Calif. Regulators Defend Dropped Insurance Deals

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LOS ANGELES, CA (AP) ― State insurance regulators on Wednesday defended their actions against health insurers after a report showed few consumers who complained that their coverage was canceled after they took ill actually benefited from state-negotiated settlements.

More than 6,000 Californians were subject to "rescissions" by the five largest insurance companies between 2004 and 2008, according to settlement agreements between regulators and insurers HealthNet, Anthem Blue Cross, Blue Shield of California, PacifiCare of California and Kaiser Permanente.

In a report released Tuesday, the state’s Committee on Accountability and Administrative Review said fewer than 200 people went through the arbitration process that regulators enacted to determine if benefits should be restored.

The Department of Managed Health Care and the Department of Insurance oversee the individual policies affected by the practice of rescission, a health insurance industry term for dropping patients from coverage when they try to make claims. Rescission is legal when a policy is ill-gotten, typically because a policyholder lied or hid previous illnesses on applications for coverage.

In a legislative accountability hearing Wednesday, Department of Managed Health Care enforcement official Amy Dobberteen said those policyholders who wanted to be a part of the settlements participated. She noted that nine rescissions had been reported since the summer of 2008.

The Department of Managed Health Care has assessed and collected $13.6 million in fines from insurers for rescissions, more than any regulatory agency in the country, said Dobberteen. Another $870,000 in medical expenses was returned to consumers.

The Department of Insurance assessed has assessed $4.6 million in fines, and consumers recovered nearly $800,000 in medical expenses.

On average, settlements were less than $10,000.

The settlements may not have appealed to many consumers because they were "very stilted towards insurance companies," said Jerry Flanagan, a health advocate for Consumer Watchdog.

Consumers weren’t allowed to hire lawyers for arbitration, and had to prove all their past medical bills were "medically necessary, which is a hard legal standard to meet" without a lawyer’s help, said Flanagan.

Additionally, the coverage that was offered through arbitration was usually a policy with a lower benefit than the wrongfully rescinded policy, said Flanagan.

But state regulators, who have focused on illegal rescissions for years, defended the settlements.

"This exercise today is clearly grandstanding by a Democrat running for the office of Insurance Commissioner," said Department of Insurance spokesman Darrel Ng.

Assemblyman Hector De La Torre, D-South Gate, heads the assembly’s Accountability and Administrative Review Committee and is seeking the state insurance commissioner seat.

Steve Poizner, the current insurance commissioner, seeks to succeed Gov. Arnold Schwarzenegger.

The assembly committee and regulators will meet again to vote on a recommendation.

Legislators also urged transparency from health insurance regulators in Wednesday’s hearing in Sacramento, calling for new rules that ensure insurers can’t drop sick policyholders to avoid paying for their care.

De La Torre said the recommendation should outline how regulators can report each settlement to legislators and outline a requirement for third-party review of settlements.

The new rules are to be based on previous settlements made by the regulators.

De La Torre is also making a third attempt to pass legislation requiring health insurers to prove a policyholder withheld information or lied to get insurance before dropping them from coverage. Schwarzenegger has twice vetoed the bill, saying it benefits trial lawyers more than consumers.

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