State Will Reinstate Canceled Health Policies

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LOS ANGELES, CA — One week after consumer advocates complained of inaction, state regulators announced Thursday that they will force three of the state’s largest health plans to reinstate 26 patients who have had their medical coverage wrongfully rescinded since 2004.

HMO regulators ordered the change at a press conference, where they released preliminary findings from their investigation into the controversial practice of dropping policyholders after they fall ill.

The regulators named Anthem Blue Cross, Kaiser Permanente and Blue Shield as the offending health plans.

Tens of thousands of other patients in the state who have complained that their policies were improperly rescinded will be granted a review by a third-party panel, which regulators said would serve to offer a fair second opinion. That review also will apply to patients dropped by PacifiCare and Health Net.

"Today for the first time, consumers who have fallen victim of unfair rescission practices will get a second chance at health coverage," said Cindy Ehnes, director of the Department of Managed Health Care.
Ehnes, whose department regulates HMOs, said she was ordering the reinstatement of the 26 patients because they were "egregious" examples of illegal rescissions and clearly met a legal standard established by the recent appeals court ruling in Hailey v. Blue Shield. Hailey v. Calif. Physicians’ Service, 2007 DJDAR 18941.

In Hailey, the appellate court ruled that health plans must prove a patient "willfully misrepresented" their medical history or other information to be able to retroactively cancel patient coverage.
An industry representative for health plans refused to comment on the reinstatement orders. But he did say that health plans welcomed the idea of external reviews for rescission and that some companies were already implementing them.

"We have not waited," said Chris Ohman, president and chief executive officer of California Association of Health Plans, a trade group for insurers.

"We have health plans that have already announced that they are making available third-party review of rescission decisions," he said.

Patient advocates who have been critical recently of state regulators cheered the reinstatement order.

"I think today is a good-faith showing of the department’s legal authority and duty to reinstate patients," said Jerry Flanagan, health policy director of the Santa Monica-based advocacy group Consumer Watchdog. "It is a big victory to win immediate reinstatements," Flanagan added.

One week ago, his group petitioned the Department of Managed Health Care to order reinstatement of patients it had already decided were improperly dropped by Blue Cross.

The department last year levied a $1 million fine against Blue Cross, the state’s largest for-profit insurer, but stopped short of demanding the company reinstate patients.

The fine stemmed from a 2007 investigation of 90 patients the company rescinded. Regulators found that in all 90 cases Blue Cross failed to prove patients willfully misrepresented themselves.

That investigation was expanded this year to include Kaiser and Blue Shield, yielding a total of 268 violations of that "willful misrepresentation" standard.

Insurance Commissioner Steve Poizner, Los Angeles City Attorney Rocky Delgadillo, lawmakers and the courts are all scrutinizing policy cancellations.

The push for reinstatement by consumer advocates also ignited a legal debate over whether the department has the authority to offer a blanket reinstatement of policyholders, which could be in the tens of thousands by some estimates.

That legal debate remained unresolved despite the reinstatement of 26 specific patients.

Ehnes said Thursday that the department could not order reinstatement to all rescinded patients while their cases are being reviewed. She said the Knox-Keene Health Care Services Plan Act, which governs HMOs, only allows her to reinstate patients on a case-by-case basis.

"I have determined that I do not have the authority to order that blanket reinstatement," Ehnes said in a question-and-answer session.

"That’s where they’re wrong," Flanagan countered.

"There is nothing in the Knox-Keene Act that says she doesn’t have the authority to order blanket reinstatement."

Current law does not require health plans to report every rescission to the department.

Rescission, which is rare, and legal in some instances, has elicited record fines and enforcement actions from state regulators in the last two years, spurred by several class actions against Blue Cross.

Settlement talks related to those class actions, and a handful of related lawsuits, continued this week before a Los Angeles County Superior Court judge. A previous settlement agreement that did not include reinstatement provisions dissolved earlier this year.

But it could be included in a new agreement, giving patients a bigger win.

"Reinstatement is a big issue in the negotiations," said William M. Shernoff, managing partner at Shernoff Bidart & Darras who represents plaintiffs in one of those class actions.

"It is gratifying to see not only the courts but the regulator starting to zero in on this very deplorable practice," he said.

Consumer Watchdog
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