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Sick but Insured? Think Again

Lawsuits accuse insurance companies of retroactively dumping families that rack up large bills. Firms defend their policies, but the state is investigating.

September 17, 2006|Lisa Girion | Times Staff Writer

When Steve and Leslie Shaeffer's daughter, Selah, was diagnosed at age 4 with a potentially fatal tumor in her jaw, they figured their health insurance would cover the bulk of her treatment costs.

Instead, almost two years later, the Murrieta, Calif., couple face more than $60,000 in medical bills and fear the loss of their dream home. They struggle to stave off creditors as they try to figure out how Selah can keep seeing the physician they credit with saving her life.

"We're in big trouble," Leslie said.

Shortly after Selah's medical bills hit $20,000, Blue Cross stopped covering them and eventually canceled her coverage retroactively, refusing to pay for treatment, including surgery the insurer had authorized in advance.

The company accused the Shaeffers of failing to disclose in their coverage application an undiagnosed bump on Selah's chin and physician visits for croup. Had that been disclosed, the company said in a letter, it would not have insured Selah.

The Shaeffers say they weren't trying to hide anything. When they applied for coverage, Selah did not have a tumor, at least as far as they -- or any physician -- knew. The doctor visits occurred after Leslie filled out the paperwork, and they seemed routine, the Shaeffers say. They believe Blue Cross was looking for any excuse to dump their daughter and dodge her bills.

Cancellations such as Selah's are fueling a new backlash against health plans. In a series of recent lawsuits, policyholders say they were illegally terminated, causing substantial financial hardship and jeopardizing their healthcare. State regulators are investigating and said they were preparing to take action against Blue Cross.

Dawn Foiles says an improper cancellation forced her and her husband to put their Riverside home up for sale. Steve Leyra says a cancellation -- based on a condition he doesn't even have -- cost him the chance to become a firefighter. George Nazaretyan and his wife are struggling to save their Van Nuys home and get care for their disabled twin daughters, even as their medical bills approach $1 million.

The suits accuse health plans of dumping sick policyholders without evidence that the consumers intentionally omitted information about their medical condition or history. They also accuse insurers of using applications that are vague and confusing by design, trapping consumers into making mistakes that can be used to cancel their coverage later.

The complaints involve individual policies -- the type of coverage sold to people who work for themselves or for employers who don't offer health benefits. Unlike many work-based plans, which are open to qualified employees regardless of health, insurers in California and many other states can reject applicants for individual policies based on their conditions or health histories. After an applicant is accepted, a state law prohibits health plans from canceling unless the policyholder lied to obtain coverage.

Aside from appealing to the company that dumped them, subscribers' only recourse is to complain to state regulators or sue. After an insurer yanks coverage, it can be difficult, if not impossible, to get a policy from another carrier.

Health plans encourage applicants they reject and policyholders they cancel to apply to a state-subsidized insurance fund for patients with high-cost or chronic conditions. But the wait can be long. Lacking coverage, patients often have to pay cash upfront or go without care.

More than 2 million California residents buy their own health policies, which some see as an increasingly important form of coverage because many employers have dropped the benefit as costs have gone up. Insurers, in a push for healthier and wealthier subscribers, view individual policies as a growth opportunity.

Outside the companies, no one tracks how often insurers cancel policies. Blue Cross, which has the biggest share of the California market, won't say. But an employee said in a deposition last year that a special department considers as many as 1,500 cases for cancellation each week in California alone. A consumer lawyer who saw Blue Cross' cancellation tally sheets described the department as a rescission factory.

The suits also target Blue Shield, Blue Cross' rival in California. Both companies sell individual policies in the form of insurance, as well as provide care through health maintenance organizations, and both types of coverage are at issue.

State regulators announced investigations in the spring, when they learned of the suits through news reports.

Late Friday, a spokeswoman for the Department of Managed Health Care said the agency could take action against Blue Cross as early as this week. The agency has concluded that the company systematically violated the law by improperly canceling policies and failing to verify medical information on applications before issuing coverage.

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