Two California health insurers agree to reinstate coverage for 1,200 people whose policies were rescinded after incurring high medical bills

May 19 2008

California health insurers Kaiser Permanente and Health Net on Thursday agreed to reinstate coverage to about 1,200 individuals whose policies were improperly rescinded, the San Francisco Chronicle reports.

The insurers reached the agreement with the California Department of Managed Health Care, which has been investigating insurers that retroactively cancel health coverage for some plan members who incur high medical costs (Colliver, San Francisco Chronicle, 5/16). Under state law, health insurers can legally rescind coverage if it is determined that a member intentionally lied or withheld information on an application. However, insurers have been accused of improperly canceling coverage after a person gets sick, citing minor or inadvertent mistakes on applications (Kaiser Daily Health Policy Report, 4/18).

Kaiser has agreed to reinstate policies for 1,092 members whose coverage was rescinded between 2004 and 2006, when the company ended the practice. Health Net has agreed to do the same for 85 members whose policies were dropped. Both insurers also must pay a $300,000 fine (Perkes, Orange County Register, 5/15). DMHC is pursuing similar settlements with PacifiCare, Blue Shield of California and Anthem Blue Cross to reinstate about 4,000 other rescissions.

According to the Los Angeles Times, the agreements come about three months after a state resident with cancer won a $9 million lawsuit against Health Net for rescinding her coverage while she was undergoing chemotherapy, which halted her treatment. In addition, DMHC Director Cindy Ehnes last month threatened to order the state's top five health insurers to immediately reinstate coverage for more than two dozen individuals and to review all cases of policy rescissions since 2004 (Girion, Los Angeles Times, 5/16).

Kaiser officials said that in the coming weeks, the company will begin contacting former members who have unresolved disputes and offer them the option of purchasing individual coverage without a medical review (Glover, Sacramento Bee, 5/16). The Kaiser agreement also establishes a process through which former plan members can seek reimbursement for medical expenses up to $15,000. Larger and disputed bills and other types of claims will be submitted to an arbitrator selected by DMHC and the health insurers, the Times reports. Former members also could opt out of the settlement and take their claims to court (Los Angeles Times, 5/16). Health Net agreed to the same terms, but the settlement is not yet final (San Francisco Chronicle, 5/16).

Comments

Jerry Fleming, senior vice president and national health plan manager for Kaiser, said, "This program will provide those persons with the option to purchase individual health insurance coverage going forward and provide a fair and expeditious process to resolve any disputes that may remain," adding, "We want to clear up past issues so we can move forward toward a longer-term solution addressing the larger issues of affordable health care coverage" (Sacramento Bee, 5/16).

Ehnes said, "Our goal is to get all consumers, not only those within Kaiser, covered again without having to go through a long process that may not be decided in their favor" (San Francisco Chronicle, 5/16).

California Gov. Arnold Schwarzenegger (R) said, "This important settlement should pave the way to similar agreements with other health plans to reinstate health coverage. Patients should not live in fear of losing their health care coverage when they need it most."

William Shernoff, an attorney representing hundreds of members whose coverage was dropped, said he would advise his clients to "accept the reinstatements because that's wonderful to get the medical care -- that is important," adding that "as far as damages for past harm, there's no doubt in my mind that the best place for them to get their full damages will be in court rather than in an arbitration process" (Los Angeles Times, 5/16).

Please note: The Kaiser Family Foundation is not associated with the Kaiser Foundation Health Plan, Kaiser Permanente or Kaiser Industries.