LOS ANGELES,CA — Two of California’s biggest health insurers agreed Thursday to collectively pay $13 million and reinstate more than 2,000 insurance policies to settle claims with the state that they illegally dropped policyholders from coverage.
Anthem Blue Cross will pay $10 million and reinstate coverage for 1,770 enrollees while Blue Shield of California will pay $3 million and reinstate coverage for 450 enrollees. Both insurers will also reimburse policyholders for any outstanding medical debts that resulted from loss of insurance.
"This fine sends the message that if you come into California to sell health insurance, you must play by the rules," said Cindy Ehnes, the director of the state’s Department of Managed Health Care.
Both companies denied any wrongdoing in rescission practices, the industry’s term for dropping patients from coverage when they try to make claims on their health insurance policies.
The settlements come two weeks after Ehnes told The Associated Press that the state failed to pursue a $1 million fine against Anthem Blue Cross because it was intimidated by the insurance company’s legal prowess.
Days later, the state vowed to seek penalties against Anthem Blue Cross that could have totaled $354 million.
Thursday’s announcements completed a two-year consumer protection push by the agency, said Ehnes.
In all, 3,770 dropped insurance policies have been restored through the effort to remediate rescission practices with the state’s five biggest insurers.
Anthem Blue Cross President Leslie Margolin issued a statement saying the state’s largest insurer was pleased to have reached agreement with the state.
"This resolution allows us to continue to build stronger working relationships with the DMHC and we look forward to coming together in a more collaborative way to address the health care needs of Californians," said Margolin.
Last week, Ehnes warned that insurers who did not reach settlements would face stiffer penalties. The agency has already reached similar agreements with Health Net of California, PacifiCare and Kaiser Permanente.
Blue Shield’s vice president of public affairs, Tom Epstein, noted that its settlement was a voluntary decision.
"We did not acknowledge that any of our practices were inappropriate," he said in an interview.
In a statement, Gov. Arnold Schwarzenegger applauded both agreements, adding that "patients should not live in fear of unfairly losing their health care coverage when they need it most."
Epstein said Blue Shield came to agreement because it recognizes that there’s a lack of direction from the state on rescission practices, and wants to put it behind them.
"We recognize that rescission of a health coverage agreement is a serious matter that has significant consequences for the people involved," he said in a statement. "We have treated these issues with the utmost care and have rescinded about one-tenth of 1 percent of our individual health plan contracts since 2004."
Blue Shield could face another $2 million fine in 18 months if it does not simplify applications and be transparent with enrollees in the event that they are under investigation and risk losing their coverage, Ehnes said.
"We are certain to do those processes to avoid that fine," Epstein said.
On Wednesday, a $1 billion lawsuit was filed against Blue Shield by Los Angeles City Attorney Rocky Delgadillo, who called the settlement with DMHC "another raw deal."
In April, he filed a similar, billion-dollar lawsuit against Anthem Blue Cross.
The settlement agreements "will not make the victims of this insidious practice whole, they will not require that the companies disclose their wrongdoing, and, in my opinion, they will not adequately punish the companies for their shameful conduct," Delgadillo said in a statement.
Jerry Flanagan, health advocate for Consumer Watchdog, a Santa Monica-based consumer advocacy group, said the timing of the state’s decision gives the appearance that the health providers are good corporate citizens.
"The governor and regulators are obstructing justice by giving the defendants a favorable review to use as a shield in court," Flanagan said. He added that the $10 million fine would be little more than "a slap on the wrists" for a company as large as Anthem Blue Cross.
Both the governor’s statement and Epstein said they wanted the state Legislature to take a more active role in ending rescissions.
"Punting to the Legislature is dereliction of duty. The governor doesn’t need the Legislature to tell him that no innocent patient should ever lose their health insurance again," Flanagan said.
In 2007, Anthem Blue Cross had more than 4.1 million enrollees in full service health plans in California, and Blue Shield of California had more than 2.6 million enrollees.