Poizner: Blue Shield canceled policies;

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State insurance chief plans to pursue a $12.6 million fine for dropping patients.

Sacramento Bee (California)

In another round of investigations into claims that health insurers are illegally dropping patients from coverage, Insurance Commissioner Steve Poizner announced Thursday that he will pursue a record $12.6 million fine against one of California’s largest health plans.

Poizner accused a Blue Shield of California unit of committing more than 1,200 violations that resulted in some 200 people losing their medical insurance. Those affected were members of Blue Shield‘s Life & Health Insurance subsidiary, a fee-for-service medical plan that covers 167,000 Californians, including 5,600 in Sacramento County. No details were released on where the 200 lived.

“What we found was disturbing. Blue Shield was canceling insurance after the fact. It’s wrong, and it’s illegal. We’re going to put a stop to it,” Poizner said during a telephone interview from Southern California.

Poizner said the hefty fine is “meant to be a warning to the entire health insurance industry.” In a related case, Blue Shield previously agreed to refund $1 million to policyholders.

The company vowed to fight the fine, calling Poizner’s action “grossly unfair” and saying Blue Shield is being penalized for merely following the law.

The state’s interpretation of laws governing policy cancellations “is simply wrong,” company president Duncan Ross said in a statement. “We are outraged by the excessive penalties for non-substantive issues.”

Blue Shield is the latest giant health plan caught in a state crackdown over policy cancellation practices. In recent years, consumer groups and regulators have contended that insurers wrongly revoked hundreds of policies after patients filed claims for costly medical care.

Blue Cross of California, Health Net, Cigna and Aetna have come under scrutiny. During the past year, the state’s HMO regulator — the Department of Managed Health Care — has levied $1 million fines each against Health Net and Blue Cross, the state’s largest for-profit health plan. Kaiser Permanente also has been hit with a $325,000 fine.

Managed health care officials are conducting their own review of Blue Shield‘s HMO operation, which has 2.3 million members.

Last year, then-Insurance Commissioner John Garamendi launched the investigation into Blue Shield Life’s practices. In reviewing claims between 2004 and 2005, state investigators said about half of the 1,262 violations involved policy cancellations.

In addition, Blue Shield was faulted for slow claims payments, failing to complete medical reviews before accepting an application, providing customers with incomplete or inaccurate information about their benefits, failing to pay interest owed on claims and mishandling appeals.

Poizner has ordered additional company audits for 2006 and 2007. “I will not put up with shoddy claims practices,” he said. “I’m going to clean it up.”

Ross blamed most of the problems on human error and said the violations involved a small percentage of members.

“We acknowledge unintentional mistakes in a number of cases,” Ross said. Employees, he said, have received training to correct the problems.

Consumer advocates accused Blue Shield of downplaying the issue and called for tougher regulations on health insurers.

“All big insurers are making money for themselves by denying people coverage,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “Blue Shield refuses to acknowledge that they have done anything wrong.”
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