Blues plans settle rescission cases in California

Even as the latest two settlements -- with Blue Shield of California and Anthem Blue Cross, formerly Blue Cross of California -- were reached with the state over policy rescissions, the heat on health plans' practice of canceling coverage after it already has been granted intensified on other fronts.

The accumulated fines from these and other plans' settlements total $13.6 million and could be more if the plans fail to make changes to their business demanded by the California Dept. of Managed Health Care.

In the latest settlements, reached July 17, Blue Shield agreed to pay a $3 million fine, and Anthem parent company WellPoint agreed to pay a $10 million fine.

WellPoint agreed to offer coverage to 1,770 people whose policies had been rescinded. Blue Shield said it would do the same for 450 former members.

To date none of the companies involved has admitted wrongdoing, but all have agreed to change their practices around individual policy applications, underwriting and policy cancellations. In settling, the companies avoid a case-by-case review of every policy rescission over the last four years, and a potentially larger fine. Former members benefit by getting coverage sooner than if the state and health plans had wrestled over the issue in court.

The insurers have agreed to offer guaranteed issue plans without medical underwriting, and in some cases will pay for medical care received after policies were cancelled or rescinded.

Still, California Medical Assn. President Richard Frankenstein, MD, said the actions might not be severe enough to persuade plans not to "just keep doing what they've been doing."

Meanwhile, the rescission issue is attracting attention from others.

On July 16, the day before both Anthem and Blue Shield settled with the DMHC, Los Angeles City Attorney Rocky Delgadillo filed a third rescission-related lawsuit against Blue Shield of California alleging unfair business practices and false advertising.

The lawsuit asks the court to make the company reinstate former members and asks for up to a $2,500 fine for each of the thousands of occasions it allegedly broke the law over the last four years. Delgadillo earlier this year filed similar actions against Anthem Blue Cross and Health Net. All have denied any wrongdoing.

Insurance companies have said they rescinded coverage only when reviews found that members put misleading or false information on their insurance applications.

On July 17 in Washington, the House Committee on Oversight and Government Reform, chaired by Rep. Henry Waxman (D, Calif.), held a hearing on rescissions.

Canceling or rescinding the policies of members with major claims, also called post-claims underwriting, is "a great deal for the insurers," Waxman said in an opening statement at the hearing. "They pocket the premiums while the family is healthy, and cancel the coverage if anyone gets seriously ill. But it defeats the whole point of getting a health insurance policy in the first place," he said.

Dr. Frankenstein said he welcomed the attention on the rescission issue from authorities outside the Dept. of Managed Health Care. "I'm not sure where we'll wind up with the exact role of federal oversight, but I think getting the information out to the public about what's going on is very important."

In addition to city and federal inquiries, state legislation in California mandating state review of any future policy rescissions is pending.