Karl Vick of the Washington Post reports on the pernicious practice of insurance-policy "recission"--when insurers decide to cancel a policy on the grounds that they've been misled:

"They said I never mentioned I had a back problem," said Marrari, 52, whose coverage with Blue Cross was abruptly canceled in 2006 after a thyroid disorder, fluid in the heart and lupus were diagnosed. That left the Los Angeles woman with $25,000 in medical bills and the stigma of the company's claim that she had committed fraud by not listing on a health questionnaire "preexisting conditions" Marrari said she did not know she had.By the time she filed a lawsuit in 2008, she also got a diagnosis of pancreatic cancer and her debts had swelled beyond $200,000. She was able to see a specialist by trading office visits for work on the doctor's 1969 Porsche at the garage she owns with her husband.(...)In the past 18 months, California's five largest insurers paid almost $19 million in fines for marooning policyholders who had fallen ill. That includes a $1 million fine against Health Net, which admitted offering bonuses to employees for finding reasons to cancel policies, according to company documents released in court.

(Full disclosure: Health Net is my insurer.)

"We do not rescind a policyholder's coverage because someone on the policy gets sick," said Peggy Hinz, a spokeswoman for Anthem Blue Cross, a subsidiary of WellPoint. "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."Much of that process was a condition of settlements with state overseers, who fined Blue Cross $11 million over the past two years and required it, and all other major insurers in California, to restore canceled policies. Insurers still face court challenges, including a class-action suit targeting Blue Cross on behalf of 6,000 canceled policyholders.(...)In the only case to go to trial in California, an arbitration judge awarded $9 million to a beautician who had to stop chemotherapy for her breast cancer after Health Net dropped her policy. Company officials declined to comment.In a pending case, Blue Shield searched in vain for an inconsistency in the health records of the wife of a dairy farmer after she filed a claim for emergency gallbladder surgery, according to attorneys for the family. Turning to her husband's questionnaire, the company discovered he had not mentioned his high cholesterol and dropped them both. Blue Shield officials said they would not comment on a pending case.(...)For Teresa Dietrich, it was fibroids. The Northern California real estate agent was left to pay $19,000 after Blue Cross said she did not disclose a diagnosis of the benign uterine tumors. But Dietrich said the doctor who had written "fibroids" on her medical record never mentioned his suspicions to her. The bills destroyed her credit and cost her her home -- and, in a comically cruel twist, the surgery proved the doctor was wrong."They said I had a condition I didn't even have," Dietrich said. "And they canceled me."If federal health-care reform bars companies from screening for preexisting conditions, insurers note that cancellations will no longer be an issue. But Melinda Beeuwkes Buntin, an economist at the Rand Corp., said that unless for-profit companies are compensated for taking higher-risk patients, the firms will continue to look for ways to unload them.

Be sure to read the whole thing.