facts were as she said, and I said, that her coverage would be reinstated. Good to his word, the president called me back within four hours and said that Ms. Beaton's coverage would be reinstated.

However, precious time was lost. Luckily for Robin she was finally able to get the surgery, not through Blue Cross Blue Shield though, as I understand it. She is now undergoing chemotherapy because the cancer has spread to her lymph nodes. But she is still with us, thank god. And she is here today to tell us her personal story.

Robin's situation was what caused me to draft an amendment to Representative DeLauro's breast cancer bill last year to protect people like Robin by prohibiting rescissions of health insurance if non-disclosure of information is not related to the claim. Not related to the claim and inadvertent. There is no reason, on god's green earth, that somebody ought to have their health insurance revoked because of some inadvertent admission that's not related to the claim that's been submitted to the health insurance company.

This bill, with my amendment, passed the House last year, but it died in the Senate. It's been reintroduced, and hopefully it will pass this year. I support the right of an applicant to request a third-party independent review of an insurance -- insurer's rescission prior to pending or denying payments of claims.

I understand that there is another side to this story. I understand that there are people that do try to scam insurance companies. I understand that there is a rule of reason. But again, if somebody inadvertently omits something, or there is something that's not material to the claim, that claim, in my opinion, should be paid. End of story.

As we head towards reforming health care, it is important that we promote honesty on behalf of the insured and the insurers. Congress needs to be confident that there are consumer protections in place to protect people like Robin Beaton as well as procedures for companies to protect themselves from insurance fraud. Companies need to have open and clear rules when they terminate policies. Applicants need to be truthful when applying for coverage.

Every American -- and this is something that members on both sides of the isle supports -- needs to have access to affordable quality healthcare. This is an important hearing towards that goal, Mr. Chairman. And I thank you for holding it.

I also think that we should give special consideration to one of our panelist here on the dais, the gentle lady from Chicago injured herself yesterday and has a broken leg, and yet she is here today at this health care hearing. So we appreciate Ms. Schakowsky being here.

REP. JAN SCHAKOWSKY (D-IL): Thank you. If the chairman would. And fortunately with good health insurance. So I'm happy about that.

REP. BARTON: And again, thank you, Mr. Chairman, for holding this hearing.

REP. STUPAK: Thank you, Mr. Barton, and thank you again in helping us obtain witnesses for this hearing.

Mr. Dingell for an opening statement, please.

REP. JOHN DINGELL (D-MI): Thank you, Mr. Chairman. I commend you for holding this hearing on the rather vicious practice of post- claims underwriting and the detrimental effect that such practices have on hundreds of Americans. And I want to thank the witnesses for appearing in what I hope will be an informative hearing today on which the committee may begin some actions to correct what appears to be a very serious abuse. And I remember, Mr. Barton, the way we worked together on this, and your outrage, last year, when we were addressing similar questions.

Health care costs have risen sharply. In response to this, insurance providers have taken drastic measures to reduce cost and to improve profit margins. Unfortunately, the health insurance industry has attempted to do so by giving into unscrupulous industry practice, including the practice of post-claims underwriting.

I want to be clear. I have no sympathies for individuals who intentionally misrepresent their health status in the applications they submit for health insurance coverage. These actions are dishonest and have a negative impact on the cost of health care for everyone else. And they are clearly wrongdoing that should be punished.

However, I have far less sympathy for health care providers, and insurance providers who have made it a customary practice to exploit current laws meant to protect individuals, and to take advantage of the most vulnerable Americans in order to turn a profit. They do this by seeing to it that they avoid risk as opposed to practicing good insurance practices.

As we've seen, time and time again, insurance providers have made living out of refusing to compete on quality and choosing instead to compete by avoiding financial obligations at all cost. In the current market, health insurance providers are allowed to pick and choose whom they will cover in the individual market. We've allowed this cherry picking or cream skimming to go on for years. But when we weren't looking, the industry decided to up the ante.

In some cases industry underwrote countless claims for individuals it cherry picked, and then it began to quietly punish those individuals if they got sick and used their insurance for the -- for its intended purpose, to cover major medical claims. In some cases, industry didn't just drop the individual policyholder, but retroactively rescinded the contract as if the agreement had failed to exist. They refused to pay hospitals, doctors, and nurses that sought reimbursement for services rendered.

To our witnesses who are appearing this morning to share their personal experience with post-claims underwriting, we will work to ensure these practices come to a sharp end. To the CEOs testifying this morning, I would like them to know this. We don't regulate for the fun of it. We regulate when the private sector refuses to honor its commitments to the American public.

As we work to reform the nation's health care system we will work to reform the current health insurance market. We will work to ensure that such reform will prohibit insurers from excluding preexisting conditions or engaging in any other unfair and discriminatory practice.

We will also work to ensure these reforms to include fair grievance and appeals mechanisms, very much lacking in the insurance world today, and will ensure information transparency and plan disclosure. These new reforms alone will not fix the problems. We will also have to work to ensure that there is strong oversight on both the federal and state level.

Furthermore, the -- these insurance industry practices are precisely the reason why we need a public health insurance option included in our proposal to reform the health care system. A public plan that leads by example, and competes through quality and innovation, rather than unfair industry practices, is what is needed to keep the private industry in the insurance business honest.

Thank you, Mr. Chairman.

REP. STUPAK: Thank you, Mr. Dingell.

Next for three-minute opening statement, Mr. Gingrey.

REP. PHIL GINGREY (R-GA): Mr. Chairman, thank you.

Generally, insurance is a form of risk management that allows individuals to pay a monthly premium in exchange for a company taking on their financial risk in the event of a health care catastrophic loss. Health insurance on the other hand is not typical insurance. For a monthly premium, individuals purchase health insurance to financially support them in the event of a catastrophic incident such as a broken leg, as the lady from Chicago just recently experienced, or made surgery. Patients also use their insurance for such things such as doctor visits or monthly prescriptions.

In many respects, health insurance has become the means by which patients see their providers, and they receive treatment. Primary responsibility for regulating the individual health insurance market rests with the state regulators. However, in the Health Insurance Portability and Accountability Act of 1996, HIPAA, Congress made very clear that an individual insurance policyholder has a right to guaranteed renewability.

In other words, an insurer must renew, or continue, an individual's existing coverage unless some specific exception is met. Those exceptions include a policyholder moving out of a network plan service area, or if the policyholder intentionally misrepresents material facts concerning their condition when contracting with the insurer.

I believe it is unfair for an individual to be denied coverage for a claim when he or she has been upfront about their condition. They have played by the rules of the contract. They paid their premiums on a regular, timely basis, only to be denied coverage when a health care incident arises, as described by my colleague, Mr. Walden, what we would call post-claims underwriting. The impact it has on patients and their loved ones can be devastating.

I have actually personally experienced that in my own family. And it literally took an active Congress to change that. With these thoughts in mind I look forward to the testimonies of our witnesses today. I want to thank the entire panel, this first panel particularly, as well as the second panel, for coming in today and sharing your stories with us. And Mr. Chairman, I look forward to the hearing and to the questions. And at this time I yield back.

REP. STUPAK: Thank you, Mr. Gingrey.

Mr. Green of Texas for an opening statement, please.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. And I think all of us appreciate you calling this hearing today, because like my ranking member from Texas talked about, we deal with this all the time through our constituents.

And there is a state legislature in Texas. We've had that same problem for many years. And I appreciate you bringing this out. And hopefully we'll address this in our health care reform. I want to thank our witnesses for being here today.

Most individuals in the country have health insurance through their employer, Medicare and Medicaid. But millions of Americans do not have insurance through their employers and -- or through the public market, so they turn to individual insurance market to purchase insurance policy.

Individuals who purchase the insurance through individual market must go through an application process and supply their medical history, including any mental, physical, or chronic conditions. Insurance companies are supposed to review those applications and review the applicant's medical history before approving the individual for coverage.

Oftentimes this medical history review never occurs, and the insurance companies will cover individuals who have conditions they would not necessarily cover. These individuals believe their coverage. And when that is current, and when they submit a claim, they often find themselves subject to that medical history investigation and drop from their insurance and liable for all claims under the policy.

In other instances, individuals would submit a claim for a serious illness, such as cancer, and find themselves subject to a medical history investigation and dropped from their policy, because the insurance company claims the individual did not disclose a medical condition when filling out their initial application. Both these instances leave the individual without health insurance coverage and uninsurable because they have to report having their coverage rescinded. Individuals who are undergoing medical treatment for conditions such as cancer are dropped from the coverage, often face life and death situations because the insurance company does not want to pay for their treatment.

I can't imagine the pain and suffering that these individuals go through at the expense of an industry seeking healthy patients to make a profit. A few states, including Texas, have taken actions to prevent insurance companies from post-claims underwriting. As we're working through individual (ph) we need to examine the individual market and ensure individuals never have to face loosing their coverage for simply using their coverage.

And Mr. Chairman, again I thank you for calling us here, and I yield back my time.

REP. STUPAK: Thank you, Mr. Green.

Mr. Burgess for three minutes opening statement, please, sir.

REP. MICHAEL BURGESS (D-TX): Thank you, Mr. Chairman for the consideration. Let me just say at the outset I do believe in the individual market. I believe it has a place in this country. Indeed, I was a client and a customer in the individual market for my family's coverage for a period of time.

But -- and I'd also believe that the barriers that we, the federal government and the Congress puts in place on the individual market sometimes creates unnecessary difficulties for the people who sell in the individual market, and the people who wish to be their customers. But no one can defend. And I certainly cannot defend the practice of denying coverage after the fact.

And I cannot be comforted by the fact, or the statements that are made, that this is in fact an infrequent occurrence, because as the cases in front of us at the table, the witness table, demonstrate this morning, there is no acceptable minimum to denying coverage after the fact when the coverage was duly paid for and entered into in an honest fashion, and then only when the coverage was required was it found to be not there.

Now, I don't think anyone on either side of the dais believes that anyone would ever lie about something on a medical history, maybe fudge weight a little bit, maybe the number of times we actually go to gym or what we actually do there. But no one would willing -- willfully do that.

But the question before us today is, do people intentionally lie in order to manipulate companies into giving them coverage when they know that they have a preexisting condition. And the legal jargon that we apply to that is rescission.

And should insurance companies, post-procedure, be allowed to terminate individual contracts based upon the omission of disclosure of a pre-existing condition irrespective of whether it was intent on behalf of the individual seeking coverage or not. And I'm troubled by that inability to distinguish between those who intentionally act with fraud and those who honestly answer broad, vague, or confusing questions on the contracts to obtain health coverage. Those are not equivalent conditions.

An omission without intent does not signify fraud, and no insurance company who hides behind filling out their request for insurance as a strict liability should be protected. Intent is crucial because those who act fraudulently should not be protected by the law, nor should it be our desire to do so.

It is interesting to me that all of the insurance companies today that we are going to hear from on our panel today are private for- profit companies. But Ms. Beaton's insurer, whose case proved near intractable until her member of Congress got involved, was Blue Cross and Blue Shield. And I wonder, Mr. Chairman, why Blue Cross and Blue Shield is not in one of our panels today. Clearly as a non-profit company they would not have a purely profit-driven motive to engage in this type of behavior.

So theirs is perhaps particularly curious, and I think there are a number of questions that we would like to pose to a company that does in fact function as a non-profit. You know what, it's the responsibility of each insurance company, whether for-profit or not- for-profit to do their due diligence before the contracts are entered into, and not use rescission as an excuse for lazy or incomplete underwriting.

Thank you, Mr. Chairman. I'll yield back the balance of my time.

REP. STUPAK: Thank you, Mr. Burgess

Ms. Sutton for opening statement, please.

REP. BETTY SUTTON (D-OH): Thank you, Chairman Stupak for holding this critical hearing. Simply put, rescission of coverage by insurance companies puts dollars ahead of the lives of Americans. And I'm not exaggerating when I say that insurance company accountability is something that I have fought and advocated for at every stage of my professional life.

During my time as a representative in the Ohio general assembly I worked on behalf of Ohioans to ensure that when benefits were promised benefits were given. And now I'm here in Congress to continue that fight.

Rescission of coverage is a problem that we in Congress are seeking to eliminate. And it's our hope -- you've heard from the comments here -- that when we have finished reforming our health care system, coverage discrimination will be a thing of the past. But today it's still a problem that exists, and must be eliminated.

When the health insurance policy rescission occurs, it creates waves throughout the entire health care system. Make no mistake. These decisions deprive people of needed care. They deprive hospitals and doctors of the reimbursement they have earned for their service.

For some, a rescission is a costly process that can result in a doctor or hospital having to seek payment from the individual. For others, it means a delay in access to a life-saving procedure or treatment. That is unacceptable.

Today we will hear from citizens. And I thank you all for coming to provide your testimony and your stories, about your lives that have been turned upside down by the insurance industry policy of rescission. We'll hear from executives who will tell us that in the name of uncovering insurance fraud and corruption they had no choice but to remove these beneficiaries from their roles. But I think the testimony of the people who have lived through this trauma will tell a different story.

The number of uninsured in this country is now thought to be 47 million. It's a major flaw in our country that so many people go without their basic right to have health care coverage. And millions more who have insurance still don't get the care they need when they need it. It's hard to understand how we allow those who are legitimately covered to join the ranks of the uninsured due to the stroke of a pen or the decision of an insurance company executive.

Unfortunately, Mr. Chairman, I have another hearing that is going on simultaneously with this one. So I will be shuttling back and forth. But I want the panelists to know that I will be listening carefully to the testimony, both for myself and for the people of Ohio that I am so honored to represent. And I thank you all again for coming. And I thank you, Mr. Chairman, for your attention to this matter.

REP. STUPAK: Thank you, Ms. Sutton. And it's a good reminder. Members will be coming back and forth as there is a committee two floors up; Telecommunications and Internet Subcommittee is also meeting.

And in that vein, Congresswoman Donna M. Christensen, who is a member of this subcommittee, has submitted her opening statement for the record. Without objection it will be entered into the record.

Next, I'd turn to Ms. Schakowsky for an opening statement, please. And you can tell us how you broke your leg.

REP. SCHAKOWSKY: Well, I wish there was a dramatic story, Mr. Chairman, although it was in a fairly dramatic place. I did go to Guantanamo Bay, yesterday, and fell, and ended up breaking my foot in two places. I hope soon with the help of the attending physicians I will have a boot or a cast or something. That was just yesterday. And I --

REP. STUPAK: Well, we wish you well. And thanks for being here.

REP. SCHAKOWSKY: Thank you. And I am grateful that I do have good health insurance to cover that.

I appreciate today's hearing, examining one of the truly egregious practices occurring in the individual health insurance market. I want to extend a special welcome to Ms. Peggy Raddatz for my home stay from La Grange. I thank you for being here and sharing your family story with us. I know it isn't always easy to discuss personal matters. But you certainly are helping us to make better health care policies. And I thank all the witnesses for helping us.

When a consumer goes to buy a health insurance policy, they examine their options, and they try to identify the best policy to meet the health care needs of their family. And at no time do they every imagine that once they buy a policy they might get sick, and their insurance will simply rescind their policy and leave them without coverage, but with a high pile of bills.

The practice of post-claims underwriting in the private market is wrong, and we should prohibit it. Let's face it. It's already hard enough for an individual or small business owner to find health insurance. In my state of Illinois there is no requirement that insurers take all comers. And I've heard from constituents over and over again who are unable to find a policy really at any price.

Those who do get through the insurance industry gauntlet know that they are not home free. They know they may face high out-of- pocket cost, denial of doctor prescribed treatments, prior approval requirements, caps on services and other devices that are designed to limit the insurance company payments.

But few know that when they need care the insurance company has been collecting their -- that has been collecting their premiums may now go back and comb through their personal history in order to find an excuse not to pay just when the policyholder needs the coverage the most.

There are some who argue that rescissions are used to stop fraud on the part of enrollees who misrepresent their health histories in order to obtain coverage. One has to wonder why we would put up with a health care system in which people have to hide their illness in order to get access to care.

But we also know that this isn't about that. It's about a company -- it's most often about a company looking for an undisclosed headache 10 years ago in order to deny coverage for a brain tumor today. The practice of the private insurance market have less to do with the consumer, and a lot to do with company profits. As we move forward with health care reform, we have to put an end to practices that discourage patients from seeking out care. Insurance coverage should be a pathway not a barrier to care.

