Woodland Hills insurer Health Net has agreed to pay as much as $14 million to settle a pair of lawsuits brought on behalf of 800 former policyholders whose coverage was dropped after they submitted substantial medical bills.
Under the deal, which won preliminary court approval Wednesday, individuals whose health insurance policies were canceled since 2004 are eligible for payments of up to $218,000. The average payment is expected to be $7,836.
The settlement would resolve a class-action lawsuit filed by Claremont lawyer William Shernoff, as well as a suit filed by Los Angeles City Atty. Rocky Delgadillo.
In addition to the payments to customers, it requires Health Net to pay a fine of $2 million to the city attorney and to contribute $500,000 to charities. Shernoff's firm will earn $2.1 million.
It follows a two-year crackdown by state regulators on the widespread and controversial practice known as rescission. In deals with regulators, insurance providers Health Net, Anthem Blue Cross and Blue Shield all have agreed to make substantial changes in the way they sell individual coverage in an effort to reduce the number of rescissions.
In all, Health Net has agreed to pay more than $40 million to resolve the regulatory actions and litigation over rescission.
Health Net is the only company that has been forced to defend rescission at trial. Nearly a year ago, an arbitration judge awarded $9 million to Patsy Bates, a Gardena hair salon owner whose coverage Health Net dropped after she was diagnosed with breast cancer. The rescission forced her to suspend her chemotherapy treatments for several months.
That was one of 1,600 rescissions that helped Health Net save $35.5 million over several years, according to trial documents. The trial also revealed that Health Net paid bonuses to an employee based in part on how many rescissions she carried out.
Health Net stopped those bonuses and, under the settlement, agreed not to reinstate them.
"This case proved that no matter how much money these organizations make, they are not above the law," said Invia Betjoseph, a San Jose family therapist who served as the lead class member in the suit against Health Net.
Betjoseph was left with about $8,000 in medical bills and went for more than a year without health insurance when Health Net rescinded his coverage three years ago. He said Health Net accused him of lying on his application for coverage.
