Blue Shield has agreed to reissue medical coverage to nearly 700 Californians whose policies were canceled after they got sick and to make changes in the way it handles insurance bought by individuals, officials said Tuesday.
Blue Shield of California's Life & Health Insurance Co. also agreed to reimburse consumers whose coverage was canceled for medical expenses they paid out of pocket.
In turn, the state dropped its case against Blue Shield and declined to pursue $12.6 million in proposed fines.
It is the latest deal between regulators and insurers in a crackdown prompted by a series of articles in The Times examining rescission, the controversial practice of canceling policyholders' coverage after they get sick.
Most of the state's health insurers remain mired in litigation over the practice that has led to the cancellation of thousands of policies of sick patients, as well as financial losses for them, physicians and hospitals. In addition, Los Angeles City Atty. Rocky Delgadillo has sued Anthem Blue Cross, Blue Shield and Health Net, accusing all three of improperly dropping customers.
State Insurance Commissioner Steve Poizner said he hoped the settlement would "make whole" 678 consumers dropped by Blue Shield and "put an end to rescission practices that were hurting consumers."
"People pay their insurance premiums and expect to be taken care of," Poizner said. "Canceling someone's insurance can have devastating medical, emotional and financial impacts. I will continue to take action against those insurers who do not live up to their agreements."
In September, Poizner announced a similar settlement with Health Net Inc. of Woodland Hills, which agreed to offer new coverage to 926 people and pay $3.6 million in penalties.
Neither Blue Shield nor Health Net admitted wrongdoing.
The state Department of Managed Health Care, which supervises health maintenance organization coverage, struck similar deals last year with Anthem Blue Cross, Blue Shield and other major insurers.
Blue Shield President Duncan Ross said the company was pleased with the agreement.
"With this settlement, we can put these matters to rest and enter 2009 with new procedures in place to clarify the responsibilities of insurers and our customers in the future," he said in a statement.
When the state's charges were initially filed, Ross called them "grossly unfair." Blue Shield and other insurers have maintained that state law allows them to review a patient's old medical records after they get sick and rescind coverage if it finds something the policyholder failed to disclose on his application -- whether intentionally or by mistake.
Consumer advocates and lawyers have accused Blue Shield and other insurers of using purposefully confusing applications designed to trick people into making mistakes that can later be used against them and of failing to properly vet the applications before issuing coverage.
The settlement comes more than a year after Poizner accused Blue Shield of 1,262 violations of laws and regulations, resulting in hundreds of rescissions. He called the allegations "serious violations that completely undermine the public's trust in our healthcare system and are potentially devastating to patients."
Jerry Flanagan of the advocacy group Consumer Watchdog said the settlement lets Blue Shield off too easy.
"This settlement does not adequately protect against future rescissions -- no admission of wrongdoing, no mandatory fines, no clarification of the legal standard" for rescissions, he said.
Under the deal, Blue Shield will offer new coverage -- without regard to preexisting conditions -- to consumers whose policies were canceled between Jan. 1, 2004, and May 31, 2008. Consumers also may apply to be reimbursed for medical expenses they paid out of pocket that would have been covered under their old policies. Any disputes will be submitted to an arbitrator.
To obtain medical reimbursement, the settlement requires consumers to waive their right to sue Blue Shield.
That's a bad idea, said William Shernoff, a Claremont lawyer who represents rescission victims and is pressing a class-action case against Blue Shield.
"The reimbursement of medical bills is the least amount of damages" in some cases, he said. "That's like one-twentieth or one-fiftieth of what people are owed. While people were rescinded, they couldn't get medical care and their medical condition was aggravated. They went into bankruptcy. Where's the compensation for that?"
Poizner spokesman Darrel Ng said the settlement was the most efficient way to achieve the department's goals of medical expense reimbursement, new coverage and reforms.
"Do we wait longer to try to get this, or do we try to help people right away?" Ng said.
Flanagan also criticized Poizner for failing to produce promised rescission regulations.
Ng said the regulations were progressing.
Blue Shield also agreed to simplify its application forms and beef up the underwriting process by which it decides whom to accept for coverage.
Under deals the Department of Managed Health Care struck last year with Anthem Blue Cross, Blue Shield, Health Net, Kaiser and PacifiCare, 2,715 consumers were eligible for new coverage. As of late December, 170 had taken advantage of the offer, said department spokeswoman Lynne Randolph.
The department did not ask consumers why they declined the deal. Some may have obtained coverage elsewhere, and some may resent the company that rescinded them, she said. Consumer advocates have said that premium cost also may be a barrier.