The rescinding of health insurance policies has become a big issue in California, and may do so in other states.

What usually happens in these cases is that an insured person files a claim that raises a red flag with his insurer.

Health insurers generally have two years after the policy has been issued to contest any claims, known as the "contestable period." After that, the insurer must pay the claims even if the insured failed to disclose certain facts or even lied on the application.

The insurer depends on the truthful, accurate and full disclosure of any medical conditions or other relevant issues; and the insured depends on the insurer abiding by the contract and paying any covered claims. In the vast majority of cases, this approach works well. When insurers see information on an application that there is one or more medical conditions, they should, and usually do, investigate the condition further through medical records.

If new information comes to light within the contestable period, however, the insurer may rescind the policy and return the premiums paid.

It appears from news reports that Health Net, a health insurer selling in California, was engaging in practices that could be seen as encouraging its employees to deny paying some claims. That's a problem: When insurers are presented with a valid claim, they should pay it.

But it is very difficult for the public to know exactly why a policy was rescinded, even if it was for a valid reason. For example:

* HIPAA (Health Insurance Portability and Accountability Act) privacy restrictions prohibit insurers from releasing certain medical facts about the case. That's to protect the patient, but it also makes it difficult for the insurer to explain its side of the case. The patient can say anything; the insurer can say almost nothing.

* Patients sometimes fail to reveal, whether intentionally or unintentionally, pertinent information to the insurer, which would have never issued the policy had it known. I have been on a jury where the applicant in a key-man life insurance policy clearly lied on his application. It may not happen that often, but it does happen, especially when an uninsured person with a medical condition is trying to slip in unawares, perhaps in hopes of making it past the two-year contestable period.

Plaintiffs' attorneys complain that if there are red flags on an application, the insurer is duty bound to check them out. If it doesn't, then it shouldn't cry foul when a medical problem arises.

There is some truth to that claim, but there also has to be a balance. Applicants want their policy issued quickly. If insurers have to pull medical records, contact doctors and track down any potential problem, getting coverage will cost a lot more and take a lot longer. Most people don't want to wait that long.

Some insurers try to address this problem by doing a follow-up phone interview to ask the applicant certain questions. That process can help applicants who have legitimately forgotten or overlooked something to recall it. For example, a person with hypertension might not list that since it's being controlled with medication -- a perfectly understandable mistake.

But the rescission issue should be resolvable without the heavy hand of government trying to once again micromanage health insurance. The vast majority of insurers don't rescind a policy lightly. For one thing, they know they will likely be sued, so their justification better stand up in court.

The vast majority of applicants do their best when filling the applications. Those are the necessary ingredients for formulating good policy, not more- regulated policies.