Mr. Chairman, I look forward to working with you to improve care coverage, refocus our intention on patients. And I really again thank our witnesses for being here today. And with that I yield back.

REP. STUPAK: Thank you.

Mr. Braley for an opening statement, please.

REP. BRUCE BRALEY (D-IA): Thank you, Mr. Chairman.

This is a very important hearing. But I'd like to start by talking about the very concept that we're here to discuss, because the term post-claims underwriting is an oxymoron. Insurance companies are structured into different departments. They have an underwriting department and a claims department.

And the underwriting department is supposed to do pre-issuance risk assessment to determine whether an individual policy is worth the company investing in that person as a health care risk. The claims department is designed to respond to requests for coverage after a policy has been issued. So the very theory we're here to talk about today isn't even supposed to exist in a rational health care delivery system. And it wouldn't exist if we had a rational health care delivery system.

But when you read news stories where the CEO of one private health insurance company is sitting on stock options valued at $1.6 billion dollars, it shouldn't come as a shock to any of us that we're sitting here today hearing these horror stories of patients who've been caught up in an inefficient, unsustainable private health insurance delivery system.

And Ms. Raddatz, I wish that every claims examiner at every insurance company, and every underwriter who gets engaged in post- claims underwriting determinations had to go through what you went through and the other witnesses who are here today because one of the most profound experiences I've had in my life was spending about a month at a pediatric on college unit at the University of Iowa Hospitals and Clinics.

When I was in the Big Brother Big Sisters program and my little brother was diagnosed with acute large cell non-Hodgkin's lymphoma and spent time everyday watching young patients with no hair, with IVs in their arms or in their chest going into a port, walking around and taking care of each other much better than our health care industry takes care of patients in their time of need.

And it's a slander on the names of the health care professionals who do everything they can to keep patients like your brother, like my little brother alive, when we don't give them the support that they need after they have invested their hard-earned dollars by paying premiums to a health care insurance company who turns their back on the patient in their hour of need.

And that's why I'm a strong supporter of the public health insurance option. And I'm proud that my colleagues on this committee, Chris Murphy and Peter Welch, have joined me in introducing the Choices Bill to give health insurance patients a public health insurance option with no discrimination, so we don't have to go through these nightmares anymore. And with that, I yield back.

REP. STUPAK: Well, thank you.

And that concludes the opening statements of all members. One of our witnesses had to step out just for a moment. So let's stand in recess for just five minutes and we'll come right back in about five minutes, okay. Give everyone a chance to stretch their leg. We'll be in recess for five minutes. (Sounds gavel.)


REP. STUPAK: (Sounds gavel.) This hearing will come back to order. As I stated before, we had a brief recess there. That concludes the opening statements by members of the subcommittee. I now would like to call upon our first panel of witnesses.

On our first panel we have Robin Beaton who is a policyholder from Waxahachie, Texas. Ms. Peggy Raddatz from La Grange, Illinois, who is a sister of the late policyholder Otto Raddatz, and Ms. Wittney Horton who is a policyholder from Los Angeles, California. Welcome all of you. Thank you for coming.

It's a policy of this subcommittee to take all testimony under oath. Please be advised that you have a right under the rules of the House to be advised by counsel during your testimony. Do you wish to be represented by counsel during your testimony?

(No audible response.)

You are all shaking your heads, no. So, okay. Then I'm going to ask you to please rise and raise your right hand to take the oath. Ms. Beaton, you -- if you want to sit there, that's okay.

(The witnesses were sworn.)

Let the record reflect the witnesses replied in the affirmative. They are now under oath. We will hear a five-minute opening statement from each of you.

Ms. Beaton, would you like to start first with an opening -- you'd like to be last.

Ms. Horton, do you mind going first? Would you pull that mike forward and turn on that green -- there should be a green button there. And pull that mike forward. It doesn't pick up as well as it should.

MS. HORTON: Okay. Can you hear me now?

REP. STUPAK: Can hear you. Thank you.

MS. HORTON: Good morning ladies and gentlemen. I want to start by thanking the committee for this opportunity to testify this morning. I am very pleased that Congress has decided to take a close look at rescission so that it can understand just how damaging this practice has been to so many people across the country.

When Blue Cross cancelled my coverage, I had no idea what rescission meant. But now, after my life has been turned upside down for the past four years, I've come to understand what a despicable practice it is.

Insurance companies require you to fill out an application that is deliberately confusing. And they don't do anything to make sure you understood the questions, or that you supplied all the information they need to decide whether they want to insure you or not. They just accept you, and accept your premium checks.

It's after you see a doctor that everything changes. When your doctors file claims, the insurance company starts looking for reasons not to pay them. They dig through your medical records and compare what they find to the information you put down on the application.

It's called post-claims underwriting, and in California, where I live, it's illegal. But insurers ignore the law. And when they find a discrepancy or an omission, they rescind the policy, and refuse to pay any of your medical bills, even for routine treatment, or treatment they previously authorized.

Blue Cross' decision to rescind my insurance was devastating to my husband and me. And I consider myself one of the lucky ones. As the lead plaintiff in a class action lawsuit against Blue Cross, I represent 6,000 Californians who were all stripped of their insurance by Blue Cross. You can't imagine how horrifying some of those stories are.

Blue Cross rescinded some of these people right after they had undergone open heart surgery, or were receiving chemotherapy treatment for cancer. Some of these people were left with hundreds of thousands in unpaid medical bills. One thing we all had in common, we all were left to somehow stay healthy and fend for ourselves after Blue Cross walked away from its promise to provide health insurance.

I sought insurance with Blue Cross in 2005 because my parents raised me to believe that health insurance was an absolute necessity that should never be taken for granted. I work in the film industry in Los Angeles, California, where employment is generally temporary, and done on a freelance basis.

So, for me and many others in the industry, individual coverage is a necessity. At the time I applied for coverage, I had just left a temporary staffing agency for Sony Pictures to go to work on a specific movie. When I made the move, I had to give up the stability of my group health care plan. So, I immediately sought out individual health care coverage.

When I applied for coverage with Blue Cross, I wanted to make sure that I did everything correctly to ensure that there would be no problems. I filled out the application to the best of my ability even though it was long and confusing.

I wrote down everything I could remember about my health history, including hypothyroidism, a condition I have had since I was 18. I even listed the contact information for my treating doctor. Then I turned my application into my insurance broker.

She told me everything looked good and sent it in to Blue Cross, and they quickly accepted my application. I was only 27 at the time.

Two months later, I went to my endocrinologist for a check up. I had routine blood work performed and the doctor's office sent the bill to Blue Cross. I received a letter back from Blue Cross shortly afterwards saying that they wanted all of my medical records from both my endocrinologist and my gynecologist. I consented, having nothing to hide.

A couple of months later, in June of '05, I received a letter from Blue Cross stating they were rescinding my insurance because I didn't disclose on the application that I had taken the drug glucophage, and because of irregular menstruation. I had taken glucophage the previous year, but was no longer taking it when I filled out the application. My doctor had prescribed it hoping that it might help me lose weight, but it did not. I stopped taking the medication when I saw that it was not working for me.

In its rescission letter, Blue Cross said it would have never accepted me for coverage if it had known that I had polycystic ovaries. This letter was the first time I had ever heard about this condition.

I later learned that polycystic ovaries, or PCOS, as it is known, is a diagnosis of exclusion and very difficult to prove. Doctors often proceed on suspicions of a person having it without actually having proven it.

This is what happened in my case. My doctor suspected I might have PCOS, wrote it down in her notes, then told me she was prescribing glucophage for weight management. I never knew what she wrote down in her notes because she never told me.

After I was rescinded, I had two of my doctors write letters to Blue Cross telling them this, but they didn't care. They just wrote back that they were upholding their decision to rescind.

After being rescinded, I showed my original application to my sister and her husband, both radiologists, to ask them what I could have possibly done wrong in filling out the application. They felt that the application was worded in such a way as to be purposefully confusing and that it asked the same question in multiple ways to trip people up. I'm a college graduate, and no dummy, and I still couldn't make sense of Blue Cross' tricky application.

The worst part about my rescission is that I have been unable to get insurance anywhere else. I applied for individual insurance through Blue Shield. But on their application, they ask if the applicant has ever had insurance rescinded. When they learned that I had, they informed me that they would not accept me for coverage.

Every insurance company asks if you've ever had health care coverage rescinded. For the rest of my life I will never be able to get individual coverage again because of Blue Cross.

As someone who works in an industry that relies on individual coverage plans, this is a really big deal. Since my rescission, I have had to take jobs that I do not want, and put my career goals on hold to ensure that I can find health insurance.

Fortunately, after my husband and I got married, I was able to gain coverage through his company's group health care plan. However, if he ever loses his job, or I don't have employment with a company that offers group health insurance, I might have to go without.

As I mentioned before, I consider myself one of the lucky ones. I don't have large outstanding medical bills, and I am relatively healthy. In fact, I was able to pay my doctors back for the blood work and office visits that Blue Cross refused to pay.

But many people who have been rescinded are far less fortunate. And as the lead plaintiff against Blue Cross, I feel an obligation to speak for them as well. What Blue Cross has done to us is wrong, and they must not be permitted to continue getting away with it.

Americans desperately need health care reform. As my experience shows, owning an insurance policy does not necessarily equal access to health care. If insurance companies are not prevented from canceling or restricting coverage after patients get sick, insurance policies are not worth the paper they are printed on.

Insurance companies are making record profits by collecting premiums in exchange for the promises that they make to be there when people need them. Make them keep that promise. Thank you.

REP. STUPAK: Thank you, Ms. Horton.

Ms. Raddatz, and on behalf of Otto Raddatz, would you like to give your opening statement? And thank you for being here.

MS. RADDATZ: Thank you very much, Mr. Chairman, and thank you to all the members of the committee for all your kind words and your wonderful statements.

My name is Peggy Raddatz and I am appearing here today to testify on behalf of my brother, Otto S. Raddatz. My brother was a business owner of a restaurant that he ran with his wife, Marie.

He purchased a health insurance policy from Fortis Insurance Company in August of 2003. On the application he indicated he had kidney stones and smoked. He also listed all physicians who had treated him. Otto's health application with Fortis was accepted and his coverage began in August of 2003.

A year later, my brother found himself inexplicably losing a large amount of weight. His wife, Marie Raddatz, urged him to see a doctor. In September of 2004, my 59 year old brother at the time was diagnosed with stage IV non-Hodgkin's type lymphoma.

The very next day he began an intensive course of chemotherapy treatments. Due to the aggressive type of cancer Otto had, being mantel zone lymphoma, he was given six more rounds of chemotherapy by January of 2005. He suffered a lot during this period of time and was often unable to work.

Otto was referred to a specialist in stem cell transplantation and for high dose chemotherapy. Otto began more chemotherapy for purposes of preparing him for a stem cell transplant. These treatments were long and difficult in nature.

In the midst of his chemo treatments, Otto received a phone call and letter from Fortis Insurance Company stating his insurance was canceled. It was rescinded all the way back to the effective date of August 7, 2004, which was before his diagnosis for cancer.

This meant none of his cancer treatments would be covered at all. Most importantly, he would not be able to receive the stem cell transplant needed to save his life. My brother only had a very small window of time in which to have the stem cell transplant.

He needed to be scheduled within the next three to four weeks or he would not be able to have the transplant at all and his life would be ended very shortly. My brother was told he was canceled during what they called a routine review during which they claimed to discover a material failure to disclose, as they stated in their letter.

Apparently, in 2000, his treating doctor had done a CT scan which showed a small aneurysm and some very insignificant gall stones. My brother was never told of either one of these conditions, nor was he ever treated for them, nor did he ever report any symptoms for them either.

After months of preparation, the stem cell transplant could not be scheduled. My brother's hope for being a cancer survivor was dashed. His prognosis was only a matter of months without the procedure. By this time, he could no longer work and ultimately had to sell his restaurant because of it.

When I called the hospital to see if I could schedule the stem cell transplant for him because he was in such a weakened state, both physically and emotionally, I was callously told unless your brother brings in cash, and a bundle of it, he is not going to get the procedure without insurance. My brother was accused by Fortis Insurance Company of falsely stating his health insurance history, despite the fact that he had no knowledge of ever having any gall stones or aneurysms.

Luckily, I am an attorney, and I was able to aggressively become involved in solving this life threatening situation. I got on the phone and literally made dozens of phone calls day after day after day. I put my personal work aside and worked on this literally round the clock calling people.

I finally was told to contact the Attorney General's Office, and received immediate and daily assistance from the Illinois Attorney General's Office and from Dr. Babs Waldman, the medical director of their health bureau. I cannot thank them enough for their daily assistance and support of myself and my brother through this difficult time.

During their investigation, they located the doctor who ordered the CT scan. He was not only retired, he was on a fishing trip at the time. And through their unbelievable resolve, they were able to get a hold of him on the fishing trip, and he did recall -- he had no recollection -- he recalled my brother and his treatment of my brother, but he had no recollection of ever disclosing the information to my brother or treating him for gall stones or for small aneurysm.

After two appeals by the Illinois Attorney General's Office, Fortis Insurance Company finally overturned their original decision to rescind my brother's coverage and he was reinstated without lapse. This is after weeks of constant phone calls between myself and the Attorney General's Office and we were literally scrambling hour by hour to get this accomplished so that my brother wouldn't lose his three to four week window of opportunity that he had prepared for and lose his opportunity to have the procedure.

What the Fortis Insurance Company did was unethical. To deny a dying person necessary medical treatment based upon medical conditions a patient never had knowledge of, never complained about or never been treated for is cruel.

It is the hope of our family that this information will benefit other patients who are in need of life saving medical treatments and who do not have the knowledge or means necessary to fight against the health insurance companies. It is further our desire to expose these practices of Fortis Insurance Company so that others do not have to suffer as victims as my brother did.

Thank you very much, Mr. Chairman, and thank you so much, members of the committee for all your efforts.

REP. STUPAK: Thank you.

And Ms. Beaton, would you like to give your opening statement now. Pull that up, take your time and --

MS. BEATON: Mr. Chairman and members of the committee, I'm very honored to be here to share my story. My name is Robin Beaton, and I am 59 years old. I was a registered Nurse for 30 years.

I had insurance, I was in good health. I retired from nursing, and started my own small business, obtained a personal individual policy from Blue Cross and Blue Shield in December 2007.

In May 2008, I went to a dermatologist for acne, pimples. A word was written down on my chart, which was considered to mean precancerous. In June 2008, I was diagnosed with invasive HER-2 genetic breast cancer, a very aggressive form of this cancer.

I needed a double mastectomy immediately. Blue Cross and Blue Shield pre-certified me for my surgery and for a hospital stay. The Friday before I was to have my double mastectomy, Blue Cross and Blue Shield called me by telephone and told me that my chart was red flagged.

And what does that mean I said. And they said that due to the dermatologist's report and -- that was what red flagged my chart in the beginning -- that I would not be able to have my surgery on Monday. And they launched a five-year medical investigation into my medical history for the last -- I had to give them --

REP. STUPAK: Put it back on. You just -- take your finger of once, and there you go.

MS. BEATON: I had to give them every pharmacy, every doctor, every hospital. And they threatened me that if I left anything out, that it would be really bad. So I really tried everything in the world I could to list every single doctor everywhere I had ever been.

I immediately got in touch with the dermatologist. He immediately called Blue Cross and Blue Shield and he begged them. He said this is a misunderstanding. He said this is not precancerous. He said all she has is acne, pimples. He said please don't hold her precancerous surgery for this. He begged them. He was the nicest man.

Anyway, I was frantic. I did not know what to do. I didn't know how to pay for my surgery. The hospital wanted $30,000 deposit. And I was by myself. I didn't have that kind of money.

I turned to the only person that I had to turn to, and that was Joe Barton, my congressman, Joe Barton. The next day I got a letter canceling my insurance, rescinding it to the first day that they had covered me.

Can you imagine having to walk around with cancer growing in your body with no insurance? It's the most terrible thing in the world to not have anybody to turn to, not have anywhere to go. So I just can't even say how bad it was.

The sad thing is Blue Cross and Blue Shield took my high premiums the very first time I ever had a claim, the very first time, and was suspected of cancer. They took action against me searching high and low. They turned over every single thing they could in my medical history to pull out anything that would cause any suspicion on me, so they didn't have to pay for my cancer.

