This week Lisa Girion at the Los Angeles Times wrote a series of articles on the practices of health insurers in California generally, and Blue Cross of California specifically, in rescinding health insurance policies on individuals who submit large claims shortly after the policies go into effect. The most in depth article was Sunday the 17th which you can find here. It tells several separate stories of insureds whose coverage was revoked after they submitted large claims. It doesn’t take a lot of imagination to recognize what kind of economic distress insurers cause when they pull the insurance rug out from under folks who have five or six figure medical bills. One of the conflict points is the insurers’ contention that any misstatement by an individual applying for coverage provides the basis for retroactive cancellation. They cite a 1973 California Supreme Court case to support them. Consumers counter that a specific California statute passed in 1993 prohibits rescission unless the insurer can show “willful misrepresentation” and that this trumps the older case. Hurting the public relations aspect of the issue for health insurers are the tremendous profits they have seen in the last few years. On Wednesday the 20th Ms. Girion follows up with an article about Blue Cross’ announcement that it plans to change its process for evaluating cancellations of policies. It will create a consumer ombudsman and revise its appeal procedures, all the while claiming it has done nothing wrong. Bryan Liang, executive director of the Health Law Institute at California Western School of Law calls the change underwhelming. Bill Shernoff, who worked to bring this practice to light through a series of suits he filed against Blue Cross earlier this year, is only slightly more impressed. I agree with Jerry Flanagan, a patient advocate at the Foundation for Taxpayer and Consumer Rights who says it is hard to believe an internal Blue Cross patient advocate will be very zealous in representing consumer interests. Finally, today’s story reports that California’s Department of Managed Health Care has fined Blue Cross $200,000 for wrongful rescission of an individual policy. Cindy Ehnes, director of the DMHC, states that it will continue to investigate other insurers for the same practice. She identifies two particular problems with Blue Cross’ practices. First, the insurer did not competently examine the insured’s application when it was initially presented. Second, the insurer made no effort to show that any misstatements in the application were made with knowledge of their falsity. Interestingly, the article notes that Ahnold applauds the fine. WellPoint, Inc., parent of Blue Cross of California, critcizes the fine as excessive; consumer advocates complain it is nothing but a slap on the wrist and ask for more thorough audits from the DMHC and California’s Department of Insurance. I’ve noted on several occasions my positive feeling for challenging insurers when they rescind insurance policies. Insurers’ rescissions are not always unjustified. But they often are out on a limb when they retroactively cancel coverage. And every rescission I’ve seen is done only after a big claim is submitted. In short, large claims are the things that trigger retrospective underwriting that should have been thoroughly performed by the insurer when the application was initially submitted. But from the insurer’s perspective, it is easier to write a lot of policies, collect premiums and then look for a way out if and when a large claim comes in. Finally, in my experience it is entirely true that insurers make no effort to determine whether misstatements are innocently or knowingly made, regardless of whether the law requires such an inquiry.
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