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Insurer cited in policy rescissions

BC Life mishandled more than half the cases reviewed by the state. Critics say regulators have not done enough.

July 03, 2007|Lisa Girion | Times Staff Writer

BC Life & Health revoked 1,880 individual health insurance policies in California in 2004 and 2005, and a state agency that examined a sampling says it found that more than half the cases it reviewed were improperly handled.

The Department of Insurance said it studied 83 sample cases and issued citations in 49 of them, alleging 67 violations of fair-claims handling laws.

In one case, the department contended that BC Life, a Blue Cross company, told a policyholder in a letter that it rescinded coverage because of an undisclosed medical condition, even though the condition was clearly stated on the individual's application.

In another case, the department alleged that BC Life improperly rescinded a policy after miscalculating the period of time between treatment and the effective date of coverage. BC Life declined to reinstate coverage even after the department brought the error to its attention, according to a report issued by the agency.

When coverage is rescinded, it is as if the policy never existed, leaving the policyholder and healthcare providers to settle outstanding charges.

The 67 citations could lead to fines of as much as $10,000 per sustained infraction, as well as follow-up examinations.

The report was posted on the department's website last week with little fanfare, even though it had been highly anticipated by consumer advocates and lawyers for policyholders who were suing BC Life and other insurers, challenging the rescissions as unfair and illegal.

The Department of Insurance launched an investigation last year when John Garamendi, now lieutenant governor, was the commissioner. The report marks one of the first occasions on which Insurance Commissioner Steve Poizner, who took office in January, has publicly weighed in on a health insurance issue.

"A rescission can be a financial death sentence when you're ill," Poizner said in an e-mail. "In my view, even one improper rescission is one too many. When it comes to rescissions, we are acutely aware that these are people's lives. They're not just numbers to us."

A series of articles in The Times over the last year exposed the common practice by insurers in California of canceling individual policies when patients submitted claims for serious illnesses. The practice does not apply to group policies.

A spokesman said that the department was looking at rescissions industrywide and that BC Life was one of several companies under the microscope. The others include Blue Shield, HealthNet, Cigna and Aetna.

Asked to comment on the report, a spokeswoman for Indianapolis-based WellPoint Inc., which owns BC Life, noted that the majority of the citations were for "technical violations of the claims-handling processes" and that "in nearly every case, the DOI concluded that the rescission was appropriate."

The Department of Insurance is the second California regulator to take on WellPoint, the state's largest insurer, over its practices in rescinding coverage. In March, the state Department of Managed Health Care, which regulates health maintenance organizations, hit sister company Blue Cross of California with a $1-million fine after reviewing 90 rescissions and finding alleged violations of state law in every one.

Cindy Ehnes, director of the state managed care agency, said she was pleased to see the Department of Insurance applying fair-claims laws to rescissions. Health plans wield a great deal of power in setting up the way their policies work and in deciding what promises to make to policyholders, she said, and it is up to regulators to hold them to those promises.

"It is ultimately about fundamental fairness in the process that the health plan has every opportunity to design in its favor," Ehnes said.

On the heels of the Department of Managed Health Care's probe, the Department of Insurance report is evidence that BC Life isn't playing fair, said Bryan Liang, a physician, lawyer and executive director of the Health Law Institute at the California Western School of Law in San Diego.

"We've got verification from another department doing its own investigation that this is happening consistently," Liang said. "Clearly, the system is broken.... Patients are getting harmed left and right, and nothing is getting done."

William Shernoff, a Claremont lawyer who represents policyholders suing BC Life, says the report shows BC Life' rescission process is deeply flawed.

"It's not a good report card," he said. "I would say it's a D-minus."

Others were critical of what they said was the report's focus on process rather than substance.

"It is sort of like giving a bank robber a speeding ticket for driving too fast in the getaway car," said Jerry Flanagan, a patient advocate with the Foundation for Consumer and Taxpayer Rights. "The real question is, what will they do next and are they looking at the underlying crime as opposed to a misdemeanor?"

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