California Insurers to Pay $13 Million to $15 Million in Fines Over Rescissions

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SACRAMENTO, CA — Anthem Blue Cross and Blue Shield of California agreed to pay a combined $13 million-$15 million in fines and to offer new health insurance coverage to consumers whose policies they canceled under separate agreements with state regulators to end investigations into rescission practices.

Anthem will pay $10 million and restore coverage to 1,770 former policyholders, according to a statement from the California Department of Managed Health Care. "This fine is a record amount and sends the message that if you come into California to sell health insurance, you must play by the rules," DMHC Director Cindy Ehnes said.

Leslie Margolin, president of Anthem Blue Cross, issued a statement saying, "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."

The agreement with Blue Shield of California came on the heels of Los Angeles City Attorney Rocky Delgadillo filing a civil lawsuit against the insurer for what he called "unlawful and deceptive" business practices in denying health insurance claims and rescinding health care coverage to consumers (BestWire, July 17, 2008).

Blue Shield agreed to pay the state $3 million, plus an additional $2 million if corrective steps — including more understandable application forms and a fair grievance process for rescissions — are not taken, according to the DMHC. It will also offer coverage to 400 former members whose policies were rescinded over the past four years.

"We’ve again accomplished a result that consumers could not get otherwise — guaranteed issue coverage, a process for full monetary losses and no back premiums owed," Ehnes said.

In a statement, Blue Shield of California Vice President of Public Affairs Tom Epstein said, "We recognize that rescission of a health coverage agreement is a serious matter that has significant consequences for the people involved. We have treated these issues with the utmost care and have rescinded about one-tenth of 1% of our individual health plan contracts since 2004."

Less pleased with the state agreement is the advocacy group Consumer Watchdog, which decried the "outrageous" timing in relation to Delgadillo’s lawsuit. "The governor and regulators are obstructing justice by declaring the defendant ‘not guilty’ before the trial even begins," spokesman Jerry Flanagan said in a statement.

Since late 2005, the DMHC has been investigating several health insurers that sell individual policies allegedly with the intent of engaging in post-claims underwriting, or rescinding policies without proving that applicants misrepresented their status on an application. In recent months, the department has also reached agreements with PacifiCare, Kaiser and Health Net.

Contact the author Sean P. Carr at: [email protected]

Consumer Watchdog
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