SACRAMENTO, CA — The Kaiser Foundation Health Plan has agreed to a fine and to offer health care coverage to 1,092 individual market consumers previously rescinded, while Health Net of California will offer new coverage to 85 rescinded policyholders, under agreements with the California Department of Managed Health Care.
Kaiser will offer coverage to all former members rescinded over the past four years and either refund or forgive medical charges incurred by the consumers prior to the rescission, the DMHC announced. Those rescinded will have the right to an independent arbitration process to resolve claims payment issues incurred during the period without coverage or to pursue further damages through an independent arbitrator.
"We have made extraordinary progress to wipe the slate clean for more than a thousand consumers who have been without health coverage for up to four years," DMHC Director Cindy Ehnes said in a statement. "Our goal is to get all consumers, not only those within Kaiser, covered again without having to go through a long process that may not be decided in their favor."
The DMHC fined Kaiser and Health Net each $300,000, with a potential $3 million fine if they do not follow the terms of the agreement.
In April, the DMHC ordered the policies of 26 consumers immediately reinstated and ordered a review of all other rescissions made over the past four years by the largest health plans offering individual coverage. The agency announced it would use an outside arbiter to review every rescission discovered during the investigation and determine what remedies should be made, including payment of medical care and premiums, for those found to have been wrongfully rescinded. The DMHC also ordered the insurance plans to institute uniform business practices for rescission (BestWire, April 18, 2008).
Jerry Fleming, senior vice president and national health plan manager for Kaiser Permanente, issued a statement describing the settlement as a "fresh start" for its former members. "This program will provide those persons with the option to purchase individual health insurance coverage going forward and provide a fair and expeditious process to resolve any disputes that may remain," he said.
Kaiser engaged in the practice of rescissions for a two-year period ending in October 2006, Fleming said.
In its deal with the DMHC, Health Net agreed to offer coverage to all 85 HMO customers who have been rescinded since 2004, spokesman Brad Kieffer said. The insurer "will work as expeditiously as possible with these individuals to
resolve their eligible out-of-pocket costs," he said.
The advocacy group Consumer Watchdog said the Kaiser-DMHC agreement is an improvement, as it recognizes the right of policyholders to make claims for repayment of losses resulting from policy cancellations, but is not a substitute for tough regulations.
"The department has both the ability and the responsibility to develop strong regulations that could be put into effect faster than legislation, and provide immediate protection," Jerry Flanagan, the organization’s health care policy director, said in a statement.
If the agreement had called for the reinstatement of former coverage, rather than the opportunity to buy new coverage, it could have provided automatic recovery of medical costs, Flanagan said. Mandatory arbitration lets insurers off the hook for class-action lawsuits and punitive damages, he said.
"Many of these patients will likely face a cadre of Kaiser attorneys in a complicated and difficult closed-door arbitration where they have to act as their own lawyers. Kaiser should be required to pay the attorney fees of patients seeking redress for substantial past medical expenses and damages resulting from the loss of coverage," Flanagan said.
The Kaiser settlement avoids lengthy legal challenges that could have been brought by health insurers if the DMHC proceeded to send every rescission case to independent arbitration, Ehnes said. A court battle would also mean the state
would face substantial legal costs during a time when it faces a large budget deficit, she said.
The DMHC has approached PacifiCare, Blue Shield and Anthem Blue Cross to discuss similar agreements, Ehnes said.
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