Anthem Blue Cross, the state's largest for-profit health insurer, has agreed to pay a $1-million fine and offer new coverage -- no questions asked -- to 2,330 people it dropped after they submitted bills for expensive medical care.
As part of a deal that the California Department of Insurance is set to announce today, Anthem also will offer to reimburse those people for medical expenses that they paid out of pocket after they were dropped. The company, a subsidiary of Indianapolis-based WellPoint Inc., estimated that those reimbursements could reach $14 million.
In exchange, the state agreed to drop its prosecution of its accusation that the company broke state laws in the way it rescinded members in preferred provider organization (PPO) policies between 2004 and 2008.
The settlement follows Anthem's agreement last year to pay a $10-million fine to settle similar charges involving 1,770 members in HMO-type policies overseen by the Department of Managed Health Care, another state regulator.
In both cases, Anthem agreed to make substantial changes in the way it sells and manages individual insurance coverage in California. Those changes, which include simplifying coverage applications, are expected to reduce the number of people who lose coverage through rescission.
The Anthem deal is the latest in a two-year effort by regulators to crack down on health insurers for dropping sick members on dubious grounds. It brings the last state rescission investigation to a close.
But insurers Anthem, Blue Shield of California and Health Net Inc. all remain targets of individual and class-action lawsuits alleging that they gamed insurance laws to dump sick people and avoid the costs of their care.
The only case to go to trial so far involved Health Net's rescission of a woman suffering from breast cancer. In that case, an arbitration judge awarded $9 million to Patsy Bates, a Gardena hair salon owner, after hearing her recount the fear she felt when she lost insurance and had to stop chemotherapy treatments.
"I am pleased that through this settlement, we have guaranteed reimbursement and restoration of coverage for the more than 2,300 people whose healthcare insurance was terminated without their consent," state Insurance Commissioner Steve Poizner said about the Anthem deal. "The settlement is a significant step towards ending rescission practices that can devastate consumers already weakened in their battle against illness."
Leslie A. Margolin, president of Anthem Blue Cross Life, the unit involved in the deal, said she too was pleased.
Margolin said the company would be contacting consumers over the course of the next 90 days and sending them information on how to participate in this settlement.
"Under the terms of the settlement, Anthem Blue Cross Life will invite these consumers to purchase coverage on a go-forward basis, regardless of past or present medical conditions," she said. "Additionally, these consumers will be eligible to receive reimbursement of prior out-of-pocket medical expenses."
Under the deals with regulators, rescinded patients can accept new coverage without forfeiting any legal rights. But they must waive their right to sue insurers in order to make claims for out-of-pocket medical expenses.
Critics say medical expenses often are only the beginning of the losses. In some cases, they say, patients were unable to get care because they couldn't pay for it, causing health conditions to worsen. In others, mounting medical bills damaged their credit and led to financial calamity.
Then there are the less tangible consequences. Bates, for instance, was awarded about $700,000 for pain and suffering.
"You have to give everything else up just to get your medical bills paid," said William Shernoff, Bates' lawyer. "I'm all for getting medical bills paid, but this is coercive. That's the real bad part of this settlement and the other ones too."
Jerry Flanagan, a patient advocate with Consumer Watchdog in Santa Monica, said Anthem's $1-million fine was "an insult to the people of California, especially those who have lived under the financial destruction caused by rescission."
The fine, he said, pales in comparison to what Anthem must have saved by rescinding policies for years. Anthem has never said what costs it avoided through rescission. But Health Net, in documents produced for the Bates trial, said it avoided $35.5 million by canceling 1,600 policies.
"A low fine encourages the company to rescind more policies because the company saves far more money on the policies it does not get caught rescinding," Flanagan said.
Darrel Ng, a spokesman for Poizner, said the commissioner's top priorities were winning back coverage and medical reimbursements for rescinded patients. Another goal was to close the door on improper rescissions by persuading Anthem to agree to changes in the way it does business and the threshold it uses for dropping coverage.
The fine was a lower priority than the 2,330 people affected, Ng said. "In our mind it was more important to take care of these people who had their insurance policies canceled than to continue negotiating for something that wouldn't directly help these people."