A nurse, who attends my church, works fulltime for Blue Cross and Blue Shield. She looks through medical records searching for reasons to cancel people. She came to me and she said, I feel so bad. She said, I just can't even tell you how sorry I am this has happened to you.

Blue Cross and Blue Shield have control over life and over death. People have to be able to count on what they have paid for, count on having insurance. Blue Cross and Blue Shield will do anything to get out of paying for cancer, anything.

Sad fact is anyone with a catastrophic illness who is not a part of a group, who has an individual policy, stands a really high chance of getting cancelled, left out in the cold with no insurance. I go to a cancer support group every week. Four girls in my cancer support group have had their insurance cancelled. And two of those girls have had to declare bankruptcy because of cancer.

It is very difficult for me to speak out my insurance could be cancelled again. I live in fear everyday of my insurance company. I looked everywhere for help. No one found anything to help me until Joe Barton and Christy Townsend, after working for a really, really long time, every day they worked hard.

I had given up hope. I didn't have any hope left. And they never gave up hope. They did everything they could to help me, and they got my insurance reinstated. After being diagnosed in June 2008 with aggressive breast cancer, I was placed back on a list to get a mastectomy, which I finally got to have my cancer surgery October 2, 2008.

My tumor grew two to three centimeters all the way to seven. I had to have all my lymph nodes removed in my arm, everything. Delay in cancer treatment, it only worsens the condition, costing more to treat, and treatment is much more intensive. Also the outcome is not as good.

I go to chemotherapy every three weeks, and I'll have to be going for the next year. Cancer is expensive, and no one wants to pay for cancer. I pray with all my heart that no one has to go through the sheer agony that I have had to endure for one year.

I did not deserve to have my insurance cancelled. Blue Cross and Blue Shield set out to get rid of me. They searched high and low until they found enough to cancel me, and they did.

I owe my life to Joe Barton.

I pray that you will listen to my story and help people like me who are powerless against the big insurance companies. And today when I met Mr. Barton, that was the very first time I ever met him. He helped me not even knowing me just because I'm -- he just is a good man and he just helped me.

But I went everywhere. I went to the County Hospital. I went everywhere looking for help. And you just get on waiting list. And when you get on waiting list, your cancer grows.

So I just want to thank you all for listening to me. And just please do something about it because I couldn't even tell you the people I know that have been through this. It's just -- it's a horrible thing to go through. Thank you all so much.

REP. STUPAK: Thanks, Ms. Beaton, you may want to turn off your mike for now.

Now, we'll turn for questions. I'll begin. We'll go for five minutes on questions. We'll probably go a round or two per panel.

For our three panelists here, I'd like to get your thoughts on some information the committee gathered about the economics of rescission for the insurance companies. The three CEOs who will testify after you have all made the case that your companies rescission as a tool to rule off fraud by those who apply for coverage.

But at the same time we find these companies have also reported saving in the estimate of $300 million as a result of the rescissions from 2003-2007. That doesn't include all their subsidiaries and doesn't include all their files. But what we have, that's what we've come up with. And like I said, this figure doesn't include the savings gain by avoiding future medical costs of rescinded policyholders.

So let me ask each of you, do you believe that the insurance companies use rescission primarily as a fraud prevention tool or as a cost savings instrument that will help them bolster corporate profits?

Ms. Horton?

MR. HORTON: I think it's all about the money.

REP. STUPAK: Ms. Raddatz?

MR. RADDATZ: It is absolutely about the money.

REP. STUPAK: Ms. Beaton?

MS. BEATON: Absolutely. Until you try to use it, they will just keep on taking your money.

REP. STUPAK: Well, each of you, as I've listened to your testimony, Ms. Beaton, you were an RN, Ms. Raddatz, you're an attorney, and Ms. Horton, you had family members who were in the medical field, radiologists. You seemed like a little bit more -- you had access to people who could help you on this. What happens in your groups and people you have talked -- what happens to people who don't have that kind of support mechanisms within their family? What happens to them?

Ms. Horton?

MS. HORTON: They fall through the cracks. You know, there's nothing -- even having radiologists in my family, I didn't have the opportunity to consult them before filling out the application. They live across the country, they have children, they work all the time. And I don't know what those people would do.

REP. STUPAK: Ms. Raddatz?

MS. RADDATZ: As I stated in my testimony, my brother was very fortunate because of the fact that I have education and I know lots of people. And even all the attorneys that I know and judges who I went to ask for help, did not know what to do in this situation other than go through the court system.

Unfortunately, when you have cancer, or you're in a position where your life is shortened to a matter of months, you can't go through the court system because you don't have the time to do that. So -- and what do people do? They do -- many, many people throughout the United States do nothing because they don't have the ways or the means or the knowledge to take the steps necessary.

They don't know all the -- I know hundreds of attorneys. I've been practicing a lengthy period of time. They don't know all those people I know. So what do they do? They get the letter, and they don't get the treatment that they need. And many of these people die. And they think that's the way it's supposed to be because they just don't know what to do.

And I believe honestly that the insurance companies depend upon that lack of knowledge and lack of laws, federal laws, in place. And that's one of the ways that they encourage their profits.

REP. STUPAK: Ms. Beaton, do you want to add anything on it?

MS. BEATON: I was going to say that a lot of people in my cancer group, they get letters like this. They just give up and they fade away and they die.

REP. STUPAK: Well, you were fortunate, Ms. Beaton, you had a ranking member here and Mr. Congressman Barton who intervened and -- or else you might not be with us here today. Was it clear to you in dealing with the insurance company that if you didn't have a U.S. congressman working on your behalf, that your insurance wouldn't have been reinstated?

MS. BEATON: There's not a doubt in the world that they wouldn't have even given me a blink of an eye if it hasn't been for him. And I just couldn't ever tell you how he worked. If you only knew how many hours he worked. They called me everyday of his working hours and hours and hours.

This took a long time. This was like a month -- many, many months' process. It wouldn't just happen overnight. So for them, his office, to take that kind of a dedication in me, you know, I'd be forever grateful.

If I live and don't die of cancer, you know, I said it will be because of them. It's only because of my congressman, only because of him, did I get help for my cancer. If it weren't for that, it never would have happened.

REP. STUPAK: Ms. Raddatz, sort of in parallel to Ms. Beaton there, in your brother's case, the Illinois' Attorney General Office and Dr. Babs Waldman intervened and actually had to write two letters to the insurance company. In fact, one of them was a tab number four. We got that in the document binder there, if you like to care to look at it.

But the Attorney General's Office wrote, and I quote, "I find the behavior on the part of Fortis Health to be extremely troubling if not unethical. Clearly there is no justification for rescinding this gentleman's insurance beyond avoiding the cost of his future treatment. To rescind, terminate, his policy at this point is not only devastating, but probably fatal to Mr. Raddatz."

And then in the second letter, the company finally reversed its decision. So how did your brother know to enlist the assistance of the attorney general? Is that through you?

MS. RADDATZ: Yes, it was absolutely through myself. And like I said, even I had difficulty in finding that outlet. It took me a while to get to the Attorney General's Office. But we're fortunate in the State of Illinois to have a health bureau in our Lisa Madigan's, Attorney General's Office.

We are very, very lucky to have an aggressive unit. And they are available for the citizens of the State of Illinois who go through the same situation that my brother did. But again, most people do not have the knowledge that I have.

And by the way, it took two appeals to them. The first time she wrote the letter, they said, no. So it took a further letter to them before that they did reverse their decision.

REP. STUPAK: Thank you.

Mr. Barton for questions?

REP. BURGESS: Mr. Chairman, may I ask a question?

REP. STUPAK: No, it's Mr. Barton's turn unless he wants to yield you time.

REP. BARTON: On behalf of --

REP. BURGESS: But it's just purely a technical question. I mean, as a doctor I -- there never has been so many lawyers around me.

REP. STUPAK: You should feel secure.

REP. BURGESS: No, I -- (laughs) -- it's less than secure. It's the opposite of secure. There's -- as I understand, there's an active class action through one of the witnesses before us this morning.

REP. STUPAK: In California I believe it's been going on for some time. I think Ms. Horton is -- maybe a plaintiff in that action.

REP. BURGESS: Well, this speech and debate clause not withstanding, are we subjecting ourselves to possible subpoena in that -- to testify in that court by our questions here today or our opening statements here today.

REP. STUPAK: No, but if you wish to, we could arrange it.

REP. BURGESS: No, I don't want a trip to California. It's the last thing I want.


But I, again --

REP. STUPAK: No. No, I think we're okay. We're not asking anything about the nitty-gritty of the lawsuit or anything like that. This is a committee investigation and we'd be exempt.

REP. BURGESS: Can we -- can counsel answer that question for us?

REP. STUPAK: You know, would you care to comment on it? We are in official setting. This is official hearing of the U.S. Congress, the speech and debate protection certainly helps us, but I don't think any of us are going to ask about the class action suit.

MS. : (Off mike.)

REP. STUPAK: Yeah, the speech and debate clause, certainly --

(No audible response.)

REP. BURGESS: Okay, I thank the chairman.


Mr. Barton, questions please?

REP. BARTON: Thank you, Mr. Chairman.

Again, I thank each of the three witnesses. And I want to make a comment on what Ms. Beaton about myself. There are 435 congressmen, and every one of us, our job is to help constituents. And I have four fulltime case workers. Mr. Right, to my left here -- (laughs) -- Mr. Right to my left, was my district director at the time.

I had Christy and Deborah and Jodie and Ron and Linda Gillespie, all of them intervene for you. I came in at the very end and talked to the president. But not just myself, but every member of Congress, we helped hundreds and sometimes thousands of people every year.

Your case just happened to be life and death, and we put a lot of extra effort into it because we knew how important it was to get you health care as quickly as possible. But it's not just me. It's every member of Congress that tries to serve our constituents.

And my question will be to the gentle lady down to the far right. You said that your application, they asked several questions several different ways, and they were very tricky. Is it your understanding that that's a standard practice in the individual insurance markets? Do they start out with the intention of setting you up so that later on they may disqualify you? Is that your opinion?

MS. HORTON: Yes, that's my opinion. You know, I believe that they ask you the same question several times so that if you disclose it in one area or -- and then don't realize that you need to disclose it again that they can somehow say then that you have committed fraud.

REP. BARTON: Are you aware since your lawsuit if they have made some changes to that, in that questionnaire?

MS. HORTON: I believe that that was one of the things they were trying to negotiate with Blue Cross was changing the application, but I don't know what the status of it is.

REP. BARTON: Okay. My next question is to the gentle lady there in the middle. Your brother, has he had his stem cell transplant?

MS. RADDATZ: He did indeed receive the stem cell transplant. It was extremely successful. It extended his life approximately three- and-a-half years. He did pass away January 6th of 2009, and he was about to have a second stem cell transplant.

Unfortunately, due to certain situations his donor became ill at the last minute, and so he did pass away on January 6th. But again, it extended his life nearly three-and-a-half years. And at his age, each day meant everything to him. And each day that we had him was wonderful.

And my daughter, who is behind me and I -- and his wife and his other brother Richard, we spent the last 30 days, every single day with him at his side. And like I say, there couldn't be any better memorial to my brother than what this committee is doing because life is so precious.

And in spending those last moments of his life with him for 30 days at the end, we realized how important this work you're doing is. And we just want to say again from our family thank you all so much.

We know, Mr. Gordon here, that you've been working around the clock, seven days a week, and very, very hard. And Mr. Gordon, thank you and your staff for all your hard work.

REP. BARTON: Ms. Beaton, what have your doctor's told you, your condition would've been had you had the mastectomy immediately as originally scheduled? Would you have had to undergo the chemotherapy and would you -- is it probable that the cancer would've spread to the lymph nodes as it apparently has?

MS. BEATON: They said that everyday that I put off the surgery was a really -- you know, a day that the cells just multiplied and grew. And I think there was a strong chance that in the beginning that maybe I didn't have to have a -- I could've had a lesser surgery and not have had my lymph nodes taken out. I would've had to have chemo maybe not for quite as long a period of time.

REP. BARTON: If you don't -- if it's personal, and it is personal, and you don't have to tell us, but would you tell us as much as you can about your prognosis right now? Is the expectation positive for your chemotherapy and cancer remission or is it still up in the air?

MS. BEATON: Still up in the air.

REP. BARTON: It's still up in the air.

Mr. Chairman, my time is about to expire and I'm going to yield back. I think I speak for every member of the committee and both sides of the aisle.

We want to hear from the insurance companies in the next panel, but it is clear that if in fact there is a practice of going in after the fact and canceling policies on technicalities, we've got to do whatever is possible to prevent that.

I mean, I think a company does have the right to make sure that there's no fraudulent information, but it's obvious to me -- I'll guarantee you in Ms. Beaton's case there was no fraud intended, and I'm convinced and the other two witnesses that there were being truthful and honest also. And if a citizen acts in good faith, we should expect the insurance companies that take their money to act in good faith also.

And I will tell you, Ms. Beaton, we will monitor your case and we will stay in touch with Blue Cross Blue Shield of Texas. And so long as you do what you're supposed to do, I'll guaran-damn-tee you they will do what they're supposed to do.

With that, Mr. Chairman, I yield back.

REP. STUPAK: Thank you, Mr. Barton.

Ms. Schakowsky for questions, please?

REP. SCHAKOWSKY: Thank you, Mr. Chairman. And after hearing the testimony I want to even thank the witnesses more for sharing this. I wanted to talk about rescissions for unrelated medical conditions.

I understand that they scour the records to find anything, but Ms. Beaton, let me understand what happened to you. After your insurance policy began, you developed breast cancer and the insurance company decided to investigate your application, but it didn't find any evidence that you had breast anything before you got your policy, did it? So it was rescinded because essentially a pimples, right? Is that what you're saying?

MS. BEATON: They rescinded because the -- no, what had all start it was the red flag. That was when that -- what that means is that something is suspicious. So they red flag you. Then they go back and just cut your chart apart.

And what they found was on my weight. I think I put down. I say what woman's going to tell you what she really weighs. You know, I weighed more than what I put down. And they said that they might not have given me a policy because I was overweight.

And then the second thing was -- I had a -- in my earlier years, I had a previous fast beating of my heart, and I didn't have a problem with that anymore. But anyway, that was brought up. Everything they could possible dig up in my whole life history got brought up unrelated to the cancer. Nothing related to the cancer.

REP. SCHAKOWSKY: So if we lie about our weight at all, we better look out, eh?

MS. BEATON: They'll get you.

REP. SCHAKOWSKY: Oh, oh, I better change my driver's license or something.

And Ms. Raddatz, it sounds like your brother had a similar experience. He signed up for an insurance policy, then was stricken with aggressive form of lymphoma, and the insurance company, which is now part of Assurant, investigated his application, but it didn't find any evidence that your brother had cancer before his insurance policy, right?

MS. RADDATZ: That's correct.


MS. RADDATZ: Did not have cancer prior to -- at the time he signed up, he did not have cancer.

REP. SCHAKOWSKY: So it rescinded his policy based on alleged misstatement about gall stones and a -- you said -- did the aneurysm or -- which is what, a weak blood vessel, right? Does that have anything to do with it? Anything?

MS. RADDATZ: Nothing whatsoever.

REP. SCHAKOWSKY: And he -- did he --

MS. RADDATZ: The gall stones actually, like I said, he never even knew he had gall stones. He actually wrote down he had kidney stones -- (laughs) -- and was treated for kidney stones. So when he got that letter, he thought that was an error. Oh, they must have meant the kidney stones. But he disclosed that he did have kidney stones and they knew that when they gave him the insurance. He never knew he had minor gall stones, never to his death was ever treated for any gall stones, and was never treated for any aneurysm.

REP. SCHAKOWSKY: So in addition then to having an unrelated medical condition, it was something he didn't know about at all. So when we hear, as perhaps you will, about fraud from the insurance companies, he told -- he even mentioned kidney stones that he didn't have, is that you're saying?

MS. RADDATZ: He did have kidney stones --


MS. RADDATZ: -- and he did disclose those and was treated for those. And he was given insurance despite the fact that he had kidney stones. But had they not been able to find his doctor, who was retired and on a fishing trip in another state, they still might not have believed him because he had no knowledge of it.

