Rescission Victims Still Lack Coverage, Payments Despite Legal Settlements
LOS ANGELES, CA — A year after Gov. Arnold Schwarzenegger’s administration unveiled a series of landmark legal settlements intended to relieve thousands of Californians who had their health insurance revoked, only a fraction of patients have taken part in the program, and just four are known to have received any kind of payment from their insurer, a Daily Journal investigation has found.
Overall, just 5 percent of patients wanted or were aware of the state’s plan and took part in it, records show. Many of those who lost their insurance racked up crippling debt for medical costs when their policies were rescinded.
And not a single one of the 300 consumers who said they were interested in settling disputes over out-of-pocket expenses has gone through the arbitration process created by the state’s Department of Managed Health Care.
Those were among the findings from files requested by the Daily Journal under the California Public Records Act. The state has not to date released information on the welfare of victims of rescission, a practice in which insurers yank policyholders’ coverage based on technicalities after they submitted claims for care.
The low numbers reveals a silent failure behind the effort to reinstate coverage for rescission victims that one expert called a "public policy failure."
"These are dismal statistics and are very disturbing," said Bryan Liang, the executive director of the Institute for Health Law Studies at the California Western School of Law. "There needs to be a better airing of what the results are."
Regulators first investigated health plans for improper rescissions after a slew of private lawsuits garnered media attention for sick policyholders who lost coverage because of errors or simple omissions on their insurance applications. The retroactive cancellations seemed to show a health care system geared unfairly toward profits, and the controversy helped fuel the Governor’s reform push last year, which fizzled in the Legislature.
The state’s actions targeted insurance companies Anthem Blue Cross, Kaiser Permanente, Blue Shield of California, Health Net and PacifiCare. Those settlements netted more than $13 million fines. The Department of Managed Health Care has collected all of the penalties to date.
Although the state has not studied why so few patients took out new coverage, a fifth of eligible patients never received notice. It also appears most eligible Californians showed no interest in the deals because the details were less attractive, or more complicated, than officials had hoped.
Like many, Diane Temple, 45, refused new coverage with Anthem Blue Cross because she didn’t trust the company after they dropped her during ovarian cyst treatments.
"What if in 10 years I need a heart operation?" said Temple, who owns a small septic tank business in Bakersfield and has now gone uninsured for three years. "They’re going to say it was a pre-existing condition."
Temple owes $26,000 in medical bills she wants resolved but is nervous about settling.
"I’m afraid to fill anything out anymore without speaking to a lawyer," she said.
A Department of Managed Health Care spokeswoman defended the program this month, saying it had won new health coverage for 177 Californians who otherwise would have stayed uninsured. "We were able to provide that for them in a quick way where they wouldn’t have to go through a lengthy court battle," spokeswoman Lynne Randolph said.
Asked why medical bills have not been addressed, Randolph blamed the delay on private lawyers and the Los Angeles city attorney, whose ongoing lawsuits have interfered with the state’s settlement notices.
"Our remedies for those who have been wronged have unfortunately been delayed, confused and even undermined by endless legal challenges," Randolph said.
Not all the rescission cases have languished. Some Californians have settled privately with the health plan that rescinded them as part of the state’s deal. But only four have been reported to the department.
Frank Fernicola, who lost his coverage after receiving treatment for heart disease, received a check last week from his former health plan, Kaiser Permanente, for "the majority" of his bills. He said he had agreed not to discuss that amount as part of the settlement.
Fernicola, 60, who owned a San Diego bakery, wrote a ‘thank you’ letter to the Department of Managed Health Care for helping him. "I was never going to get that money," he said.
Asked if he accepted new coverage with Kaiser, Fernicola answered "absolutely not." He said he recently purchased an individual policy with a different insurer.
"The long nightmare of being uninsured will soon end for enrollees dropped by health plans," Cindy Ehnes, the department’s executive director, said last summer when the first settlement notifications went out.
Ehnes, a former health lawyer appointed by Schwarzenegger, said then that the administration "made good on its promise to inform people harmed by rescission of their right to immediate guaranteed issue of coverage, with good benefits, and no up-rating of premiums for pre-existing conditions."
But the records raise questions about whether the key piece of that enforcement action – new coverage for all and a speedy dispute resolution process – has fallen far short of officials’ promises.
