Blue Cross of California agreed Thursday to stop canceling individual health coverage unless it can show policyholder deception -- a major shift by the state's largest health insurer that could lead to sweeping industrywide changes.
The move is part of an effort to settle a class-action lawsuit on behalf of as many as 6,000 people canceled since late 2001. It is an about-face for Blue Cross in what had become known as "use-it-and-lose-it" health coverage because the cancellations were often triggered by patients' claims for treatment.
The insurer's new stance is aimed at ending rescissions based on policyholders' honest mistakes, inadvertent errors and other inconsistencies about their medical histories on applications for coverage. Consumers contend that the forms are purposely confusing, increasing the odds that applicants will make mistakes.
"This is a very significant consumer health victory ... something we believe they should have been following all along," said Cindy Ehnes, director of the state Department of Managed Health Care.
The deal is expected to send shock waves through an industry that had stood together in defense of insurers' ability to retroactively rescind coverage for any application omission, even honest mistakes. Blue Cross is by far the largest insurer in California's individual market, and its corporate parent, Indianapolis-based WellPoint Inc., is the nation's largest provider of health benefits.
The practice was brought to light in a series of Los Angeles Times stories that detailed how rescissions were carried out and the hardships on canceled policyholders, including their inability to obtain needed medical care and financial woes caused by sudden debt.
Such cancellations are a potential problem for people who buy individual insurance because they do not have group benefits through an employer or other organization.
Group insurance is guaranteed to all members regardless of health, but insurers can deny individual coverage to people they deem too risky based on the applicant's medical history and answers to detailed health questions.
Individual insurance is increasingly important, covering an estimated 3 million Californians now, because rising costs are prompting employers to drop health benefits. It also is key to the proposal put forth by Gov. Arnold Schwarzenegger to expand health coverage. He has publicly condemned improper retroactive cancellations and wants to require insurers to sell to all buyers, regardless of health.