Luckily, they were able to find -- (laughs) -- the doctor who was able to say, oh, yes, I never discussed those issues with him. I never treated him for those. They were very minor and they appeared on a CT scan, but we never engaged in any treatment for those whatsoever and I never disclosed them to the --

REP. SCHAKOWSKY: But ultimately even that, didn't it take the attorney general to get it changed?

MS. RADDATZ: Oh yes, it did, it absolutely did. Like I said, Lisa Madigan at the Attorney General's Office and Dr. Babs Waldman were wonderful, and their staff were just incredible.

They were working daily on this file, because they knew that the clock was ticking everyday, and their investigations were --

REP. SCHAKOWSKY: But what I'm asking is even if they found the doctor on the fishing trip, and the doctor had said what he thought, that wasn't enough?

MS. RADDATZ: It wasn't. At that point, they still wrote a letter saying, "No, too bad. It was a material lack of disclosure." And that they -- then Dr. Waldman had to contact them again, and discuss it further.

REP. SCHAKOWSKY: And Ms. Horton, your situation is that you were -- that your policy was rescinded because you were seeking some insurance coverage or -- how did that work for you?



REP. STUPAK: Turn on your mike, please.


MS. HORTON: It's green. Can you now hear me? Okay. I was seeking the policy when I was going over from a group health insurance.

REP. SCHAKOWSKY: So this is just a denial from the beginning because of?

MS. HORTON: I was accepted, and then the first time I went to see a doctor, I received a letter from Blue Cross stating that they wanted all of my medical records. And it was a bill for just routine blood work. It was to test my T4 level, which is your thyroid hormone.

And so it was routine blood work that anyone who has an under- active thyroid, which I disclosed, would get. And I paid almost three times more in premiums than they needed to pay out.

And they still sent me to this, you know, post-claims underwriting department where they went through my medical records. They found, you know, mention of something in her notes that she'd never disclosed to me.

And both the doctors wrote letters in support of the fact that they had not discussed this condition with me, that they suspected I had, but could not prove. And --

REP. SCHAKOWSKY: So we know that -- it seems obvious that anything that might relate to cancer treatment they're going to scour the records. In your case it might have been something about the blood work that you were having?

MS. HORTON: In my case it just proves that there's no condition too small that they're willing to send you to this department for. And you know, I did not have anything even close to life-threatening nor as expensive as some of the people on the panel.

And it just shows you that you can't be too young or you can't be too healthy for them to send you to this department.

REP. SCHAKOWSKY: Thank you, Mr. Chairman.

REP. STUPAK: Mr. Burgess for questions, please.

REP. BURGESS: Thank you, Mr. Chairman.

Ms. Beaton, let me ask you. Blue Cross and Blue Shield came back to you after finding out you needed the surgery, and said that they were taking your insurance. And the date of rescission was dated back to the date of enactment of the insurance, is that correct?

MS. BEATON: I'm kind of hard of hearing.

REP. BURGESS: But your rescission was effective on 12/07 which was the date that the insurance was initiated, is that correct?

MS. BEATON: Right. They gave me back all my premiums.

REP. BURGESS: Okay, that was going to be my question. They refunded the --

MS. BEATON: I never cashed the check, because Mr. Barton told me never to cash it, and I never did. But they rescinded all my money back to the day that they said that -- in other words, in simple language they wanted nothing to do with me.

They gave me back every penny that I'd ever given them, and they considered never having been -- never been insured by them.


And Ms. Raddatz, what about in your brother's situation? Was there a refund of premium back to the date of the rescission?

MS. RADDATZ: Yes, they didn't actually get to that point, but -- because it got resolved before they refunded the money. But they sent a letter stating, yes, you are rescinded to the date of the original contract which was before my brother had any cancer treatments at all, and $200,000 back. So my brother would have had to pay out of pocket over $200,000 in medical expenses.

REP. BURGESS: But they never got to the point where they sought that refund from your brother?

MS. RADDATZ: Well, again the $200,000 was the amount that his medical bills --

REP. BURGESS: Okay, so those were subsequent bills?

MS. RADDATZ: Right, that would have been what he would have had to pay out because they were rescinding their contract. And so they were then stating we're rescinding all the way back to the original date of the contract, so you've never had any insurance at all for the entire time you've had cancer. You now have no insurance.

REP. BURGESS: So that was actually -- that retroactive pronouncement also dealt with the money that they had used to pay for his cancer treatment to date, is that correct?

MS. RADDATZ: That is correct.

REP. BURGESS: Now, on -- in your brother's situation also, I think you said that he was told he would have to have a certain sum of money or he couldn't get the bone marrow transplant, is that correct?

MS. RADDATZ: That's correct.

REP. BURGESS: Now, is -- that -- but that wasn't the insurance company that told him that, that was the medical facility?

MS. RADDATZ: It was the hospital coordinator. When I called to literally beg her to schedule the stem cell transplant because my brother was on pins and needles --


MS. RADDATZ: -- being ill, going through aggressive chemotherapy and readying himself for this transplant which is a long, step-by-step procedure medically. Then they wouldn't schedule him because the insurance company said he is no longer insured, so we will not schedule you for your stem cell transplant that you were supposed to have within the next three weeks.

We will not schedule you. So I got on the phone and literally begged her and no.

REP. BURGESS: Let me ask you a question. It doesn't really have to do with the subject of the hearing today, but it figures into the larger discussion that we're having.

Was any other plan delineated for you then that there -- another option you might have would be Medical School at Northwestern, or Cook County, or were there any other options discussed?

MS. RADDATZ: No, there really weren't, because my brother's doctor was one of the most renowned doctors in the whole world on the specific routine of treatment. And he had a very specific type of cancer that really had to be treated by that doctor in that hospital at that time.

And you can't just -- you can't just say, well, okay, you can have it a couple months down the road, or you can wait. I mean, and again, the attorney general's office realized thankfully because it's headed by a doctor, a medical doctor, that time was of the essence.

REP. BURGESS: But it's -- just -- I can recall multiple times when I was in practice, you come up on these situations and you find a way to make it work for the patient. I guess I'm a little frustrated in your situation.

And Ms. Beaton, your situation is that you were essentially allowed or offered no other option. I appreciate the fact that the -- particularly for that type of non-Hodgkin's lymphoma that they may require very, very specialized type of care.

I -- my frustration is as a physician, I just cannot tell you the times that I found another hospital or another way to make it happen, and not wait the lengths of time that you all are discussing.

And Ms. Beaton, in Tarrant County, I mean, there's -- there is, I mean, there's a county hospital.

There is a -- was that ever -- was that -- did anyone ever try to help you through that tangle to try to get any care through John Peter Smith?

MS. BEATON: I couldn't qualify for that, but what I did do is I moved in with my sister in Zerial (ph) for a while so I could declare residency and went to Parkland Hospital, the Dallas County Hospital, tried to get help there, get on a waiting list for a mastectomy. And three or four times, I went there, and they lost my medical records.

They said, why are you here? I said I'm here, I have cancer, I need to get a mastectomy. They said we'll put you on the waiting list. Well, I do believe with all my heart that today my name still wouldn't be up on the waiting list, because they never even contacted me back.

But I'm thankful to say that in trying to get help like you said, going to all the county hospitals, applying for the state programs, doing all that kind of stuff, Mr. Barton got my insurance reinstated. And I was able to have insurance with the original doctor who I wanted to have insurance with.

REP. BURGESS: Sure, and I appreciate that. And I think that's -- I believe in continuity of care, and I believe that's important. And again, that the other aspect is really not a part of our discussion today, but it is part of our broader discussion as we talk about strategies for the future. I want to thank every one of our panelists for being here today.

Ms. Horton, I didn't get to you, it's not because I was afraid to get to you. I just didn't want have an opportunity, but thank you too for your testimony as well. It was all very important today.

Thank you, Mr. Chairman, I yield back.

REP. STUPAK: Mr. Gingrey for questions, please.

REP. GINGREY: Mr. Chairman, thank you.

And I'm going to direct my question to Ms. Beaton. Am I pronouncing that right, miss?

MS. BEATON: It doesn't matter, Bayton (ph), Beaton.

REP. GINGREY: Bayton, Ms. Bayton.

MS. BEATON: Hard name.

REP. GINGREY: Ms. Beaton, we of course heard and listened very intensely to your testimony, and -- quite compelling. And I wanted to take one quote from your written testimony.

And I think you said, "When you get on a waiting list, cancer grows." And I think that was in reference to the fact, as you just testified to Dr. Burgess, that you were on that waiting list at the county hospital.

There was an alternative, but thank god that your Congressman, and my colleague, Joe Barton, was able to intervene, and you were able to get the care at the private hospital, and by your physician that you trusted, and that you wanted to do the surgery.

And this statement that you made is absolutely right. I don't know if you know it, but I'm a physician too, an ObGyn doctor before being elected to Congress. And your statement is a profound one indeed, when you get on a waiting list, cancer grows.

And when we look at statistics of countries where you routinely get put on a waiting list, like the U.K. and others, and in particular in the treatment of breast cancer. In our country, where hopefully you don't get put on a waiting list when you've got breast cancer, you get operated on quickly, the five-year overall survival rate for breast cancer is 98%.

But in the U.K. system where you frequently get put on a waiting list, the five year survival rate for breast cancer is 78%. That is a significant change, and as you described to us, that 2 centimeter mass grew to 7 centimeters, and lo and behold, you had to have your lymph node removed and I guess some of those were positive by the time you finally got operated on, is that the case?


REP. GINGREY: Well, let me -- with that information, let me ask you this question, and it relates to you in particular, but it relates to everybody in general. And I'd appreciate your thoughts on ways that you think that we can strengthen the private market, so that other people, anyone with chronic illness can find affordable health insurance.

Or do you think we should turn over our health care system, lock, stock, and barrel to the compassion and efficiency of our federal bureaucracy?

MS. BEATON: Me? All I can say is that I did go many, many different places trying to get help, and I spent hours and quit work and did all my focusing on -- instead of focusing on getting well, and focusing on my cancer, I focused on trying to get treatment.

And I went to every hospital in Dallas. I went to county hospitals, I went to Fort Worth, I went everywhere. And I don't know how to fix it, but all I know is there's something terribly wrong with the health care system, because when you go to big hospitals, and there are so many people there waiting for help.

In other words, I went to all the clinics, I sat with all the people that I just can't even imagine how many people are there waiting for help. You spend hours and hours, you probably spend the whole day trying to see a doctor. I did that, I did that for weeks and never got help.

So -- and the bad thing about that is when you go to different hospitals they give you different opinions. Every time I went to a different hospital, my tumor was a different size. Every time I went to another hospital, one person wanted to do one thing, one person wanted to do another, you get a difference in diagnoses, a difference in treatment plans.

So who do you listen to, who do you not listen to? And I don't know how to fix it, but all I know is that when you have to go through this, and like everyone has been through what we've been through, you just realize that it's something that's broken.

REP. GINGREY: Ms. Beaton, I'm going to reclaim my time, because I've just got a few seconds left. But I'd really thank you for that testimony, and I think you're absolutely right.

There is something that needs to be fixed, something is broken. And when we hear from the second panel, from the insurance companies, I'm going to make some suggestions to them how we can fix this system.

But it is my firm belief, Ms. Beaton, the other two, Ms. Horton, Ms. Raddatz, that we can fix this system without as I said turning it over lock, stock, and barrel to a federal bureaucracy that routinely is going to ration and put people on the waiting list.

But we'll get into that later, and I want to thank all three of you for being here today and giving us such compelling testimony.

REP. STUPAK: So we go to Mr. Walden, but please don't accept Mr. Gingrey's description of a possible health care plan for the nation based upon those comments. Some of us on the other side see it a little differently.

But Mr. Walden for questions, please.

REP. WALDEN: Thank you, Mr. Chairman.

I appreciate the opportunity. I had to step out to another hearing I'm involved in upstairs, but I read your testimony this morning, and so I appreciate what you've been through, although none of us can really understand what it's like to be in your shoes or that of your loved ones.

It's not a good thing. And so I want to thank -- we had two physicians here, both Dr. Gingrey and my colleague from Texas, Dr. Burgess, and I think that's good to have. I hope at some point, given CMS' role in overseeing HIPAA that perhaps we could have a federal agency that also has a role in this to come before our subcommittee as well to find out their take on what's happening.

Ms. Horton, you've stated that you think the applications are deliberately confusing. I've looked through some of those -- (laughs) -- and I understand what you mean.

But could you be a little more specific, the kinds of questions that you found difficult and confusing?

MS. HORTON: I haven't looked at the application in four years since I first filled it out, so I can't be super-specific. But I do remember them, you know, after looking at it again with my sister and my brother-in-law, they both said you'd have to be a doctor or a lawyer in order to figure out the application and fill it out to 100 percent accuracy.

REP. WALDEN: Yeah. How would each of you improve that application process? Because it seems to me like that's kind of the crux of the argument here is there are things you didn't know that were on your medical records, your loved one's records, that they didn't know.

And I don't know how you ever disclaim knowledge of something you have no knowledge of. That to me is one point here.

And then the second is to know as a layperson if you were on some medication years ago, and you haven't been taking it, it'd be easy to forget that, I would think, or perceive that you don't -- no longer have whatever that was that you took the medication for.

So you don't note it, or you forgot it. And yet you know, we also know there are cases of fraud, and those people that were like you with individual policies pay more because people were deliberately trying to get on the rolls. And our files that we got from the companies indicate that too.

And so I'm trying to figure out how do we get a balance here where people like you and your loved ones aren't rescinded from coverage, and yet find this balancing seems to get back to the initial application process, the review of those applications, and a better understanding for those of us who may be signing up for that type of health insurance.

So I'm curious how would you fix at least that part of the process. Anyone want to tackle that?

MS. RADDATZ: I would just state that the insurance company at the time you apply for insurance and you disclose your doctors, they have -- they should be the ones that have to do the investigations. If they don't do the proper investigation at the time you apply, they shouldn't have the right to go back years later.

You know, there's two years -- there's a two-year window --


MS. RADDATZ: -- for the insurance companies by which they can do their investigations. No. That's wrong. They should have to investigate before they give you your insurance. They have all the opportunity to investigate then.

You disclose your doctors, let them get the records, let them look at and comb the records at that time. Why are they doing that later one, when --

REP. WALDEN: When you have a big claim?

MS. RADDATZ: Pardon me?

REP. WALDEN: When --

MS. RADDATZ: Absolutely. I mean, if that isn't intentional, what is? They want to save money and wait until you have claims before they spent the investigative money to do what they should do at the beginning.

So all this time they haven't done their job. They're taking the consumer's money and the consumer thinks, I'm insured. But I'm not insured, and that's not right. That law needs to be changed.

REP. WALDEN: Ms. Beaton, do you want to comment on that?

MS. BEATON: Yes, just like myself, I asked that I have a physical --

REP. WALDEN: Right, I read that.

MS. BEATON: I wanted to have a physical for a insurance, and they said, no, we don't do that. So I even offered to let them have a physical on me, which to me that would be a good thing. You know, that way if there's anything they don't want, they don't like to take --

REP. WALDEN: We have that in Medicare I think, in your entry into Medicare.

MS. BEATON: Yes, they don't do that at all. So they don't want to spend the money for a physical to give it to you to rule you out then, so you don't get your hopes up and think you have the insurance.

REP. WALDEN: Okay, all right.

MS. HORTON: I completely agree with what Ms. Raddatz said, and just wanted to add, you know, after this practice happens, which hopefully we're going to stop it from happening in the first place, but then when your physicians write letters on your behalf --


MS. HORTON: -- and aid you in appealing to these insurance companies, the fact that they give no weight whatsoever to what these physicians who've been treating you for years say, it's totally unconscionable.

REP. WALDEN: Yeah, and we've -- I was reading through some of those examples of people, you know, were rescinded and their physician says that the patient would have no idea of this. It's a note I put in a file I never shared with them. And that's -- that would be -- that doesn't seem right, does it?

Would it be helpful -- and I realize I've run out of my time, but would it be helpful if there were also -- it seems like there's yes and no columns on these forms. Given that I don't think any of you are physicians, would it be helpful if there may be was an "unsure, don't know" column as well that you could check?

