Los Angeles, CA — State regulators fined California’s largest health insurance provider $1 million for violating state law, saying an investigation found that the company systematically dropped policyholders after they became sick or pregnant, a newspaper reported Friday.
Officials with the Department of Managed Health Care said they hoped the fine would prompt changes at Blue Cross of California. They said they planned to conduct similar investigations into other large health insurance providers in the state, the Los Angeles Times reported.
The department’s findings could expose Blue Cross to legal liability in dozens of lawsuits filed by consumers who allege their policies were illegally canceled.
The investigation found that Blue Cross used computer programs and a dedicated department to cancel the policies of pregnant women and the chronically ill regardless of whether they lied on their applications about pre-existing medical conditions — a standard required by state law. Regulators examined 90 randomly selected cases of policy cancellations and found violations in each one.
The report said the legal standard for cancellations is high because such action may put the policyholders’ health at risk by making it difficult to obtain care. Policy cancellations also hurt hospitals and physicians by denying them payment for treatment rendered in good faith and often with prior approval by the insurer.
“Rescinding health care coverage is a serious action, placing the enrollee at financial risk for the full amount of billed medical charges and potentially rendering the enrollee uninsurable,” the report said.
WellPoint Inc., Blue Cross‘ Indianapolis-based parent company, disputed the findings in a detailed response filed with the department.
“Blue Cross has a rigorous and thoughtful process it follows in every case where rescission review occurs because health insurance is so critically important to each and every one of our members,” the company said in a statement Thursday.
Last September, Blue Cross announced a series of revisions, including new language in its applications; new written policies and procedures; the creation of a new rescission review committee that includes at least one physician; and the appointment of a consumer ombudsman for rescission issues.
The company said it would continue working with regulators.
Department of Managed Health Care Director Cindy Ehnes said she hoped the fine would encourage Blue Cross to change its policies and set an example for other insurers.
Consumer advocates praised the state for its report but questioned whether the fine was substantial enough to affect WellPoint, which earned $3.09 billion in net profit last year on revenues of $56.95 billion.
“A $1 million fine for 100 cases makes business sense for Blue Cross because of the profit levels of the company,” said Jerry Flanagan, a patient advocate with the Foundation for Consumer and Taxpayer Rights. “Blue Cross is reaping millions in savings by not paying for care.”
The state investigation was fueled by a series of stories in the Los Angeles Times. The articles disclosed that Blue Cross, along with other insurers such as Blue Shield of California and Kaiser Permanente, routinely canceled coverage of individual policyholders whose medical care resulted in large claims, prompting some to lose their homes or suffer other hardships.