California health plan rescissions affected many, but few received help

A legislative report reveals that not many of the people who lost insurance ended up with new coverage or reimbursements, despite state settlements.

By Emily Berry — Posted March 29, 2010

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Only a fraction of the Californians affected by a wave of health insurance rescissions from 2004 to 2008 have benefited from settlements reached in 2008 and 2009 between state regulators and the state's largest health insurance companies, according to a legislator-commissioned investigation.

The investigation -- conducted on behalf of the California State Assembly Committee on Accountability and Administrative Review and released in early March -- revealed that 281 of 6,006 consumers covered by the settlements were offered and accepted new insurance policies from the companies. Even fewer -- 170 -- received reimbursement for medical bills received after losing coverage.

The agreements in question were reached by the state's Dept. of Managed Health Care, which regulates HMOs, and the Dept. of Insurance, which regulates PPOs and other types of coverage, with Blue Shield of California, Health Net, Kaiser Permanente and Anthem Blue Cross.

As the committee report noted, none of the insurers admitted wrongdoing, though they all pledged to change internal procedures about underwriting and rescinding coverage.

The committee's report, published and discussed at a March 10 hearing, was written by Bryan Liang, MD, PhD, director of the Institute of Health Law Studies at the California Western School of Law. Some said it brought into question the effectiveness of the settlements.

"The state's rescission settlements have failed to compensate thousands of Californians who were wronged by insurers," J. Brennan Cassidy, MD, a dermatologist from Santa Ana and president of the California Medical Assn., said in a statement. "This latest information underscores the need for legislation tightening the rules concerning rescissions and requiring an independent review of insurers' decisions to cancel coverage for patients."

Testifying before the committee on behalf of the Dept. of Managed Health Care, Timothy Le Bas, assistant deputy director for the office of enforcement at the DMHC, said the settlements did benefit consumers, and that attention to the practice of improperly rescinded coverage had slowed the pace of rescissions.

In 2005, California insurers rescinded 1,553 policies, but in the last two years have canceled coverage for fewer than 10 people, he said.

"The department's actions to halt illegal rescissions have been comprehensive, swift and binding," he said in his testimony. "DMHC's actions were designed to carefully balance the need to ensure that not only those consumers who were unfairly rescinded were protected, but that all consumers in the individual market would have access to affordable health care coverage."

Individual insurance rates actually have risen sharply since the settlements were reached, and proposed increases of as much as 39% have attracted intense criticism from officials in Sacramento and Washington, D.C., including President Obama.

The health plans aren't done defending against litigation related to rescissions. Los Angeles City Attorney Rocky Delgadillo sued Health Net, Blue Shield of California and Anthem Blue Cross, WellPoint's California subsidiary, over rescissions.

Health Net settled with the City Attorney's office last year and since has paid former members nearly $5.5 million in damages and reimbursements, according to the assembly committee's report. The other two lawsuits remain pending.

Assemblyman Hector De La Torre, who chairs the committee, repeatedly has sponsored legislation requiring independent review of proposed rescissions. Twice the bills have made it to the governor's desk, and Gov. Arnold Schwarzenegger has vetoed them. In the most recent instance, the governor said the bill didn't do enough to protect consumers and instead favored trial attorneys.

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