Sick but Insured? Think Again

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.