Starting in August, the health plans and the department together mailed 3,392 notices to Californians rescinded since January 2004.
The letters offered people the chance to buy a new policy from their previous insurer at comparable rates despite pre-existing conditions. The notices gave two options for recouping medical costs: Patients could accept a private financial offer from the health plan or enter into an "expedited review process."
Details for the arbitration process, the letters said, were forthcoming.
Blue Cross was the only health plan to insert a third option, to accept $1,000 "no questions asked" in exchange for dropping all claims against the company.
That triggered attacks from consumer advocates and attorneys that the deal favored the insurance industry by papering over existing lawsuits and a civil action by Los Angeles City Attorney Rocky Delgadillo. The first wave of the state’s notices also did not mention any pending class actions or lawsuits.
State records show that 2,715 policyholders – or about 80 percent – actually received the letters. The rest could not be located, according to the department.
The data show 188 rescinded policyholders said they were interested in buying new coverage and 177 of those acted on the offer. The option was only good for 90 days, the letters said.
The results surprised legal watchers. Although class action settlement notices typically net as little as 10 percent of an eligible class, the rate for settlement offers increases with its value, many said.
Georgene M. Vairo, a class action law expert at Loyola Law School, emphasized that response rates vary wildly. Still, she said, the state’s involvement and the offer of health care coverage made the response abnormally low.
"If it is the matter of having health insurance or not, you would think there’d be an incentive," Vairo said.
She added that even mailed notices offering coupons or payments under $100 sometimes receive more feedback.
"Coming from the state of California may make people take notice. The fact that they’re not acting on it tells me the notice probably didn’t do the job …or there is something about the notice that has intimidated people from participating," Vairo said.
Jackie Myers, 51, said she was confused when she received the first notice. But the San Diego resident decided "none of the choices were attractive because of what I went through."
Myers said Blue Cross rescinded her policy after expensive MRIs were approved to treat her back problems, costing her $10,000 in retroactive bills. Debt collectors started calling her house.
The self-employed financial investor forfeited her business and went to work for a firm so she and her husband could get health coverage. She said she would never take new coverage with Blue Cross or their $1000 settlement offer.
"I’ve just been waiting to see what the class action lawsuit is doing," Myers said. "I called the department and they just told me to keep waiting."
"I’d rather take this to the next level," she said about suing. "I’ve made peace with the money."
Robert Gianelli, one of several attorneys representing rescinded policyholders, said one of his clients accepted the new offer of coverage but refused arbitration because it would jeopardize litigation.
"It is hard to quarrel with that offer going forward," Gianelli said. "It’s a no-lose-situation when someone gets their coverage back going forward and doesn’t give anything up."
Norma Ramirez, of Fremont, thought the same way when she received the settlement notice last fall.
The 35-year-old loan officer called Blue Cross to ask about new coverage, but no one could answer her questions. Finally she called the Department of Managed Health Care and asked to be reinstated. However, she refused the $1000 settlement.
In November, Ramirez started paying $212 a month for a new policy, and it felt good to be insured again, she said.
That ended last month when Ramirez got a letter saying her new premium was shooting up to $342. "I didn’t have a birthday," she said. "I don’t know why they raised it."
Spokeswoman Randolph said the Department of Managed Health Care is doing everything it can to enforce the settlements. It is monitoring the health plans for compliance, Randolph said, and will investigate any complaints they receive. "We have not received any to date," she added.
But advocates who applauded California’s effort to reinstate patients said not enough was done to acknowledge the low numbers and fix them.
Jerry Flanagan, a health advocate for Santa Monica-based Consumer Watchdog, said the department should have done more than just mail settlement offers of new insurance. Though he criticized the deals’ reimbursement process, he said new coverage was crucial for sick people.
"If the department takes on the role of reinstatement, they really have to do it. That’s more than just sending out a mailer," he said.
Liang, who has also followed the rescission cases closely, said he would urge the department or the state Legislature to pursue an investigation into why more people refused the state’s offer.
"All the work that people did to make sure that insurers are accountable and don’t violate the rights of patients, this really flies in the face of that," Liang said.
"We have to revisit why this is not working."
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Rescission Victims Still Lack Coverage, Payments Despite Legal Settlements