Which then, I would think if I'm the insurer would cause me to go, ah, there may be something here I should look in further. And -- because I mean, the insurers, if you read through their testimony, they make the case that look, this -- it's a very small percentage although it's a very painful percentage, I'm just telling what they're telling us, small percentage.

If we did everyone it would slowdown people getting access to insurance, blah, blah, blah. And so they're saying, you know, we go investigate those where we have cause or an issue. That's something we will get into on the next panel.

But you know, there is this notion that it's a very small segment of the population, and so, you know, to get people covered they go this direction.

MS. HORTON: I don't believe that it's a very small segment of the population. I believe that they send anyone who sends in a claim to this post-claims underwriting department. And I've heard many people who formerly worked from, you know, at insurance companies --


MS. HORTON: -- talk about these secret, you know, specific units that are designed to find errors, or omissions, or whatever you want to call them in people's records, so that they can go back and save money.

REP. WALDEN: And I think we actually get some of that testimony from our final witness from Georgetown that says it may be a small percentage, but it's a -- perhaps a big percentage of the claimed costs. And I -- real quick, Ms. Raddatz.

MS. RADDATZ: And I'd just like to say those are the people you know of. There are many people out there who lose their insurance and then go on Medicaid, go on welfare, go without insurance. You're not aware of who those are. Those are their numbers. Those aren't the consumer's numbers.

We don't really know how many people are out there. And you know what, I don't care if there's just the three of us. That's too many. One too many who dies because an insurance company canceled their insurance is one too many.

REP. WALDEN: All right.

Ms. Beaton, any final comment? If not -- I just wondered if you had any final comment on that point. It's okay if you don't.

MS. BEATON: I'm real hard of hearing. What did you say?

REP. WALDEN: I just wondered if you had any final comment.

MS. BEATON: Well, I just agree with both of what they said, and I know so many people in my cancer group that I wish could be here and talk to you that you wouldn't believe their stories.

So it's a common practice. And you'll never know how common it is, and when they hire nurses to investigate who sit their whole shift, do nothing but review medical records looking for things to get rid of people, that just shows you right there.

REP. WALDEN: Indeed. Thank you very much.

Thank you, Mr. Chairman, for your indulgence.

REP. STUPAK: Thank you. I ask unanimous consent that a statement from Rosa DeLauro, member, be placed in the record.

Let me just ask a question. You know, we've focused sort of on what happened to you three, as we should and rightfully so, but you know, we found close to 20,000 cases where there were rescissions over the last few years from three insurance companies here who'll be testifying in the next panel.

I mean, there are even people like a spouse gets in a bicycle accident, has some fractured bones, and they deny because their husband had back surgery. What bearing that had on that lady's fractures is beyond me, but that's what we're seeing.

But Ms. Beaton, one thing I want to ask you, in your testimony you stated, and I'm going to quote now, that you "Live with fear everyday of my insurance company." What are you afraid of your insurance company might do?

MS. BEATON: Without a doubt, someday they'll cancel me. Someday Mr. Barton won't be there to protect me. And you know, I'm young, and they'll find something to get rid of me. Somehow, I won't have insurance.

Someday, I'll be at a Blue Cross or Blue Shields record, they'll find a way to get rid of me and coming here today, I think that'll just about may be do it.

REP. STUPAK: So if you lost your insurance, are you afraid you'd never get insurance from another company since you've been rejected once?

MS. BEATON: If I lost my insurance, what?

REP. STUPAK: Are you afraid you would not be able to pick up another individual health insurance --

MS. BEATON: Oh, I am uninsurable. I'm uninsurable. The only way I could ever get insurance, through being a registered nurse I could go back to work in a hospital, and be covered under a group. They could not deny you that way. I've done a lot of research about that.

But as far as an individual policy, for the rest of my life, I'm uninsurable.

REP. STUPAK: Because of your preexisting condition?

MS. BEATON: Because of my cancer.


MS. BEATON: Once you have cancer, you are uninsurable for ever.

REP. STUPAK: Okay, thank you.

And I apologize, Mr. Deal, I didn't see you there, but five minutes for questions.

REP. NATHAN DEAL (R-GA): That'll teach me to wear a light- colored suit -- (laughs.)

Thank you, Mr. Chairman. Thanks, I just simply wanted to express appreciation to the witnesses for coming today. Certainly none of us condone abuses within the system, and you've pointed out some of those that appear to be in that category.

And I know that it took a great deal of effort on your part to come and we appreciate your courage, and we appreciate your time that you've devoted to it. I do not have any questions of you. I think your testimony speaks for itself.

Thank you, Mr. Chairman, I yield back.

REP. STUPAK: Well, that was pretty quick. Any other -- okay. Well, let me thank this panel for their testimony, their heartfelt testimony, and thank you for shedding light on this and bringing a human face to a very serious problem.

We'll have our next panel and -- but thank you all for coming and thank you for your testimony.

MS. BEATON: Thank you all.

MS. RADDATZ: Thank you very much.

REP. STUPAK: I'd now like to call up our second panel of witnesses. On our second panel we have Don Hamm, who is the chief executive officer of Assurant Health; Mr. Richard Collins, who is the chief executive officer at Golden Rule Insurance Company, which is owned by UnitedHealth Group; Mr. Brian Sassi -- am I saying that right?

MR. SASSI: Sassi.

REP. STUPAK: Sassi, who is president and CEO -- chief executive officer at WellPoint, Incorporated; and Ms. Karen Pollitz, who is a research professor at Georgetown University Health Policy Institute.

Welcome all of our witnesses. It's a policy of the subcommittee to take our testimony under oath. Please be advised you have the right under the rules of the House to be advised by counsel during your testimony.

Do you wish to be represented by counsel during your testimony?

MR. HAMM: Yes, if necessary.

REP. STUPAK: Mr. Hamm, you would?

MR. HAMM: Yes, if necessary.

REP. STUPAK: Okay. So if at any time during the questions if you want to get advice from counsel, just let us know and we'll allow you. Counsel can't testify, but they can advice you.

Mr. Collins?

MR. COLLINS: No, sir.

REP. STUPAK: Mr. Sassi?

MR. SASSI: No, sir.

REP. STUPAK: Ms. Pollitz?

MS. POLLITZ: No, sir.

REP. STUPAK: Okay, so then let me have you -- we're already standing. Let's raise your right hand, we'll take the oath.

(The witnesses were sworn.)

Let the record reflect the witnesses replied in the affirmative. They are now under oath, beginning with their opening statement.

You have five minutes for an opening statement. You may submit a longer statement for inclusion in the record.

Mr. Hamm, if you don't mind, I'll start with you. We'll start from my left, then go to our right.

MR. HAMM: Chairman Stupak, Congressman Walden, members of the subcommittee, I am Don Hamm, president and CEO of Assurant Health. I welcome this opportunity to participate in the hearing today.

It is through dialogue like this that we can continue to address one of the most challenging issues of our time, providing health insurance coverage for all Americans.

We appreciate that this subcommittee and Congress are committed to finding the right ways to address health care reform. If a system can be created where coverage is available to everyone, and all Americans are required to participate, the process we are addressing today, rescission, becomes unnecessary because risk is shared among all.

I passionately believe that all Americans must have access to high-quality, affordable health care regardless of their income or their health status, and I am proud to lead a great company that provides health coverage to individuals and families in 45 states.

People need our products, and we are proud to provide them to thousands of Americans. Individual medical insurance is portable and belongs to each consumer.

In these uncertain economic times, individual medical provides benefits to a growing population who do not receive (employee ?) sponsored health care coverage.

That's why individual medical is so important. We work hard to ensure our health questions include simple, easy, and straightforward language. A correct medical history is necessary so we can fairly assess the health risk of each applicant.

The vast majority of people complete the enrollment form accurately. The underwriting process depends on this information and we rely upon the consumers' disclosures.

People applying for individual insurance are given multiple opportunities to verify, correct, and complete the information they provide. They are given 10 days to notify us of any inaccurate information or to reject the coverage.

At Assurant Health, we are acutely aware of how our coverage affects people's lives. It is a responsibility we take very seriously. Unfortunately, there are times when we discover information that was not disclosed during the enrollment process.

And when this information is brought to our attention, we ask additional questions to determine if the information would have been material to the underwriting risk we assumed. Accurate risk- assessment keeps rates lower for all.

Assurant Health does not want to rescind coverage. We are in fact in the business of providing health care coverage. We regret the necessity of even a single rescission.

The decision is never easy, and that's why we follow a fair and thorough process that includes a number of careful reviews. Here's how our system works.

When we become aware of a condition that existed prior to the application date, and that information was not disclosed, a senior underwriter reviews the omitted information to determine if it was material to the underwriting decision.

Then an underwriting manager verifies the analysis. If the omission was not material, the review is complete. If the omission was material, the underwriter makes a recommendation to a review panel, which includes at least one physician.

This review panel evaluates the information and makes a decision. The amount of a potential claim is never disclosed to the underwriters or to the review panel. The decision to rescind is only made when the undisclosed information would have made a material difference to the underwriting decision based on our guidelines.

The consumer is given the opportunity to provide additional information before coverage is rescinded. This information is evaluated and a decision is made.

If the consumer is dissatisfied with the decision, we provide multiple opportunities to appeal, which now includes an option to request a medical review by a independent, third-party company.

Rescission affects less than one-half of 1 percent of the people we cover. Yet it is one of many necessary protections for affordability and viability of the individual health insurance in the United States.

Assurant Health supports the principle that everyone in the United States deserves affordable health care, and we see reform of our nation's health care system as a shared responsibility between doctors, consumers, health insurers and policymakers, who collectively can deliver effective solutions to provide coverage for all Americans.

And that is why Assurant Health, we will continue to participate in efforts to reform and improve health care in America. Thank you.

REP. STUPAK: Thank you, Mr. Hamm.

Mr. Collins, your opening statement please, sir.

MR. COLLINS: Good morning, Chairman Stupak, Ranking Member Walden, members of the subcommittee. Thank you for inviting me to testify today.

My name is Richard Collins. I'm the CEO of Golden Rule Insurance Company. We're a UnitedHealth Group business that sells insurance -- health insurance policies to individuals and their families.

Golden Rule has been offering this important coverage for over 60 years. We seek to offer innovative and affordable products to meet the diverse health care and financial needs of our customers.

In our current health care delivery system, the individual insurance market operates primarily for families who do not have access to group insurance or government benefit programs.

We have long advocated that our country needs comprehensive reform that includes modernizing our delivery system, tackling the fundamental drivers of health care cost growth, strengthening employer-based coverage, and providing well-targeted support for low- income families.

To be effective, we believe the modernization of the individual market needs to contain all the following elements. First of all, individuals must be required to obtain and maintain health coverage so that everyone participates in both the benefits and the costs of the system.

Second, insurers should be able to set rates within limited parameters of age, geography, family-size, and benefit design, just as they do in the group market.

However, and I want to emphasize this point, rates should not vary on health status, and coverage should be guaranteed regardless of preexisting medical conditions for those that maintain continuous coverage.

Third, low and middle-income families should receive some form of subsidy to ensure they have the same access to care as all Americans.

Fourth, insurers should be able to offer a wide spectrum of plan designs to allow American families the flexibility to choose a plan that fits their budget.

And lastly, the tax treatment of individual insurance premiums should be on par with employer coverage. Until comprehensive reform is achieved, we believe the medical underwriting of individual policies will continue to be necessary.

If these changes are instituted, most of the reasons for individual medical underwriting, as well as most of the reasons for rescissions and terminations of policies, would cease to exist.

Our company mission is to improve the health and wellbeing of all Americans. In the individual market, we accomplish this by covering as many consumers as possible with quality health insurance.

We also work to keep our products affordable to accomplish our mission, because the primary barrier to access is affordability. We understand that we have a responsibility to treat all of our policyholders fairly, and I assure you we take this responsibility very seriously.

Unfortunately, for a variety of reasons, some people choose not to purchase individual health insurance until they have a significant health event. This decision not only has enormous physical impact and financial impact on these families, but raises the cost of health care for everyone.

As you know, the practice of rescission has long been recognized by the laws of virtually every state. Rescission is uncommon, but unfortunate and a necessary recourse in the event of material and at times intentional or fraudulent misstatement or omission on an insurance application.

Under our current system, failure to act on these cases is fundamentally unfair to those working families that play by the rules because it severely would -- it would severely limit our ability to provide quality and affordable health insurance.

In the rare event that we determine it's necessary to rescind coverage, and after a thorough investigation of the facts and in compliance with state laws and regulations, we follow practices and procedures designed to ensure a fair and transparent process for the individual.

And as I indicated our use of rescission is rare. Less than one- half of all -- one-half of 1 percent of all individual insurance policies in 2008 were terminated or rescinded, and in each case the affected customer was afforded the right of appeal.

In conclusion, we look forward to working with this committee, the Congress, state and federal regulators to continue to expand access to affordable health insurance coverage in the individual market. Thank you.

REP. STUPAK: Thank you.

Mr. Sassi, your opening statement, please.

MR. SASSI: Thank you, Chairman Stupak, Ranking Member Walden, and members of the committee for inviting me to testify before you today. I'm Brian Sassi. I'm the president and CEO of the consumer division of WellPoint.

We take contract rescissions very seriously because we understand the impact these decisions can have on individuals and families. We have put in place a thorough process with multiple steps to ensure that we are as fair and as accurate as we can be in making these difficult decisions.

I want to emphasize that rescission is about stopping fraud and material misrepresentation that contribute to the spiraling health care costs. By some estimates, health care fraud in the U.S. exceeds $100 billion, an amount large enough to pay for covering nearly half the 47 million uninsured.

Rescission is a tool employed by WellPoint and other health insurers to protect the vast majority of policyholders who provide accurate and complete information from subsidizing the cost of those who do not. The bottom-line is that rescission is about combating cost driven by these issues.

If we fail to address fraud and material misrepresentation, the cost of coverage would increase, making coverage less affordable for existing and future individual policyholders.

I would like to put this issue in context. While most people who are under the age of 65 obtain health insurance through their employers, some 15 million Americans purchase coverage in the voluntary individual market.

In a market where individuals can choose to purchase insurance at any time, health insurers must medically underwrite applicants for current health risk. If an individual buys health coverage only when he or she needs health care services, the system cannot be sustained.

While we understand and appreciate that this is a critical personal issue, individual market rescission impacts an extremely small share of the individual market membership. In our experience we believe that more than 99 percent of all applicants for individual coverage provide accurate and complete information.

In fact, as a percentage of new individual market enrollment during 2008, we rescinded only one-tenth of 1 percent of individual policies that year. The issue of rescission in health insurance surfaced in the media in 2006 and 2007, generating the public concern that we're here talking about today.

Our main point today is the same as it was then. A voluntary market for health insurance requires it protect our members from cost associated with fraud and material misrepresentations. Otherwise the market cannot be sustained.

In response to the public concern over the practice of rescissions, in 2006, WellPoint undertook a thorough review of our policies and procedures. Following that review, WellPoint was the first insurer to announce the establishment of a variety of robust consumer protections that ensure rescissions are handled as accurately and as appropriately as possible.

These protections include, one, creating an application review committee which is staffed by a physician that makes rescission decisions; two, establishing a single point of contact from members undergoing a rescission investigation.

And three, establishing an appeal process for applicants who disagree with our original determination, which includes a review by an application review committee not involved in the original decision.

And then in 2008, WellPoint was the first in the industry to offer a binding, external, independent third-party review process for rescissions.

We have put all of these protections in place with multiple steps because we cover millions of Americans and want to be as fair and as accurate as we can be. Some have asserted that health insurers provide a systematic reward for employees regarding rescissions. This is absolutely not the case at WellPoint.

I want to assure the committee that there is no WellPoint policy to either factor in the number of rescissions or the dollar amount of unpaid claims in the evaluation of employee performance or in calculating employees' salary or bonuses.

In response to policymaker interest in enacting consumer protections related to rescission, WellPoint is proposing a set of rescission regulations with new consumer protections. And I have outlined these in my written testimony to the subcommittee.

In addition, the health insurance industry has proposed a set of comprehensive and interrelated reforms to the individual health insurance market as a whole. The centerpiece of this proposal is the elimination of medical underwriting combined with an effective and enforceable personal coverage requirement.

In other words, insurers sell to all applicants regardless of preexisting conditions as long as everyone enters the risk pool by purchasing and maintaining coverage. This would render the practice of rescissions unnecessary.

