During her pregnancy, Jennifer Danylyshyn's regular visits to her obstetrician were covered by her Blue Shield policy. So was the delivery of Ava on March 24. The couple expected that Ava would be covered as a matter of course.
When the company rejected the baby because of the hip misalignment, her parents appealed with the help of their pediatrician.
"Certainly, this cannot be a condition which warrants the denial of insurance benefits; especially to this beautiful, healthy baby girl," wrote Dr. Stephanie A. Heller.
Blue Shield refused to budge.
Meanwhile, the Danylyshyns kept to their well-baby schedule. Ava received her regular checkups, weigh-ins and vaccinations. But the doctor bills went to the couple's two-bedroom Pasadena bungalow, not to Blue Shield.
Then, before Ava began to crawl, her joint problem corrected itself. Presented with a clean bill of health from an orthopedic specialist, Blue Shield agreed to insure Ava -- after six months and more than $2,000 in unreimbursed care.
For The Record
Los Angeles Times Friday, October 24, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 44 words Type of Material: Correction
Health insurance: An article in Tuesday's Section A about the nation's health insurance crisis said that nearly 46 million Americans have no medical coverage. The figure is a Census Bureau estimate of the number of U.S. residents without insurance; not all are American citizens.
The insurer agreed to cover only Ava's future medical needs. The tab for the care she had already received was her parents' responsibility.
Blue Shield spokesman Tom Epstein called Ava's case "a good example of what's wrong with the current system and why it needs to be fixed."
Insurers insist that they can't stay in business without excluding chronic disease sufferers, known in the industry as "clinical train wrecks." But companies in the individual market also want to avoid even marginal risk -- adopting a practice some insiders call "hangnail underwriting."
Even nonprofits such as Blue Shield of California are obliged to follow prevailing market practices, lest they be swamped with the highest-cost customers.
"That's the game," said Cindy Ehnes, director of the California Department of Managed Health Care. Risk selection, she said, "must be part of every insurer's strategy or else they potentially will get all the bad risk."
Such cherry-picking tripped up Pam Munter when she applied for individual coverage two years ago. She had retired from a clinical psychology practice in Oregon and moved to California, where her insurance applications were rejected, one after another.
The reason: She takes Prevacid for gastroesophageal reflux disease. It is a widely prescribed drug with annual sales exceeding $3 billion.
In Oregon, Munter paid $400 a month for health insurance. In California, the only coverage she could get was through the state-run high-risk pool. She paid $1,000 a month for a policy with a benefit limit of $75,000 a year, and was lucky to get it. California often has a long waiting list for the high-risk pool.
Medicare came to Munter's rescue when she turned 65. Now she pays less than $250 a month.
Rejection and rescission
Rudy Rivas is on the front line of the healthcare system. He sells medical insurance from a home office in Whittier and counsels customers at his kitchen table. These days demand is high, but so are rejections.
On a recent day, he hung up the phone after talking to a woman in her 50s who had lost her job and her group health insurance coverage along with it. He couldn't find an insurer willing to take her on because of a preexisting medical condition.
"She's not indigent. She owns her own house. She doesn't qualify for Medi-Cal. What can she do?" Rivas said. "This is a common call that we're having. It's tough."
Rivas doesn't blame the insurers. But he spends a lot of time explaining to clients the harsh realities of the individual market.
"Insurance is about one thing -- adverse risk," Rivas said. "If I'm a carrier and I started taking on people who are 5-foot-10 and over 265 pounds, I'm going to get all the people who are overweight. And I can't keep my doors open that way."
Another way that insurers keep medical losses down is by jettisoning customers they say did not qualify for coverage in the first place.
Several insurance companies have established departments dedicated to reviewing the applications of customers who file costly medical claims. The goal is to discover evidence that the clients failed to disclose preexisting conditions when they applied. Insurers cite such omissions as grounds to cancel policies retroactively, a process known as rescission.
Health Net Inc. of Woodland Hills, a nationwide insurer with 6.7 million members, avoided spending $35.5 million by canceling the policies of about 1,600 California customers over six years, according to company documents disclosed last year by the Los Angeles Times.
The documents showed that Health Net paid bonuses to an employee based, in part, on how many policies of sick enrollees she canceled. An arbitrator this year awarded $9 million to one Health Net customer -- a Gardena hair salon owner who was undergoing chemotherapy for breast cancer when her policy was canceled.