California Law Bans Rescission Compensation

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SACRAMENTO, CA — California Gov. Arnold Schwarzenegger signed legislation banning health insurance companies from rewarding employees for rescinding a policyholder’s insurance.

A.B. 1150, which cleared both chambers of the state legislature without opposition, clarifies existing law on compensation to those employed by health care insurers or services to review claims. A 1975 state law said those so employed cannot be compensated for payment based on the amount by which a claim for payment is reduced or on the number of claims or cost of services for which authorization or payment has been denied.

In November 2007, the state Department of Managed Health Care fined Health Net $1 million for not disclosing information about a bonus program for employees based on cancellations of individual health insurance policies (BestWire, Nov. 16, 2007).

Brad Kieffer, a spokesman for Health Net of California, said the insurer supported the bill.

"This terrible practice further illustrates the erosion of our health care system and the need for comprehensive health care reform. Today, we are standing up for consumers by putting an end to a deplorable practice, and I will continue working with my partners in the legislature to stop unfair health care rescissions once and for all," Schwarzenegger said in a statement.

Jerry Flanagan, health care advocate for Consumer Watchdog, said the new law reinforces the illegality of a practice that was widely believed to be against the law anyway.

"It’s a very pernicious practice, but it’s not the worst thing about rescissions," he said.

The action comes after several multimillion-dollar settlements between state regulators and health insurers over allegations of improper canceling of policies.

Anthem Blue Cross, as well as Blue Shield of California, recently agreed to pay a combined $13 million to $15 million in fines and to offer new health coverage to consumers whose policies they canceled, under separate agreements with the DMHC to end investigations into rescission practices. Anthem will pay $10 million and restore coverage to 1,770 former policyholders. In recent months, the DMHC has also reached agreements with PacifiCare of California, Kaiser Permanente and Health Net (BestWire, July 18, 2008).

Health Net of California currently has Best’s Financial Strength Rating of B++ (Good).

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

Consumer Watchdog
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