Delgadillo’s suit contends the company has illegally rescinded the coverage of more than 850 policyholders since 2002.
When Blue Shield of California learned Ana Simoes needed emergency surgery to remove her gall bladder, the company OKd the operation but also turned the case over to an investigative unit, according to corporate records disclosed Wednesday.
A Blue Shield investigator scrutinized Ana’s medical records and compared them to the application she filled out for coverage, the investigator’s notes show. Ultimately, the investigator scribbled "unable to prove" in her notes, and then opened an investigation into Ana’s husband, Augustine. This time, the investigator concluded the Chino dairy farmer had left out an elevated cholesterol reading, and the omission was used to justify canceling the couple’s coverage.
The cancellation was highlighted by Los Angeles City Attorney Rocky Delgadillo as an example of the allegedly abusive practices at the heart of a lawsuit he filed Wednesday against Blue Shield. The suit contends that Blue Shield has illegally canceled the coverage of more than 850 policyholders including people like the Simoeses since 2002.
Blue Shield spokesman Tom Epstein said he could not comment because company officials had not seen the suit. In the past, Blue Shield has said that it canceled policies rarely and that the practice was a legal and necessary tool to combat fraud.
The Blue Shield suit is similar to those Delgadillo filed earlier this year against insurers Anthem Blue Cross and Health Net. Like Blue Shield, those companies have denied any wrongdoing and say they only rescind coverage when necessary.
The latest suit accuses Blue Shield, a nonprofit company based in San Francisco, of using complex and confusing applications for coverage to trick individuals into making mistakes that can later be used against them. The suit seeks fines and penalties of more than $1 billion.
"For decades, health insurers have gamed the system and reaped billions," Delgadillo said. "The time has come to . . . set things right."
The suit also accuses Blue Shield of falsely advertising its coverage, alleging that the company often reneges when its members need substantial medical care.
Dr. Richard Frankenstein, president of the California Medical Assn., and Dr. Robert Bitonte, president-elect of the Los Angeles County Medical Assn., praised Delgadillo’s efforts to stop the practice known as rescission.
"Having health insurance does not mean you will receive healthcare when you need it," Frankenstein said. "Insurance companies may promise you the moon and a thousand doctors, but if you really need your medical care, you can bet they will be looking for a way to deny treatment of cancel your policy."
The Simoeses say the cancellation saddled them with $60,000 in unpaid medical bills. They say they were harassed by collection agents, and Ana’s credit was ruined.
"I hope that nobody else has to go through this, and I hope there will be somebody out there who can stop the insurance companies," Ana Simoes said in an interview after standing next to Delgadillo at a news conference. "It is so upsetting to me and my family."
The Simoeses said they were as honest as they knew how to be on the application. English is a second language for the Portuguese immigrants, and they went to an insurance agent to buy their coverage. They say the agent filled out the application.
They say they gave the agent their physicians’ names and telephone numbers as he was filling out the application. They signed the application, giving Blue Cross permission to pull their medical records before issuing coverage and, they say, that is what the agent told them would happen.
Delgadillo contended Blue Shield routinely failed to pull records and verify information on applications in order to save money.
Augustine Simoes said he was not aware he had an elevated cholesterol level. He said his physician prescribed Lipitor, a cholesterol controller, and explained only that men his age often needed it.
"The records of everything were at the doctor’s office," he said. "I don’t know why they are accusing me of lying. I didn’t make anything up."
William Shernoff, a lawyer for the Simoeses and other policyholders, is cooperating with Delgadillo’s office on the litigation. He criticized regulators at the Department of Insurance and the Department of Managed Health Care for "simply not doing their job in this area."
He singled out Cindy Ehnes, the director of the DMHC, for failing to collect a $1 million fine she announced more than a year ago against Blue Cross after department investigators concluded the insurer systematically failed to follow state law in meting out rescissions.
Delgadillo also criticized state regulators, saying that if they were more vigorously enforcing the laws against abusive rescissions, he would not have had to get involved.
State officials have said the DMHC decided to hold off on the Blue Cross fine to see the outcome of an appellate court review of state rescission laws. State officials say they believe the decision strengthens their hand and have used it — and the threat of tougher sanctions — as a hammer in negotiations with Blue Cross and other insurers to persuade them to reform and to restore coverage to dropped policyholders.
Health Net, Kaiser and PacifiCare all have settled, agreeing to third-party reviews of past rescissions that could result in the restoration of coverage for some.
Jerry Flanagan, a policyholder advocate with Consumer Watchdog, criticized the settlements as weak and not favorable for consumers.
State regulators’ negotiations with Blue Cross and Blue Shield over their rescission practices are ongoing.