Our proposals are examples of how we are working to find common ground on these issues so that we can make quality, affordable health care available to all Americans.

Thank you for the opportunity to discuss this issue and our proposals with you. I look forward to your questions.

REP. STUPAK: Thank you.

Ms. Pollitz, your opening statement, please.

MS. POLLITZ: Thank you, Mr. Chairman, members of the committee. I'm Karen Pollitz, and I study private health insurance and its regulation at Georgetown University.

Thank you for holding this hearing today. Health insurance rescission is a serious issue of utmost importance. In addition to the devastation that it visits on people.

The problems explored today can teach us broader lessons that will be important for health care reform. The individual market is a difficult one as we all know and because it is small and voluntary and vulnerable to adverse selection, there has been a lot of resistance to enacting a lot of incremental reforms to govern practices in this marketplace.

However, with the enactment of HIPAA in 1996 the Congress did act to apply one important rule broadly to all health insurance, including individual health insurance and that is the rule of guaranteed renewability. Prior to HIPAA, individuals and small employers who bought health insurance and then made claims would sometimes have their coverage cancelled.

And HIPAA sought to fix that by requiring, and I quote, "Except as provided in this section, a health insurance issuer that provides individual health insurance coverage to an individual shall renew or continue in force such coverage at the option of the individual."

Only narrow exceptions to guaranteed renewability are permitted. And with respect to policyholders' behavior, the policy can only be renewed or discontinued, or can be renewed or discontinued only if the individual moves out of the service area, fails to pay their premium, or commits fraud.

Congress relies on states to adopt and enforce HIPAA protections and the federal government is supposed to directly enforce when states do not. As states implemented HIPAA they adopted the guaranteed renewability rule, but other conflicting provisions in state law remained unchanged. In particular, laws governing so called "contestability periods" continue to permit insurers to engage in post-claims underwriting and to rescind policies or deny claims based on reasons other than fraud and failure to pay premiums.

State laws create a window usually two years, when claims made under a policy can be investigated to determine whether they may be for a preexisting condition. After the period of incontestability, a policy can be rescinded or a claim denied only on the basis of fraud. But during the window, if a claim is submitted by a new policyholder, the original application for coverage is reinvestigated and if any, even unintentional, material misstatement or omission is discovered consumers may lose their health insurance. That conflicts with HIPAA.

Now clearly when it comes to post-claims underwriting, protection against fraud is important, but there is evidence that some insurance companies are not nearly as careful as they should be in their initial medical underwriting and rely instead on post claims underwriting to catch their mistakes later. Applications for coverage may ask broad, vague, or confusing questions, use technical terms, and make it very difficult for consumers to answer accurately and completely. Or policies that -- other follow-up that should occur in the initial underwriting may not. For example, if a 62-year-old submits an application indicating absolutely no health problems or health histories, that application may be considered in coverage issue without any further investigation at the time of the application.

Market competition and profitability create pressures on medical underwriters to do their jobs more quickly and cheaply. However, if medical underwriting is allowed in health insurance, it has to be completed upfront before coverage is issued. The recent subprime mortgage scandal where banks issued mortgages without adequate screening of consumers' financial status offers an analogy.

When insurers issue medically underwritten coverage without carefully screening an applicant's health status and rely on post claims investigations to avoid incurring a loss, consumers are vulnerable. How extensive is this problem? It's hard to say. The industry has offered its own estimates, but official data are lacking and that is troubling.

The federal government has not kept track of this issue. At a hearing of the Government Oversight Committee last year, a witness for the Bush administration testified that she had not acted on press reports of inappropriate rescissions or even looked into them. She did not appear aware -- appeared to be aware of conflicts in current state law and she testified she had only four people on her staff who worked part-time on HIPAA private insurance issues.

In conclusion, Mr. Chairman, this investigation into health insurance rescission has trained a spotlight on an important question. If the Congress enacts a law or an entire health care reform proposal, how will you know if that law is being followed? It is fundamentally important that along with federal protections for health insurance you also enact reporting requirements on health insurers and health plans so that regulators can have access to complete and timely data about how the market is working in order to monitor compliance with the law.

Congresswoman DeLauro has introduced a bill to create an office of federal -- a federal Office of Health Insurance Oversight that establishes such reporting requirements on insurers and that appropriates resources so that the federal government and state insurance departments together can carry out those responsibilities. I hope the Congress will follow her leadership and make adequate oversight and enforcement resources part of health care reform.

REP. STUPAK: Well, thank you.

And thank you all for your testimony. We'll go to questions.

Mr. Sassi, let me ask you this because you're -- you threw a bunch of statistics at us, but I was just looking at the State of California alone and it seems to me, if I remember correctly, in July of 2008 Anthem Blue Cross, which is a subsidiary of WellPoint, paid a $10,000 fine and had to reinstate 1,770 rescinded policies. And in February of '09, once again, California Anthem Blue Cross, again, one of your subsidiaries, had to pay a $15 million fine and reinstate over 2,300 rescinded policies. And then another settlement, ($)5 million, and another 450. So it seems like in the last year you've had to reverse 4,500 rescissions and pay a fine of $30 million just in one state. Is that true?

MR. SASSI: I don't believe the numbers are exactly accurate, but the premise is accurate. The issue of rescission first surfaced in the media particularly in California, I believe, in --


MR. SASSI: -- '06 and '07 and shortly thereafter one of our regulators initiated a -- an audit, issued audit findings.

We disputed the majority of those findings and our response is appended to that audit report. The regulator subsequently did change --

REP. STUPAK: Well, according to California Department of Management Health in July of '08, last year, July 17, 2008 you entered into agreement with California to --

MR. SASSI: Yes, we --

REP. STUPAK: That's -- over 1,700 people in a -- what a -- $10 million fine and in February 2009 California Department of Insurance also put out a release indicating that you paid a $15 million fine and had to provide, reinstate 2,300 people. So that's -- according to my math that's about just over 4,000 and 25,000 -- $25 million in fines, right?

MR. SASSI: Yeah, I think the -- there wasn't a $15 million fine to the Department of Insurance. Irregardless of that, you know, companies enter into --

REP. STUPAK: Let me ask you this.

MR. SASSI: -- or individuals enter into settlements for a variety of reasons.

REP. STUPAK: Let me ask you this. And I'll ask all three of you, why don't you just vet these policies before you ever collect a premium? Why don't you just go through these policies and make sure there's no problems with it before you insure the people? Only one state requires you to do that and that's Connecticut, right?

MR. SASSI: Chairman, we do investigate. The applicants are -- we have very rigorous underwriting requirements. As we review an applicant's application, we rely on the applicants to be truthful and completing.


MR. SASSI: And our experience has shown that over 99 percent of applicants are truthful in completing their application.

REP. STUPAK: So when do you do the --

MR. SASSI: We rely on that.

REP. STUPAK: When do you do the investigation then?

MR. SASSI: Well --

REP. STUPAK: Well, why are we getting these post underwriting going on? Why does that occur?

MR. SASSI: Well, I would contend that we don't participate in post-claim underwriting. If --

REP. STUPAK: Really? Well, let me ask you this.

MR. SASSI: If there is a situation where either a pharmacy claim was received, or a preauthorization for a hospital stay is received, or a claim that's received that would hit either a specific diagnosis that could lead to potential fraud that would trigger an underwriter to investigate and --

REP. STUPAK: Well, let me ask you this. In the book, they are right there and I believe it's tab number 11, that's our document you gave us, WellPoint provided the committee with list of conditions that automatically lead to an investigation post underwriting, okay. And for WellPoint, the list of conditions that trigger a rescission investigation includes diseases ranging from heart disease and high blood pressure to diabetes and even pregnancy.

So what do these conditions have in common that would cause you to investigate patients with these conditions for a possible rescission? You have 1,400 different conditions which will trigger, according to your documents, which will trigger an investigation.

MR. SASSI: Chairman, an investigation does not mean that a rescission actually occurs. For example, in 2008 --


MR. SASSI: -- there were over 16,000 investigations triggered, 92 percent of those were dismissed.


MR. SASSI: And no action was taken --

REP. STUPAK: Right. But why do you have 14 different conditions which trigger an investigation now? What's the common theme amongst these 1,400 that would trigger an investigation?

MR. SASSI: I would say there is no common theme other than these are conditions that had the applicant disclosed their knowledge of a condition at the time of initial underwriting. We may have taken a different underwriting action. And so that is what the investigation really is about is to determine did the applicant have the condition? Did they know about the condition?

REP. STUPAK: I thought you said you did pre-screening before, you screen them before.

MR. SASSI: We do, but in many of these applications --

REP. STUPAK: Well, then why would you have to go back? If you screened them before and there wasn't a problem, then why would you have a list of 1,400 different conditions that triggers investigation? If you prescreen, if your prescreening is good, you wouldn't need a list of 1,400, would you?

MR. SASSI: But unfortunately there are those among us that are not truthful in completing their application.

REP. STUPAK: So in 1,400 different areas they lie, the applicants lie, or is it really a cost issue?

MR. SASSI: Yeah, rescission is not --

REP. STUPAK: These are 1,400 expensive areas, aren't they?

MR. SASSI: Yeah, rescission is not a balance cost. A pharmacy claim that's $20 could trigger something.

REP. STUPAK: I'm sure if it's for a certain condition, right? Heart disease?

MR. SASSI: No. No, not necessarily.

REP. STUPAK: Okay, all right. My time's up.

Mr. Walden.

REP. WALDEN: Thank you, Mr. Chairman. I just like to ask each of the companies present, is it your company's policy to deny coverage to any applicant that discloses that he or she has had previous policies rescinded? You heard some of the witnesses today say look, once I get rescinded no company is going to write me again on an individual policy. Is that correct?

Mr. Sassi?

MR. SASSI: I am personally unaware of that policy.

REP. WALDEN: Mr. Collins?

MR. COLLINS: Sir, we do have that question on our application, but I am not aware as to whether or not the -- what the underwriting guidelines are. So we ask if you've been rescinded or declined by another carrier.

REP. WALDEN: But you don't know what happens with that information?

MR. COLLINS: No, sir. I imagine it triggers an investigation, but I don't know if there is an underwriting policy that's directly linked to that though it's a black and white policy.

REP. WALDEN: Mr. Hamm?

MR. HAMM: Yes, we would not provide coverage in that situation.

REP. WALDEN: So do you ever look to see if a rescission -- the circumstances around another company's rescinding of a policy before you just -- I mean, if they checked the boxes, yeah, I was rescinded in the past?

MR. HAMM: Our --

REP. WALDEN: You don't --

MR. HAMM: Our underwriting guidelines are that we would not issue that policy.


Mr. Collins, is that your underwriting? Can somebody tell you from your -- is that your underwriting policy too?

MR. COLLINS: I don't know, sir. But I'd be happy to get back to you with an answer on that.

REP. WALDEN: And Mr. Sassi, is that your company's policy?

MR. SASSI: Again, I am not aware of the policy. I would be happy to research it and provide a response for the record.

REP. WALDEN: You obviously sat here and heard the testimony of the prior witnesses. And some of the information we've seen indicates there are mistakes made in rescinding policies, at least from our standpoint. And I think you've settled some cases and all along those lines. After hearing that testimony and all, do you think it's -- it should be your company's policy to just not issue a private insurance policy to somebody who had been rescinded by another company? Should that be the policy of your company?

MR. SASSI: Well, as I stated for the record, I'm not aware that that is the company policy.

REP. WALDEN: And I'm -- I --


REP. WALDEN: I stipulated that.

MR. SASSI: I think that is a factor --

REP. WALDEN: Should it be?

MR. SASSI: -- that should be considered.

REP. WALDEN: But I'm hearing, at least from Mr. Hamm, that it is the -- your company's policy that if they are rescinded by another company it's a no-go coming to your company. That's correct, right? I heard you correctly.

Mr. Collins, do you think that it should be once you find out whether it is not? Do you think it ought to be?

MR. COLLINS: Well, sir, I think we should investigate the circumstances.

REP. WALDEN: Well, I do too. I mean, if somebody did lie on a prior form that's one thing. If they are truthful in your form though should that, because they made a mistake in the past, should they never be forgiven? That means they never have a shot at health insurance again?

MR. COLLINS: Well --

REP. WALDEN: I mean, let's take Ms. Horton's case. You know, as you heard her situation, you heard her fear. So she'll never get offered coverage again. Is that right?

MR. SASSI: I agree it should be something that should be investigated and considered.

REP. WALDEN: Right. Most of your company policies approve a decision to rescind if an applicant made any material misrepresentations or omissions in the application. And I understand that. How does your company ensure the applicant was aware of the condition or notation found in his or her medical records? We've had some testimony along that -- along those lines of -- and we've seen some -- in some of the files where they say I -- you know, my doctor never told me that. And we have letters from physicians who say that's correct; I make notes all the time in the medical files. I didn't tell the patient that. How -- where's the balance here?

Mr. Hamm?

MR. HAMM: We have a very fair and thorough process of determining if there was a material misrepresentation. The process involves several layers review and a review panel including a medical doctor. In that process, we gather all the available information with respect to a person's use of medical services including medical records as well as information on their application. And we'll do a detailed research and look at each situation, based on the facts make a determination whether there was a material misrepresentation when the policy was underwritten.

REP. WALDEN: So do you look at the case files? Do you look at the medical records? Do you communicate directly with the physician?

MR. HAMM: We will communicate when it is necessary.

REP. WALDEN: What about to determine the material misrepresentation if -- I mean, what happens in a case where the physician says, I never told the patient that?

MR. HAMM: It's difficult to speak of a hypothetical situation.

REP. WALDEN: I understand.

MR. HAMM: It depends on the facts of each time. I can tell you that we would not rescind a policy if the applicant was not aware of the condition.

REP. WALDEN: Mr. Collins?

MR. COLLINS: Sir, we afford the customer the right to appeal and we accept statements and information from the customer and their physicians with regards to the circumstances of the rescission. And we would take that into account. And I think it's a fair -- fair- minded people would say that if a individual did not know of a condition that was noted in the medical record, then that would not be grounds for a rescission normally.

REP. WALDEN: Mr. Sassi?

MR. SASSI: We also have a thorough process. When we initiate a rescission investigation, we do reach out to the member and share with them the information that we do have and ask them to provide us with any comments or other relevant information. And all of that information is used in making a recommendation. And all that information is provided to our application review committee that actually makes the rescission decision.


MR. SASSI: We would not rescind a member that we could determine did not know of their condition.

REP. WALDEN: And Mr. Hamm's company, I know, about a week-and-a- half or two weeks ago started this third-party independent review opportunity, correct?

MR. HAMM: That is correct.

We recently implemented that.

REP. WALDEN: And I commend you for that. I think that's a good move.

Mr. Collins --

In your company, Mr. Sassi, do you have a similar sort of independent review panel that an insured could go to and make their case?

MR. COLLINS: No, sir, we do not have an independent review panel.

REP. WALDEN: Do you plan to have -- to go that route? Is that something you're thinking about or --

MR. COLLINS: It's under consideration, but we haven't made that decision, sir.

REP. WALDEN: Mr. Sassi?

MR. SASSI: Congressman, we were the first insurer to implement an independent third-party review and we implemented that in July of 2008.

REP. WALDEN: Okay, so last July. All right, my time has expired.

Thank you, Mr. Chairman.

REP. STUPAK: Well, thanks. Third-party review, that was because California made you do it, right? Your third-party --

MR. SASSI: No, absolutely not. It was --

REP. STUPAK: Really? Okay, because in your opening statement all you said you had announced robust consumer protection. So I want to know what's the difference between announcing and implementation. I want to see if you had implemented those robust consumer protections. Have you implemented those robust consumer protections you mentioned in your opening statement?

MR. SASSI: Yes, absolutely.


MR. SASSI: In my written testimony to the subcommittee we've outlined 10 recommendations. We have implemented 8 of those 10 recommendations.

REP. STUPAK: Okay, so 8 of the 10 are there, okay, okay.

Mr. Hamm, you said you would not reject or rescind a contract for a policyholder if the policyholder had no knowledge of it. Well, that's the Raddatz case. That was our last case, that was Otto Raddatz. He didn't have any idea he had gall stones and aneurysm. And your company rejected him.

MR. HAMM: Mr. Chairman, I would really like to comment on that case.


