Advocates Fear Measure Will Tilt Toward Insurers
LOS ANGELES, CA — A health insurance reform bill, intended to cure the pain of rescinded policyholders, could have a serious side effect: strict new limits on when patients can take their insurer to court.
Under a proposed state bill, health plans would have to seek approval from the state before revoking a patient’s coverage. Patients who fight to stay insured would be allowed to speedily appeal to a review panel hired by state regulators.
An Unfair Matchup?
Backers of the bill have touted it as a powerful remedy for patients who are dropped by California health plans, a practice which has affected nearly 10,000 policyholders in the last five years. The proposal also deals with standardizing applications for individual health policies.
But not everyone is cheering the bill’s approach to reviewing rescissions.
Consumer advocates said they worry that such reviews by state regulators would unfairly pit policyholders against well-represented insurers and cut off any future legal recourse, especially if rulings against the patient were to be made admissible in court. Many attorneys also said the talk of avoiding litigation was ironic because lawsuits brought scrutiny to the issue of rescission, while state regulators ignored the problem.
Senate Health Committee
"The review panel terrifies me," said Sharon J. Arkin, a Los Angeles attorney who has handled rescission litigation and appeals. "It will lead to many more rescissions and will essentially provide legal immunity to health plans when they rescind."
Arkin added that she believes state regulators do not have the funding or the legal expertise to fairly decide complicated issues of insurance law in each case.
The bill, AB 1945, authored by Assemblyman Hector De La Torre, D-Los Angeles, goes before the state Senate’s Health Committee today. The Assembly passed the bill in May by a wide margin.
"What the bill does is try to set up a proactive process for mitigating wrongful rescission," De La Torre said in an interview this week.
De La Torre said patient protections would be considered in the various Senate committees but declined to elaborate. He said third-party reviews were essential to halting wrongful rescissions.
"My No. 1 obligation is on the regulatory front because that’s what government is supposed to do. It is supposed to prevent problems from happening," he said.
The California Association of Health Plans, an industry trade group that initially opposed the bill, is now neutral, thanks to two rounds of amendments that included the addition of the third-party review.
If passed, the Department of Managed Health Care, which regulates HMOs, and the Department of Insurance, which oversees health insurers, would be responsible for approving and denying rescissions on a case-by-case basis. The bill requires both departments to contract with "one or more appropriately qualified independent review organizations."
Legal observers agreed that the arrangement would signal a significant and fundamental shift in who reviews contractual law.
One attorney, who has litigated on behalf of health plans but was not authorized to give an official comment, said the proposal was "unusual" and left "certain ambiguities."
"Generally speaking, whether a contract has been formed is normally an issue that goes to the courts if there is a dispute," the attorney said. "Questions of contract formation are really legal questions, so this is certainly an extension of the powers normally granted to a regulator."
The bill dovetails with recent negotiations made by the Department of Managed Health Care to review thousands of past rescission cases with the cooperation of some of California’s top insurers. In May, the department announced it had reached an agreement with Kaiser Permanente and Health Net to reinstate more than 1,000 dropped policyholders. Under that settlement, any patient seeking reimbursement for claims would be offered an arbitration review.
Department of Managed Health Care Director Cindy Ehnes said at the time that her office’s intent was to help consumers avoid litigation.
In an interview this week, Ehnes said a similar approach was driving the concept of third-party rescission reviews. She called it an "important closure."
"We think that a faster system makes a lot of sense and can be implemented in a fashion that is fair to everyone," Ehnes said.
She said it was still unclear if the rescission reviews could be appealed.
However, many lawyers see a slippery slope in restricting the role of litigation.
The Consumer Attorneys of California, which represents more than 3,000 plaintiff attorneys statewide, opposes the bill.
In a letter to De La Torre last week, the group asserted that, "Before lawsuits were filed against insurers and plans for acting in bad faith against their enrollees, the Department of Managed Health Care did nothing to protect consumers against the wrongful rescissions and cancellations."
The letter also raised concerns that private review organizations are not equipped to determine whether a rescission was proper because such decisions typically require discovery and cross-examination. Reviews would rely too much on information provided by the insurer, and approval by regulators could give defendants an unfair advantage in future trials, the letter said.
Consumer advocates who have pushed for stricter regulations also said the proposed review system would tilt unfairly in favor of health plans.
Jerry Flanagan, an advocate for Santa Monica-based Consumer Watchdog, said that amendments to the bill looked "eerily similar" to ones pushed by the insurance industry.
"What we are seeing is that globally the insurers are trying to create a solution where captive agents of the insurance company play judge and jury, rather than a court of law," Flanagan said.
America’s Health Insurance Plans, a national trade group, released a memo in December promoting a third-party review process that aimed to significantly deter lawsuits. The proposal suggested that states write legislation making third-party reviews mandatory on consumers. The white paper also suggested making rulings against patients admissible in court, and, in some cases, doing away with punitive damages.
A spokesman for America’s Health Insurance Plans said this week that the trade group had been in discussions with state officials about what kind of review process the industry would support. But he denied their proposal would prohibit lawsuits.
"We are not in any way saying that consumers do not have the right to pursue future litigation if they’re not happy with the result," Robert Zirkelbach said. "We’re saying that it’s important for consumers to exhaust [other options] first."
Flanagan said he was concerned that additional language would be added to make the reviews mandatory and binding in court.
"When you add that component that essentially is the insurer’s proposal," he said.
De La Torre declined Tuesday to comment on whether he would accept specific amendments to help preserve legal recourse for patients fighting rescissions. He said his bill offered a clear choice for consumers.
"If the health insurers go to independent reviews that they manage, what is going to be the process then? Because that is the alternative," De La Torre said.
Contact the author Evan George at: o:(213) 229-5329 or c:(323) 877-8404.