Blue Shield's right to cancel couple's coverage upheld

The court ruling comes amid a spate of lawsuits and settlements that physicians say did little to deter abusive practices. Doctors want a legislative solution.

By Amy Lynn Sorrel — Posted June 22, 2009

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Despite a California trial court finding that Blue Shield of California acted properly when it canceled a couple's health insurance policy after approving care, physicians, lawmakers and regulators continue to turn up the heat on insurers' rescission practices.

Cindy and Steve Hailey sued Blue Shield, alleging that the plan dropped their coverage to avoid paying for more than $450,000 in medical care the company already had approved.

But Orange County Superior Court Judge Peter J. Polos on May 28 ruled that Blue Shield acted in good faith and made reasonable efforts to ensure that the Haileys' applications were accurate and complete. The court found that the Haileys misrepresented and willfully omitted information about preexisting conditions.

Blue Shield spokesman Tom Epstein said the verdict shows "we acted properly every step of the way." The Haileys' attorney did not return calls for comment.

The case is one in a string of recent legal disputes and settlements over such policy revocations, which not only leave patients without coverage, but, in some instances, leave physicians and hospitals with unpaid bills.

Health Net in May agreed to a $1.95 million settlement in a class-action lawsuit the California Hospital Assn. filed against the insurer for allegedly failing to pay hospitals for services rendered to patients whose policies were rescinded. Health Net denied any wrongdoing.

In recent years, numerous other plans, including Blue Shield and Health Net, have settled similar issues with state insurance regulators and agreed to reinstate thousands of members' policies and pay past claims and hefty fines. While not admitting any wrongdoing, several plans have since modified their rescission practices. Los Angeles City Attorney Rocky Delgadillo is pursuing separate rescission-related litigation against several plans.

Physicians seek legislation

But physicians say the lawsuits, settlements and fines have done little to deter abusive practices. They are demanding stronger action.

"Despite current laws, insurers are finding ways to illegally cancel health policies, stranding innocent patients when they most need coverage," California Medical Assn. President Dev GnanaDev, MD, said in a statement. "It is not sufficient to give insurance companies what amounts to a slap on the wrist."

A CMA-sponsored bill would subject health insurers to an independent external review before plans could deny or rescind members' coverage. The legislation, which the Assembly passed in June, also would require health plans to show they performed adequate medical underwriting during pre-enrollment. Maryland passed a similar law in May.

Meanwhile, California's Dept. of Insurance has proposed regulations aimed at clarifying state laws that prevent insurers from canceling policies unless consumers intentionally misrepresent their medical history. Among other things, the rules would require insurers to:

  • Adhere to tougher underwriting standards.
  • Use clear and unambiguous policy applications.
  • Provide fair due-process protections to members during rescission investigations.

The department opened a public comment period in June and expects to implement the rules by the end of the year.

CMA officials praised the effort, but said the regulations would apply only to private health insurers, whereas the pending legislation would cover all health plans.

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