MR. HAMM: But due to privacy concerns, I'm not able to. But I can tell you that in situations when we uncover that the individual was not aware of the condition we would not go forward with the rescission.

REP. STUPAK: So -- but do all your clients and the policyholders have to get a hold of the attorney general of their state to get it done? I mean, that's what Raddatz had to do and you denied him twice.

MR. HAMM: We have a very detailed appeals process. In fact, when we -- after the three levels review and the entire committee voting for a rescission, we notify the customer. We give them 15 days. We delay the rescission giving them an opportunity to respond back to us with additional information. And when it does come in, we have a different underwriter look at the appeal and they may appeal as many times as they would like.

REP. STUPAK: Raddatz only had two or three weeks to get his stem cell.

MR. HAMM: We go through a process as fast as possible.

REP. STUPAK: And I apologize again, Mr. Deal. I didn't see you there. You got to change the color of your suit. I'll go over to you for questions, please.

REP. DEAL: I'm going to have to remind the chairman Georgia was the fourth state admitted to this Union.


And Michigan was still Indian territory. We don't need to be overlooked. Thank you, though -- (laughs.) We didn't win that argument though -- (laughs.)

Normally, we are confronted here with the question of do we need new federal legislation? And the gentlemen from the insurance industry have all uniformly told us that if we will pass a federal mandate of having everybody mandatorily in the insurance pool that all of these problems will go away.

What I find interesting, Ms. Pollitz, is that you brought up a question that nobody has seemed to answer. In your testimony, you point out that in 1996 the HIPAA provisions required that in individual health insurance policies that not only is it a guarantee of renewability, but you say continuation in force.

Now are you -- do you interpret that phrase to mean the non cancellability that we've been talking about here?

MS. POLLITZ: Yes, sir.

REP. DEAL: And if so if that is what the law that has been in place since 1996 means, why are we having this discussion?

MS. POLLITZ: Well, I'm not sure if I can answer that second question. But I think I should say I'm not an attorney. I just read English and the words say "continue in force." And the only exceptions that among the ones we're talking about today are fraud and that is inconsistent with what these other kind of post-claims underwriting guidelines that are -- there are provisions that are in state law provide for which say that fraud is the only defense or the only reason for canceling after a two-year period so that essentially new policyholders can't ever quite be sure if they are really covered.

The insurance industry kind of gets a due-over and gets to look again. And any material omission whether -- material just means it matters, it doesn't mean that it was fraudulent, it doesn't mean -- it just means that it matters to the insurance industry that can become basis for challenging coverage. Sometimes coverage is rescinded; sometimes it's terminated going forward.

The -- some insurers won't rescind a policy because they don't want to get into an argument with doctors and hospitals who may already have been paid to try to get their money back. And so they'll just cancel the policy going forward and sometimes a pre-ex will be imposed. But with respect to cancellation and rescission, I think the Congress spoke on this in 1996 and --

REP. DEAL: And none of the five exceptions to that --


REP. DEAL: -- fit the discussions here unless it is elevated to the level of fraud.

MS. POLLITZ: That is correct.

REP. DEAL: And I would ask the entire panel, are you aware of any court interpretation or any question that has ever been raised as to the applicability of this section 2742(a) of the Public Health Service Act as it relates to the issue we're talking about here today as to whether or not it, in fact, does preclude cancellation for, whatever we might call it, whether we call it post review underwriting?

MR. HAMM: Congressman, may I speak to that?


MR. HAMM: This is a legal issue, but I don't believe that rescission is considered a non renewal.

REP. DEAL: Well, but it doesn't just stop when it says, "shall renew," it says, "or continue in force." I guess, if you read that phrase "or continue in force" to mean the same as renew, then it would actually be a redundant phrase which the law generally does not favor redundancy.

Has this ever been challenged, Ms. Pollitz?

Anybody know that it's ever been raised before?

MR. COLLINS: I have no knowledge, sir.

REP. DEAL: Okay. Well, let me go then into the second part of my question. And that is we then go to the states having their statutory periods generally two years as has been pointed out for review.

But Mr. Hamm, you pointed out that under your policies, I believe, you said that you give the potential customer 10 days to review the application and to notify the company of any errors and 10 days to just say we don't want to have the policy in effect. Are there any states that currently have in place a period of time for insurance companies to mandatorily review for these kinds of misstatements, in other words, review the medical records within a given time other than the two-year period? Do any states have a shorter timeframe?

MR. HAMM: I'm not aware of that. We comply with all applicable state statutes and in, I think, it's almost states we have a 10-day free look where we send the customer a copy of their application, remind them that they are attesting to the accuracy of it, ask them if they have any questions or changes. And then as part of the policy and a welcome letter we reinforce the importance that we receive all the disclosed information appropriately.

REP. DEAL: If though something was going to be rejected based on information that was in an application or information in the medical records that were either, for whatever reason, not disclosed it seems to me that two years is a rather lengthy period of time. And in practical application it seems that even in that two-year period it takes some other triggering mechanism to institute the review that there is no normally dictated review of the applications unless something triggers it or brings it to your attention.

Should there be a timeframe shorter than this two-year period? And should there be a review that takes place prior to a triggering act taking place?

MR. HAMM: Let me clarify that we do not post-claims underwrite. We ask information of every single applicant to the company and 88 percent of the time we receive additional information from them. And we ask them to fully disclose all their information. It's only when we are aware subsequently that there was some information that was omitted or inaccurate that we would investigate whether a rescission should be made.

REP. DEAL: But that would be that triggering act. And you wouldn't know about that unless something in by way of a pharmaceutical being prescribed or an office visit in the doctor's office or a hospitalization.

MR. HAMM: That is correct.

REP. DEAL: What I'm asking is just as you give the policyholder 10 days to review the application to figure out if it's correct, should there be a comparable, maybe, longer obviously, I think, longer period of time in which the company without some triggering act should be required to review the applications and say, hey, we think there's something wrong or ask for additional information rather than waiting until people get in a posture where they probably are uninsurable at the time the issue was raised?

MR. HAMM: That's something to discuss and give some thought to.

REP. DEAL: Thank you, Mr. Chairman.

REP. STUPAK: Mr. Burgess for questions.

REP. BURGESS: Thank you, Mr. Chairman. And that's -- the last point of Mr. Deal is, I think, is an excellent one and likely would have eliminated the problem for at least of the three witnesses that we had in front of us this morning.

But let me just ask Mr. Hamm, Mr. Collins, Mr. Sassi after -- you were here and you heard the testimony this morning of the three individuals who testified. What do you think after hearing that? Is that something that -- and again, I'm coming from this from the perspective of someone who supports the individual insurance market. I was a customer of the individual insurance market at one time. I may be again in the future.

I recognize the value that you bring and I want you to be able to continue to do the type of business that you do. But you heard the comments, the opening comments of the chairman of the subcommittee this morning. There is a move afoot to do things in a way that would be very difficult for you to do business in the future. And I, for one, would not like to see that happen. But tell me what your impressions are after hearing the testimony that you heard this morning.

MR. HAMM: I'd be glad to respond to that Congressman and I have to say I really felt bad. You know, I have a lot of empathy for the people that are impacted and I know in my own life I've dealt with the cancer. And I just have a lot of empathy and concern for the people and it's my hope that there will be changes made, that this will no longer be necessary.

It's just that today when we have a voluntary system of insurance where people choose, we have to collect information upfront to underwrite. And if we didn't have that process then people would wait until they had a health condition before applying for coverage. And the rates would be much, much, much higher than they are today.

I chaired the group with an AHIP that put forth reform proposals. And in our proposal we suggest that the country should move towards a guarantee issue environment with no pre-existing conditions being excluded as long as everyone is required to participate.

REP. BURGESS: Let me --

MR. HAMM: And if everyone participates --

REP. BURGESS: Yeah, let me --

MR. HAMM: -- then there is no need for rescission and a price nor an increase for those currently covered.

REP. BURGESS: All right. You've brought that up. What do you do with the segment of society that's just not going to participate? I mean, there will be -- that -- well, that segment of society will exist whether it's the individuals who are in this country without the benefit of social security number, whatever that number is, 10 million, 12 million, people who just don't comply.

We live in a free country and they don't like mandates. Look at the people who don't comply with the mandate of the IRS right now knowing the penalties that are out there waiting for them if they get caught. So people are perfectly willing to fly beneath the radar. What then? Will these people be rated on whether or not they had a preexisting condition? Are they just absorbed then by the larger taxpaying public who does play by the rules and pays their bills on time?

MR. HAMM: We believe that the requirement to purchase insurance should be in force.

We believe that those who don't have the means should be subsidized. And we would look forward to working with Congress to find a solution that's workable for all Americans. But I believe every American must have access to high quality health care and we have to work together to find out how we can make that happen.

REP. BURGESS: Well, you and I will fundamentally disagree on that point. And I think the approach that was taken by Congress in the development of the Part D Program in Medicare for all of the faults (ph) initially rolling it out, creating programs that people actually want, that are actually useful for people will be a better way of going about that.

The coverage rates for prescription drugs among seniors now in excess of 90 percent with a very high satisfaction rate and clearly, in my mind at least, that is a better strategy than simply layering another mandate on the American people or the employers of America. But I don't disagree with you that something needs to happen. And let me just take this to a different level, and again I want to pose this question to all three. And I really would like an answer from all three on this.

If there were a system of universal coverage, without government intervention in the marketplace, is there a better way to accomplish our goal of universal coverage without that excess market manipulation by the government. Insurance companies have used adverse selection methods that deny or cancel policies in the individual market.

Apparently it happens also in other markets to the extent that this has been allowed in law. The business interests almost dictate those actions. Yet, some of us have argued that if we let the market work you can make an innovative product for all.

So here is my question, will you today publicly and clearly commit right now that regardless of what happens in Washington, whatever decision that we reach on health reform, that you will design a product for all populations regardless of claims history but also economic status.

And I would like an answer to those questions individually, a product for all populations regardless of claims history, and all populations regardless of economic status. Would Mr. Hamm, why don't you go first and then we will just go down the row.

MR. HAMM: I'm having a little difficulty following your question, sir, if I may understand specifically what you are asking.

REP. BURGESS: Regardless of what we do, whether we do an individual or a business mandate, employer mandate, maybe we don't do a mandate at all. But you have it within your power to design a product so that all populations, regardless of claims history, could be covered. Would you be willing to do that?

MR. HAMM: In the current system that would not be feasible. We need to have an environment where all Americans are required to participate before we could give those assurances.

REP. BURGESS: So you would not be willing to alter business practices if there were a way to do that to provide coverage for a greater segment of the population even with the claims history?

MR. HAMM: If the reforms proposed by AHIP are adopted then we'll be very glad to participate in the system, but it is necessary that all -- (cross talk) -- participate, when it's a system where people choose, we need to have the process of assessing risk at the time of the application.

REP. BURGESS: With all respect, the reforms proposed by AHIP are not going to happen. You are going to get a plan as your chairman outlined here this morning.

Mr. Collins, can I get you to answer briefly, would you be willing to design such a product?

REP. STUPAK: Briefly, we are going to have votes here, quick.

MR. COLLINS: Sir, I -- with -- respectfully have to agree with Mr. Hamm that a guarantee issue product that would fit all people at an affordable price is a -- is economically, practically impossible. What I would suggest is that HIPAA also creates alternative coverage mechanisms for each and every state.

So each state is supposed to have a high-risk pool or an alternative coverage mechanism and these high-risk pools have been woefully under-funded. So one of the things that could be done right now today is to increase the amount of funding going into those high- risk pools so that people that have those serious health issues that are otherwise uninsurable in the individual market have a place to go that's affordable and affords them the care that they need.

REP. BURGESS: And on the issue of high-risk pools, I think the private sector is going to be required to make a contribution to that as well, and that you all in the private sector, whether it be group insurance or individual market, there must be a product that is available to everyone regardless of their claims history. Yes, they may require a federal subsidy. Yes, they may require a state subsidy. And yes, the private sector may have to bring something to the table as well.

Mr. Sassi, let me ask you --

REP. STUPAK: All right that's it, last question Mr. Burgess, you are just going on. Go ahead.

REP. BURGESS: Let me ask you then just to answer the --

REP. STUPAK: Last one.

REP. BURGESS: -- opposed to the other. Regardless of the claims history in the population, would you be willing to make a product available?

MR. SASSI: I have to agree with my colleagues here that in the current voluntary individual market we could not guarantee issue policies where people could jump in and out of the insurance market. We have had experience of states that have implemented guarantee issue without an effective enforceable personal coverage mandate.

And unfortunately, that has resulted in significant cost increases that have to be borne by others in the individual market. So the answer would be, no.

REP. BURGESS: Mr. Chairman, you have been very generous with your time. Again, I would just stress that this is going to take creative thinking outside the box. I don't think you are going to get what you want in the AHIP proposal. You are going to get more of something that looks like what the chairman outlined to you at the beginning. And I would urge you to think creatively about this problem because this is the difficulty that leads us to where we are here today. And I can't help you --

REP. STUPAK: Okay, questions or speeches are over.

REP. BURGESS: -- I can't help you if you are not willing to move on this issue.

And thank you, Mr. Chairman, I yield back.

REP. STUPAK: We hope the chairman's -- not my plan -- but our side plan does work, we do hope that, and I won't argue it with you now. That's for another hearing. But let me ask you now and we may be getting another round there, we are going to have votes here in a few minutes.

Now, each of you provided to the committee information that relates to certain medical conditions that automatically triggers an investigation in the possible grounds of rescission.

Mr. Sassi, I left off with you. You had 1,400 different conditions that automatically triggers investigation.

Mr. Hamm, on behalf of Assurant there are 2,000 conditions that trigger investigation that you provide to the committee, these include breast cancer, ovarian cancer, and brain cancer.

Why does cancer trigger investigation?

MR. HAMM: What triggers the investigation --

REP. STUPAK: No, why does cancer trigger an investigation?

MR. HAMM: I will answer it. What triggers the investigation are the types of medical conditions of a chronic nature where there is a high probability that the condition would have preexisted at the time of the application. It is not based on the cost of the claim, it's based on the medical condition. In fact, the people that make the rescission decision are not aware of the cost of claim. It's all about the information gathered --

REP. STUPAK: If it's the medical conditions -- if it's the medical condition, then before you sign them up why don't you get all the medical records, why don't you find it then? Why do you wait and until there is -- there is a claim?

MR. HAMM: If we were to receive all the medical records at the time of application, that would delay the process significantly, delaying people's access to health care and would add a tremendous amount of costs to the product --

REP. STUPAK: Well --

MR. HAMM: -- the vast majority of applicants provide all the information that's asked for at the time of application.

REP. STUPAK: So it's a cost issue.

MR. HAMM: It's --

REP. STUPAK: It's too costly to get the medical records?

MR. HAMM: It would add to the -- yes, it would add to the premiums that our customers would pay by a significant amount.

REP. STUPAK: So what does it cost $40, to get medical records?

MR. HAMM: I'm not familiar with the costs. But it would also delay the process.

REP. STUPAK: But isn't it better to delay the process to make sure a person is insured as opposed to pulling them when they are going through cancer like Mr. Raddatz?

MR. HAMM: The vast majority of our customers provide the appropriate information.

REP. STUPAK: So did Mr. Raddatz, but you still denied him coverage, right?

MR. HAMM: I unfortunately cannot comment on that particular case.

REP. STUPAK: Mr. Collins, I'm asking the same question of United. You insisted that you also use a computerized system to identify cases to automatically investigate for possible rescission. But there is no one at your company who knew how the computer decides which file should be reviewed. So is it the case that United has put the decision of which patients will have their health care treatment interrupted by a rescission investigation in the hands of a computer that no one understands?

MR. COLLINS: No sir that is not true. I haven't really been privy to the discussions between my staff and your staff on this issue. We've been trying to come to an understanding about how to best provide the data in a format that's easily understandable --

REP. STUPAK: Well --

MR. COLLINS: -- but that means to say --

REP. STUPAK: But can you tell us what conditions the computer considers for a possible rescission investigation?

MR. COLLINS: No single factor is used in our process to trigger an investigation. So we look at -- the system looks as it's screening claims that come in at the effective date of the policy, the effective date of the procedure, the severity, the type of service, and the diagnosis code those are all factors that go into the algorithm that pulls cases out for --

REP. STUPAK: Now, the algorithm, no one from your company could tell us. Will you commit to us today to produce whatever witnesses or documents that are necessary to explain your algorithm, your computer selection process? Could you do that? Will you commit to do that for us?

