Health insurers to meet with state agency on rescission probe
26 03 08 - 12:24
Consumer advocates worry that the closed session will advance a plan that critics say could make it easier to cancel policies. Regulators say that's not on the agenda.
By Lisa Girion, Los Angeles Times Staff Writer
March 26, 2008
California's largest health insurers, facing possible fines and other penalties for the way they sometimes cancel policies after patients pile up medical bills, meet today with regulators to discuss ongoing state enforcement efforts.
The meeting was called by the Department of Managed Health Care, which oversees health maintenance organizations and other types of health plans, because it was nearing completion of investigations into the cancellation practices of Health Net Inc., Kaiser Permanente and Blue Shield of California, said spokeswoman Lynne Randolph.
The department plans to discuss the standards to which it is holding the insurers' practices, she said, as well as remedies for problems identified in the probes of policy cancellations, known as rescissions.
"This is our opportunity to move forward and conclude this phase of our investigation into rescissions," Randolph said. "Our goal is to bring a quick resolution to this problem to protect consumers today from illegal rescissions."
Randolph said the results of the remaining three investigations would be announced soon but that the process -- including today's meeting with the health plans -- was confidential until then to protect the insurers' due-process rights.
The closed meeting has alarmed consumer advocates because it comes as the insurance industry is pushing a plan that critics believe could make it easier for sick patients to lose coverage through no fault of their own. But the department said the industry's proposal was not on the agenda.
California insurers -- battered by newly aggressive regulators, a $9-million court judgment and stinging criticism from lawmakers, judges and consumer advocates -- are fighting on several fronts this spring in Sacramento and elsewhere.
Insurers are under attack in California courts and the Legislature for canceling policyholders after they have incurred significant medical expense.
The state's insurers defend their cancellation policies and performance. They say that policy reviews and cancellations affect only a small percentage of policies and that the reviews are essential to combat potential fraud.
It has been a year since the department announced the results of its first major rescission investigation. In that case, it alleged that Blue Cross systematically violated state law in the way it canceled sick policyholders for purported misstatements on applications.
The department said the insurer failed to determine whether policyholders intended to misrepresent their medical history when applying for coverage.
The department said it would seek a $1-million fine from Blue Cross, a unit of Indianapolis-based WellPoint Inc., but it has yet to collect.
Consumer advocates said they were concerned that today's meeting would stray into the industry's proposal for rescission. That proposal, among other things, would insulate insurers from the biggest threat currently posed by rescissions: punitive damages.
In the first reported verdict in a rescission lawsuit in California, a judge awarded more than $9 million last month to Patsy Bates, a Gardena hair salon owner dropped by Health Net while undergoing chemotherapy for breast cancer.
The largest portion of Bates' award was punitive damages. Evidence showed that the company paid bonuses to an employee based in part on the number and value of rescissions she carried out.
Sam Cianchetti, the private arbitration judge who decided the case, called the company's behavior "reprehensible."
Several insurance companies and America's Health Insurance Plans, a Washington-based trade group, are promoting versions of a plan to create an independent review process for rescissions in efforts to restore confidence in the affected individual insurance market.
Consumer advocates said the industry proposal actually would eliminate existing consumer protections. The proposal would require patients to submit to an insurer's internal grievance procedures and then to a third-party review before resorting to the public courts.
If the third-party reviewer found in favor of the insurer, the patient would have the burden of proving in court that the decision was wrong. The proposal, aimed at avoiding litigation, would not allow patients in such cases to pursue punitive damages.
"It seems like insurers' wish list," said William Shernoff, the Claremont lawyer who represented Patsy Bates against Health Net.