Blue Cross ultimately refused to pay for that operation. And it threatened to go after the couple for $19,000 it said it had paid for Selah's treatment before canceling her.
The cancellation jeopardized the girl's care and plunged the family into the financial turmoil they had sought to avoid when they bought insurance.
The Shaeffers paid about $25,000 of the bills by borrowing against the equity in their home and selling a truck Steve used for work. But bills totaling more than double that amount remain unpaid. The Shaeffers fear having to sell the English-style cottage Steve designed and helped build.
"You come out of one battle and you have another one in front of you," Steve said. "How are we going to come up with the money? It's a sickening feeling. It's 24 hours a day."
Health plans say such cancellations are necessary to guard against people lying on applications. The companies rely on the information contained in that document to determine who gets coverage and at what price.
"The reason there is a rescission policy is to prevent fraud," said Chris Ohman, chief executive of the California Assn. of Health Plans.
But according to the depositions of Blue Cross and Blue Shield employees, fraud has little to do with it.
A review of depositions and company documents produced for the lawsuits shows that the health plans routinely scrutinize medical records, back 10 years or more, when subscribers submit claims for certain conditions within two years of signing up for coverage.
If the health plans find information in the records that was absent from the application, they cancel, often without finding out whether the discrepancy was an intentional lie or an honest mistake, according to the depositions.
Some consumer lawyers say that violates state law, which forbids companies from canceling coverage unless a policyholder was intentionally misleading.
Amy Dobberteen, enforcement chief for the Department of Managed Health Care, said the law was clear. Health plans "are not supposed to be waiting until they get a huge claim and then trying to find a way out of it," she said. After a claim comes in, they may cancel only for " 'willful misrepresentation.' Those words are plucked right out of the statute."
The health plans see it differently.
Blue Shield takes the position that the applicant's intent doesn't matter. "The contracts state clearly if anything in the application is false or incomplete, coverage may be rescinded," spokesman Tom Epstein said.
