Administration fails to reinstate health care in illegal insurance cancellation cases

Last year, a Schwarzenegger administration investigation found Blue Cross had illegally canceled health insurance policies for 90 sick patients. But more than a year after the administration released its findings, it has refused to require Blue Cross to reissue the policies that were canceled illegally, even though it has the power to do so.

State regulators told the Senate Health Committee last week that their investigation is focused on making systemic changes to help end the practice of rescission, when health insurers cancel policies after sick customers have filed claims for medical coverage.

But Sen. Sam Aanestad, R-Grass Valley, said it appeared the Department of Managed Health Care was doing its job backward. "It just seems to me the priorities here seem to be reversed," he said. "If we're into consumer protection, the first priority would be to reinstate the insurance coverage for the patient who needs the health care. The second priority in my mind is to fine the plan and make the big headlines and change the industry."

At the hearing last week, the DMHC's chief of enforcement, Amy Dobberteen, said the Blue Cross survey was more focused on

identifying "systems failures" and not a review of individual rescission cases.

"These surveys are looking at a 5,000- to 10,000-foot level. They're not getting down into every detail," she said. "While there are systems failures, that does not always equate to an automatic right to reinstatement."

The department has the power to mandate that a health plan take back an enrollee if it finds that his or her health insurance was wrongfully taken away. But, Dobberteen said, "The statute does not require reinstatement."

DMHC Director Cindy Ehnes added that "remedial action remains to be determined" in the Blue Cross cases and in other rescission cases currently under review by the department.

Health plans can revoke coverage for enrollees if they determine an applicant did not truthfully fill out their original health insurance application. Under current procedures, that cancellation is immediate, and customers who want to have their health care reinstated must appeal.

"I don't like an enforcement process that's based on appeals," said Sen. Sheila Kuehl, D-Santa Monica, chairwoman of the Senate Health Committee.  Kuehl said she would like to see health plans be forced to go through some sort of review process before a patient's health coverage can be rescinded. And, she said the department's decision to conduct  these systemic reviews without reinstating insurance for the individuals whose cases were studied "seems like a major omission."

Anthony Wright, executive director of the patient advocate group Health Access, said both individual remedies and systemic changes are needed. "At the end of the day, the department should not be turned into a casework agency," he said. "But if they do find problems, there's a responsibility to make sure those problems are solved in those individual cases."

Aanestad said he would like to see changes that would force health plans to go through some kind of review process before they can cancel an enrollee's health insurance.  "I don't like government regulation, but it seems to me that somehow, we need to have some kind of policy that says if somebody is going to be dropped by their insurance company, even for just cause, certainly there should be some kind of immediate review."

While the department insists some corrective actions may be forthcoming, some say that is not good enough. Los Angeles City Attorney Rocky Delgadillo has filed a civil law-enforcement suit against one insurance provider, Health Net, seeking reinstatement for customers whose insurance was, in Delgadillo's view, illegally taken away.

Delgadillo had some carefully chosen, but harsh, words for regulators in both Schwarzenegger's Department of Managed Health Care and Steve Poizner's Department of Insurance for their failure to reinstate insurance for people who have had their policies canceled.

"The regulators should exercise the full extent of their regulatory authority," said Delgadillo. "If they decline to seek reinstatement of wrongfully canceled policies, then I think it is the job of a prosecutor to seek that very remedy. That is the remedy I'm seeking in my civil law enforcement action against Health Net."

Delgadillo's action comes as the department is considering new regulations on how to deal with the issue of rescission. Department regulators say they are exploring a clearer definition of the steps insurers must take before they offer insurance to prospective customers. 

"There is no statutory definition yet of what constitutes underwriting," said Dobberteen, who said clearing up that definition is a high priority of the DMHC.

Delgadillo sent a letter Wednesday to Ehnes and Poizner asking to be included in the process. "I would like to be brought immediately into your working group on reform," he wrote, before outlining his "broad principles" of what new regulations should look like.

Charles Bacchi, a lobbyist for the California Association of Health Plans, said insurance providers "have been eager to improve their processes for internal review" of rescission cases. "Several health plans have proposed and are in the course of determining a (review process)," he said.

But Delgadillo says he does not trust insurance companies to police themselves. "Most important, insurance companies should neither draft these regulations nor play any role in choosing the arbiter of these claims," he states in the letter. "Any independent dispute resolution should be truly independent."

A bill by Assemblyman Hector De La Torre, D-South Gate, would require the Department of Insurance or DMHC to review every proposed rescission case. That bill will likely be opposed by health plans. AB1945 will be heard in Assembly Health next week.
Health Net spokeswoman Margita Thompson says her employer is committed to a third-party review process, regardless of what happens in the Legislature or with new regulations.

"We're working with the department," she said. "We're committed to going to third-party review regardless of whether or not there's legislation."

But advocates will watch any industry-proposed reform very closely.

"One of the things that have been discussed is having a review process so that nobody can be denied coverage unless there was some departmental approval or review by an independent agency," Wright said. "Obviously, there are questions about how independent that review will be."