MR. COLLINS: Yes, sir.

REP. STUPAK: We are still trying to figure it out.

MR. COLLINS: We are trying to put it in a format that would be acceptable to the committee, sir.

REP. STUPAK: Dr. Pollitz -- Professor Pollitz, do you see a common thread among the conditions. I mean, you get 1,400 conditions, 2,000 conditions on a computer that you can't explain that does rescission. Why do you think they have all these rescissions?

MS. POLLITZ: I think the common thread is that if somebody makes a claim for anything serious in their first year there is an opportunity to go back and review the -- review the entire transaction to see if it's going to be withdrawn. I think that's just the common transaction. And I think it is not consistent with your federal law and whatever else you may do going forward --

REP. STUPAK: But as to the HIPAA law, basically we leave it up to the states, and then HIPAA has to be enforced by the federal government CMS, right?

MS. POLLITZ: That is correct, the ultimate enforcement.

REP. STUPAK: So the value of the law depends on the enforcement of the law.

MS. POLLITZ: Yes, it is. And there is a fine of $100 per day per effected individual for noncompliance with the law that can be levied.

REP. STUPAK: Let me ask of our CEOs this question, starting with you Mr. Hamm, would you commit today that your company will never rescind another policy unless there was intentional fraud -- fraudulent misrepresentation in the application?

MR. HAMM: I would not commit to that.

REP. STUPAK: How about you Mr. Collins, would you commit to not to rescind any policy unless there is an intentional fraudulent misrepresentation?

MR. COLLINS: No, sir. We follow the state laws and regulations. And we would not stipulate to that. That's not consistent with each states' laws.

REP. STUPAK: How about you, Mr. Sassi, would you commit that your company will never rescind another policy unless there was an intentional fraud, misrepresentation?

MR. SASSI: No, I can't commit to that. The intentional standard is not the law of the land in the majority of states.

REP. STUPAK: Would you think it's fair to rescind somebody for an innocent mistake?

MR. SASSI: Well, I think, applying a knowing standard is a much more objective and --

REP. STUPAK: Our first panel, none of them had any knowledge of it and they were all rescinded, right?

MR. SASSI: I am sorry.

REP. STUPAK: Our first panel, none of them knowingly made a misrepresentation, but they were all rescinded there were policies from Ms. Beaton all way down to our witnesses there, no one -- material misrepresentations, right?

MR. SASSI: It's our policy if we determine that the applicant did not know about a specific condition we would not rescind.

REP. STUPAK: Okay. So like Ms. Horton there you wouldn't have rescinded her but --

MR. SASSI: I can't speak to the specifics of Ms. Horton's case. I am not familiar with the specifics, I'm sorry.

REP. STUPAK: Mr. Barton -- Mr. Barton, for questions please.

REP. BARTON: Thank you.

I want to thank our witnesses for being here. This is a difficult situation. But -- and listen, when you all answered Chairman Stupak's question about unintentional omissions and to your credit you were honest that you would reserve the right to still rescind some of these policies, doesn't it bother you that people are going to die, because you insist on reviewing a policy that somebody took out in good faith and forgot to tell you that they were being treated for acne doesn't that bother you?

MR. HAMM: Yes sir, it does. And we regret the necessity that that has to occur even a single time and we've made -- exchanged suggestions that would reform the system such that that would no longer be needed.

REP. BARTON: Well, you know, I haven't heard your opening statements. I glanced that, I mean, I haven't heard the first round of questions. We understand the need to verify that people are telling the truth. We are not asking you guys or the insurance industry to automatically take somebody's word for, I mean I understand that.

But when I see advertisement after advertisement about be a part of the family, and you know we treat you like a, you know, our own family. And then somebody who doesn't have group coverage takes out an individual policy and runs into some situation where they have a health care issue that requires a major claim early in the policy, if they operate in good faith in taking out the policy and you approve them.

I really don't think it's good business practice to go back and try to figure out a way to rescind that policy. If nothing else, it's a false trade act, false trade practice, truth in advertising.

And one of the beauties of our constitution is a little thing called federal preemption. We have the authority on this committee to preempt state law if it's an interstate commerce. Now, we can't preempt state law in intrastate commerce but we can in interstate commerce.

And I don't think there is one vote on this committee for the practice of retroactively reviewing a policy to try to rescind it if you have a woman like, my constituent, Ms. Beaton, who discovers that she has got breast cancer or you have somebody who needs a stem cell transplant, or even the young lady from California who just needed some blood work done.

I mean -- we'll back you up on fraud and misrepresentation but I don't think you are going to get a vote at all on rescissions that are not material to the claim being processed. I don't know if that's a question that's just a statement. So if you like to comment on that I'd certainly like to give you the opportunity to do it.

REP. STUPAK: No one cares to answer.

MR. HAMM: I would just reinforce that rescission would only occur when the information was material to the initial -- to what -- if the situation -- if the information was material to the underwriting decision, only in that case.

REP. BARTON: Well Mr. Chairman, I'm going to yield back I mean I would --

REP. STUPAK: Okay. Could I follow up on that?


REP. STUPAK: Well, if it's material to the representation, let me ask you this. In your policy, Mr. Hamm, it states -- and it's the question number 14 on your questionnaire, your enrollment questionnaire. Now, tell me how you get a misrepresentation?

Within the last 10 years, this is what it says, because you say this, your Assurant Health enrollment questionnaires are simple, easy to understand, straightforward language, so people can easily and accurately report their medical history.

So your question says, within the last 10 years has any proposed insured had any diagnosis received treatment for or consulted with a physician concerning phlebitis, TIA, cystitis, lymph adenopathy, or glandular disorder. So tell me, what is TIA?

MR. HAMM: I am not aware, I believe --

REP. STUPAK: How would your -- if you don't know what it is how would anyone filling out your application know what it is? So there is grounds to deny on right there, you don't know what it is neither do I. How about phlebitis or lymph adenopathy, how about lymph adenopathy? What's that?

MR. HAMM: I don't know the answer to those questions.

REP. STUPAK: Do you sincerely believe an average applicant would know what these words mean if you don't know and I don't know?

MR. HAMM: Sir, I believe that is the application that is not currently used at this time. I would like to --

REP. STUPAK: It is last year's application. Last year's application in your -- then yes, last year's application. Have you changed your application last year?

MR. HAMM: I'm sorry sir, I didn't hear you.

REP. STUPAK: That's last year's application did you -- application, did you change it in the last year?

MR. HAMM: I'm not aware if we have changed that application.

REP. STUPAK: So as far as you know, that's your current application.

MR. HAMM: But I believe that our current applications in most states ask questions back to five years. So the 10 year might be different than what we issue today. I would need to --

REP. STUPAK: But it is the same questions, TIA, right, that you don't know what it is and --

MR. HAMM: I do not know what that is.

REP. STUPAK: Okay. Mr. Deal.

REP. BARTON: Mr. Chairman, I do have one question --

REP. STUPAK: Sure, sure, Mr. Barton. I took your time -- (cross talk.)

REP. BARTON: This is a hypothetical, but I just want to figure out what the answer is. I had a mild heart attack three years ago. So I now take six different medications everyday and I'm going to probably have to take those medications for the rest of my life.

And I'm covered under a group plan -- Blue Cross Blue Shield of Texas and it's available to every federal employee who lives in Texas. And my coverage has been good. I've never had a problem. But let's say, I quit the Congress and I go into business for myself and I try to get a private health plan like Ms. Beaton got when she switched jobs from being a nurse and went into business for herself.

On the application I have to list the medications that I'm taking, the fact that I had a heart attack, give the doctor, the time, the location.

But I broke my leg playing foot ball in high school. I got a 250- pound fullback ran over a 150-pound linebacker, I was the linebacker. Now, if I forget to put on my application with your companies that I had my -- the small bone in my left leg broken playing foot ball in 1967, but I do put all my mediations and my history of my heart attack, the fact that I omitted breaking my leg in 1967 is that a ground to rescind my claim, my policy later on?

Under your policies right now that your companies issue. I admit to my big problem, tell you the medications all the stuff but I've just flat forget that I broke my leg and was treated for a doctor, paid by the Waco Independent School District in 1967.

MR. SASSI: Congressman Barton, our underwriting guidelines really kind of dictate that but it's my understanding of how our underwriting guidelines work is that since that condition would not be material in our initial underwriting decision because it happened so far in the past and was of a non-serious nature that that would not have factored in -- to the underwriting.

REP. BARTON: And I understand you might not cover me because of my heart attack, I understand that. It would be totally within your company's right to say, "Congressman Barton had a heart attack in 2004 or 2005, therefore we can't issue him a policy," I understand that. My question is really about my leg injury from way back when -- if I don't disclose that does that disqualify me potentially on down the road.

Mr. Collins?

MR. COLLINS: Sir, the application is looking for information going 10 years back so that would be --

REP. BARTON: So that would not be material.

MR. COLLINS: That would not be material.

REP. BARTON: And Mr. Hamm.

MR. HAMM: The same answer as Mr. Collins.

REP. BARTON: Okay. Thank you, Mr. Chairman.

REP. STUPAK: Mr. Deal, for questions please.

REP. DEAL: Thank you, Mr. Chairman.

We are taking here in the private insurance market, and I believe Mr. Sassi you said that is somewhere in the 15 million range, is that correct?

MR. SASSI: Correct.

REP. DEAL: To you three gentlemen, do you also have policies that extent to ERISA type coverage plans, to all three of you?

MR. SASSI: Yes, WellPoint insurers one in nine Americans the vast majority of our members are covered under ERISA plans.

REP. DEAL: Mr. Collins.

MR. COLLINS: Yes, sir, the majority of our membership are also in group insurance plans, which are covered under ERISA.

REP. DEAL: Mr. Hamm.

MR. HAMM: The majority of our policies are individual. However, we do have some customers that is -- that are under ERISA.

REP. DEAL: Does the same problem pertain in the ERISA marketplace as in this private insurance marketplace, Ms. Pollitz, you indicated you think it does?

MS. POLLITZ: There is rescission in the --

REP. DEAL: I'm sorry, I can't hear you.

MS. POLLITZ: There is rescission in the small group market. It operates a little bit differently because that is a guaranteed issue market. But a similar process with -- if a claim is submitted during the pre-ex period, it is largely the eligibility of the members of the group and the family members of the group that will -- that will be reinvestigated to see if there is any way that the people who made the claim shouldn't have been on that policy in the first place.

REP. DEAL: But the state period is like two years do not apply because this is an ERISA plan.

MS. POLLITZ: Well, your pre-ex rules are also much tighter in the small group market. So Congress has said that these questions about 10 years ago, 5 years ago can -- those don't matter in the small group market. You are only allowed to apply -- an insurer is only allowed to apply pre-existing condition for something that was actually treated or diagnosed in the six-month window prior to coverage taking effect.

So anything that happened before that isn't even allowed to be considered and if the person coming into the policy had prior group coverage, that gets credited against the pre-ex so that can't be considered either. So it is mostly eligibility and I've seen -- (cross talk.)

REP. DEAL: Okay. I am going to try to be real quick here and I apologize cutting you off. With regard to what needs to be done, in the event we don't get the major reform that we all have been talking about, anybody else is talking about, in the event it becomes something of trying to narrow a time window in which insurance companies have the right to review medical records. Would it not be feasible that if we had electronic medical records that that would facilitate a more timely review, I would assume commonsense would say that it would.

Ms. Pollitz, do you foresee that consumer protection groups would oppose making those kind of personal medical records available for insurance companies to review in a timely fashion so that we wouldn't, not hopefully, have these situations to develop.

MS. POLLITZ: They are already available for review --

REP. DEAL: Well, we don't have -- we don't have the extent of electronic medical records that we all hopefully will have.

MS. POLLITZ: But the privacy rules that you have enforced today under HIPAA say that medical underwriting is a permissible reason for disclosure of medical records.

REP. DEAL: You would see no reason that anybody would raise that issue.

MS. POLLITZ: It's already permitted under current law.

REP. DEAL: The last thing and this is more of a comment than anything else. I think the issue that Dr. Burgess discussed with you about those who are now being excluded because of preexisting conditions, et cetera, I think we all know that our high risk pools are not effectively operated and certainly not existent in states some -- like mine for example.

I think we need to be looking at a policy, where we would, maybe take those funds that are available for high-risk pools, some of which are not being utilized, put them into an environment in which we could, perhaps with the sharing of some of those costs with the insurance industry, bring these individuals into the pool with the additional revenue that would be available from federal sources. I just simply suggest that something we all need to be thinking about, my opinion.

Thank you, Mr. Chairman. I yield back.

REP. STUPAK: Mr. Burgess, you want a question now or do you want to come back after votes? We only got five minutes so I'm going to have to hold you tight.

REP. BURGESS: Okay. I -- you know me, I can be really brief.

REP. STUPAK: I've never seen it yet. But go ahead if you want to try.

REP. BURGESS: (Laughs) -- well, just ask you, all three of you briefly, well you know, you've heard the discussion of the public option plan. What's your opinion of that?

MR. HAMM: I oppose a public plan option.

REP. BURGESS: Mr. Collins.

MR. COLINS: Sir, I believe that the -- with the reforms that are being proposed that we can make them -- the market work much better without a public plan.

REP. BURGESS: And Mr. Sassi.

MR. SASSI: We also oppose a public plan, we also feel that --

REP. BURGESS: Well, I don't want to be the one to have to break this to you but the reality is you are very likely to get a public plan, you are not likely to get the deal that was struck by AHIP down at the White House. I mean, I think you can see the handwriting on the wall.

I would urge you -- I would urge you to be to think outside the box on this. Well there are ways that we can solve this problem without going to a public plan, in my opinion, and without leaving so many people uninsured and without leaving so many people to fall through the cracks as we heard this morning.

Clearly, the situation, as it stands right now, is unstable. It's untenable, we can't continue it. But you guys have got to be able to come to the table with some innovative thinking on how we provide coverage to that segment of the population that is particularly vulnerable and needs the coverage. We don't need to turn the whole system on its head, just to cover that 10 (percent) or 15 percent that is right now left out.

But that's what we're going to do, if you don't help us with this. And the fallback position, I promise you, is a government run plan and that's what you are going to get if we don't work together on this issue. So I appreciate you all being here today.

Mr. Chairman, I appreciate the extra time and I'm going to yield back.

REP. STUPAK: Okay. So you didn't have a question on the subject of today's hearing? Okay.

In all fairness to WellPoint there, I said in my opening statement and if you care to comment, please do. I said in my opening statement in the committee investigation WellPoint evaluated employee performance based in part on the amount of money its employee saved the company through retroactive rescissions of health insurance policies.

According to the documents obtained by the committee, one WellPoint official was awarded a perfect score of five for exceptional performance based on having saved the company nearly $10 million through rescissions, and you care to comment on that? I think it's fair to give you an opportunity to comment on it.

MR. SASSI: Thank you, Chairman. During the process of collecting information requested by this committee, we did uncover two performance appraisals from 2003 that were isolated to one area within California that included one line each referring to retro savings in a dollar amount.

They were in the context of a part of the performance appraisals with other metrics, and they were part of a more comprehensive performance appraisal that was, I think, five to seven pages long. I reiterate my statement that WellPoint does not have a policy. It is not our -- it has not been our policy to systematically reward associates for performing rescissions for tracking the number of rescissions or the dollar amount --

REP. STUPAK: But didn't both of those employees receive bonuses somewhere between ($)600 to about ($)6,000 I think the range was?

MR. SASSI: It -- my understanding is that those associates received within the average compensation that all WellPoint associates received for that given time period.

REP. STUPAK: Okay, so it's not the reviewers, all your employees are getting that, okay. With your profits, I guess, you could give bonuses. All right, that concludes our hearing for today. The committee -- the committee rules provide that members have 10 days to submit additional questions for the record.

I have already had -- the record books have already been submitted for the record, we will redact any business proprietary or anything that relates to privacy concerns as law enforcement sensitive. So that will be entered into record.

That concludes our hearing. I thank all of our witnesses for coming and that concludes this subcommittee hearing. (Sounds gavel.)

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