Few customers collecting from health-care settlement

More than a year after a settlement was reached between state regulators and health plans over restitution for 6,000 health insurance customers who had their policies improperly cancelled, only 170 people have recouped costs from the companies that terminated their coverage.

The figures were released at a hearing held by an Assembly committee that has put the rescission settlements in the spotlight. The committee’s chairman, Assemblyman Hector De La Torre, D-South Gate, has been the lead advocate in the Legislature to strengthen the state’s laws surrounding rescissions of health insurance. De La Torre also is a candidate for state insurance commissioner, who has jurisdiction over part of the health-insurance industry.

According to figures provided by the Department of Managed Health Care and the Department of Insurance, about $1.6 million has been paid out to the 170 people who have received compensation for having their health insurance wrongfully cancelled.

Between the years of 2004 and 2008, more than 6,000 health insurance customers had their coverage rescinded. It is unclear from those figures how many were cancelled because they had willfully filled out incorrect information on their initial health insurance applications and how many wrongfully had their coverage terminated by their health plans.

According to testimony from Bryan Liang, executive director of the Institute of Health Law Studies at California Western School of Law, an additional 2,100 rescinded customers have sought or are currently seeking compensation through either individual cases or class-action suits against the health plans.

Liang’s testimony was criticized by Republicans on the committee who accused him of presenting biased information. Assemblyman Mike Villines, R-Clovis, who is also a candidate for insurance commissioner, said Liang’s testimony “shows a bias against insurance companies.”

Villines said he is interested in ensuring that a meaningful independent review process is in place for both the Department of Insurance and the Department of Managed Health Care. “We took a step today to say we would have an independent third party review process in place. That’s the first step, and it’s good for everybody involved,” he said.

Villines noted health plans may balk unless the review process is crafted properly. “The health plans are going to resist if they think it’s a tribunal against them,” said Villines. “But at the end of the day, we should come up with a fair process and embrace it.”

De La Torre said he wanted to see departments do a better job of reaching out to people who have had their health insurance policies cancelled, and letting them know they may be eligible for restitution.

“It’s clear, the flaw is with the departments,” said De La Torre. “This is about their performance on their settlements.”

Republicans said the statistics painted a distorted picture of those who had their health insurance cancelled. They say some of those who had their coverage rescinded may have found health care through another job, or sought insurance from another provider.

Assemblywoman Audra Strickland, R-Thousand Oaks, criticized Liang for “drawing conculsions without all of the facets. You don’t even have a good picture” of how many rescinded customers have found health care coverage elsewhere.

In his testimony, Liang said the departments could do a better job in reaching out to those who have had their coverage cancelled. He also suggested offering a set payment to everyone who had their policies cancelled between 2004 and 2008, instead of requiring former customers to go through an arbitration process.

“It puts the burden on the victim instead of on the insurer,” he said. He added: “Insurers came to the table with dirty hands.”

But health plans counter that some of the policy cancellations were due to people willfully misrepresenting their past health history so that they would qualify for coverage. Blanket payments to all rescinded customers, they say, would essentially lead to some people being rewarded for filling out fraudulent health insurance applications.

The Department of Insurance says it will announce new rules in May for what health plans must do before they cancel a customer’s insurance policy. The Department of Managed Health Care, meanwhile, has opted not to adopt new rules saying they have all the guidance they need from the recent legal settlements.

“We’ve waged a war on rescission,” said DMHC’s Tim Le Bas. “We have worked hard to guarantee a fair and balanced rescission process.”

DMHC says they’ve collected $13.6 million in fines from five different insurers for rescission violations. The Department of Insurance has collected about $4.6 million according to department estimates.