Health Care Regulators Accused in Hearing of "Glacial Pace" In Stopping Post-Claim Rescissions, Failing to Restore Coverage to Victims
 
California’s Department of Managed Health Care has not ordered Blue Cross to restore insurance coverage in any of 90 cases of illegal rescission found by the department’s own investigators, consumer advocates revealed during a hearing in the state Senate’s Health Committee.
 
The Department of Managed Health Care must move forward now with regulations now to stop these illegal cancellations, said Consumer Watchdog (formerly the Foundation for Taxpayer and Consumer Rights), and restore coverage lost by innocent patients who have been left not only uninsured, but uninsurable.
 
“Despite the department’s own finding of widespread abuse, patients still are not protected from arbitrary loss of their insurance coverage when they fall ill,” said Jerry Flanagan, health policy director of Consumer Watchdog. “The department has not ordered the reinstatement of any enrollees in Blue Cross, despite DMHC’s own determination that in every one of 90 cases examined, Blue Cross acted illegally. This glacial pace is harming real people.”
 
Flanagan expressed alarm at reports that the department might push the issue back to the Legislature, even though the DMHC has full authority to issue regulations. “Punting to the Legislature will delay justice for those already harmed, and allow insurers to continue, perhaps for years, canceling policies when patients fall ill.”
 
The law states that individual health insurance policies can be cancelled only for “willful misrepresentation” by an applicant, said Consumer Watchdog. Regulators must move forward  with draft regulations, circulated in 2007, that protect innocent patients from policy cancellations. During the hearing, Flanagan cited the case of a patient whose policy was canceled when the insurer found that a doctor had diagnosed high blood pressure, even though the doctor never informed the patient of the condition.
 
“This is as far from willful representation as an applicant can get,” said Flanagan, “yet insurers saw it as an excuse to cancel the patient’s insurance and refuse to pay his doctors.”
 
Governor Schwarzenegger must make good on his own promise to protect patients from such cancellations, said Consumer Watchdog.  The hearing was convened by Sen. Sheila Kuehl, chair of the committee, to examine the performance of the Schwarzenegger Administration’s Department of Managed Health Care.
 
Consumer Watchdog sent a letter to Governor Schwarzenegger yesterday calling on him to either confirm or deny rumors that Administration staff had told the Department to “pull back” on new regulations crafted over the last two years to end the practice of illegal retroactive cancellations.
 
The Governor personally promised to end the so-called health insurance "rescissions" in his State of the State address this January. The letter follows:
 
LETTER TO GOVERNOR SCHWARZENEGGER
 
Governor Arnold Schwarzenegger
State Capitol
Sacramento, CA 95814
 
Dear Governor Schwarzenegger,
 
We understand that yesterday your political staff informed the Department of Managed Health Care that it should “pull back” new regulations crafted over the last two years to end the practice of illegal retroactive cancellations of health insurance policies.
 
We ask that you explain your intentions on this matter before the Senate Health Committee oversight investigation tomorrow.  If it is true that your staff has ordered the Department to soften its position toward health insurers, such a move is counter to your public promises and those of your regulator to protect patients.  The essence of that protection is that a health insurer may rescind coverage only if a patient lied about their health when applying for insurance.
 
You personally promised to end health insurance rescissions in your State of the State address this January.  You recounted the story of a San Diego man whose insurer rescinded his coverage after he was diagnosed with lymphoma. You said:
 
The insurance company then went back through all his records looking for a reason to cut him off. They pointed to a minor knee problem unrelated to the cancer. They noted that he now weighed less than he did when he applied for the insurance.
 
Well, of course, he did. He was now sick with cancer. But they cut him off.
 
One month after he got sick, the company cancelled his insurance. Todd died eight months later.
 
We are taking action so that what happened to Todd will not happen to any other Californian.
 
Patients facing similar mistreatment by their insurance companies will not be protected by an independent review of their rescission alone.  If the insurers now pressuring you for a lower rescission standard than the legally-required “willful misrepresentation” succeed, Todd would have been no better off had his rescission reached an independent review.  
 
Without a requirement that Todd’s insurer must have shown that he lied about his medical history before his policy could be rescinded, the company could (and did) simply point to a discrepancy in the medical record – for example, that Todd once had a knee injury or actually weighed less then he claimed to in the application – as grounds for the rescission.[1]  
 
DMHC’s Support of A Willful Misrepresentation Standard in “All Cases”
 
On January 29, 2007 prior to a hearing on health rescissions, Department of Managed Health Care Director Cindy Ehnes told a crowd of reporters that, as reported by the Los Angeles Times, that the Department’s position is that the law banned retroactive rescissions unless a health plan could show that a policyholder intentionally lied about his health history on his application for coverage.[2]
 
Recently, the Department of Managed Health Care released draft regulations that clearly require a showing of willful misrepresentation before a policy is rescinded:
 
(b) No subscriber contract shall be cancelled or rescinded because of a misstatement or omission in the coverage contract, unless the misstatement or omission is a result of the applicant’s willful misrepresentation and the omitted information would have been a basis for denial of coverage pursuant to the plan’s underwriting criteria, guidelines, policies, and procedures.   
 
In a survey[3] released on March 22, 2007, the DMHC sharply criticized Blue Cross of California for “routinely rescinding health insurance policies in violation of state law.”  In the report, the DMHC argued that § 1389.3 requires a showing of willful misrepresentation in all cases before a health plan may rescind any enrollee’s coverage.
The survey found that out of 90 patient complaints reviewed, Blue Cross illegally rescinded coverage in each case by failing to show willful misrepresentation. According to page two of the report,
 
“[i]n all 90 case files, there was no evidence [that Blue Cross], before rescinding coverage, investigated or established that the applicant’s omission/misrepresentation was willful.”
 
On page four of its amicus curiae brief for the Hailey v. Blue Shield appeal, the Department clearly articulated that,

[b]ecause of the catastrophic consequences of losing health care coverage, and in furtherance of the consumer protection purpose of the Knox-Keene Act, the Legislature enacted § 1389.3… [which] expressly prohibits post-claims underwriting and allows a health plan to rescind overage only in cases where it has met its burden of demonstrating that the consumer willfully misrepresented his or her health history. (emphasis added)

On page 14, the Department concluded that a showing of willful misrepresentation is necessary even if the health plan conducted pre-issuance medical underwriting:
 
1389.3 further requires health plans to demonstrate that an applicant willfully misrepresented his or her health history before invoking other remedies such as rescission. That requirement exists in all cases, not just those where the plan failed to resolve all reasonable questions arising from the information submitted on or with the application. (emphasis added)
 
The people of California are counting on you to stand up to the bullying tactics of the health plans, not to retreat. They expect an answer tomorrow.
 
Sincerely,
 
Jerry Flanagan

[1] According to Blue Cross’ overly broad underwriting criteria, too low weight is grounds for refusing coverage.

[2] Lisa Girion, “Health plan review may be intensified; the state’s top HMO regulatory calls for outside oversight of insurers’ attempts to drop policyholders,” Los Angeles Times, January 30, 2007.

[3] DMHC Final Report, Non-Routine Medical Survey of Blue Cross of California
Available by clicking here.

Consumer Watchdog (formerly The Foundation for Taxpayer and Consumer Rights) is a non-profit, non-partisan organization.

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