Insurance reinstatement orders put health plans on edge

Last week’s move by state regulators, opening the door to restoring health insurance to thousands of customers who had their coverage cancelled by health plans, has the health care world waiting to see what will happen next.

The plans say they are still waiting for word from the Department of Managed Health Care about which 26 customers have been ordered to have their coverage restored. Thousands of other cases will be reviewed by an arbiter, selected by the department.
Representatives from various health plans said they expect the broader review of these cancellations to be challenged in court. Though none would speak for attribution, they said they are waiting to see the details of the process established by the department before commenting on any potential legal action.

The department ordered the reinstatement of 26 patients who had their health coverage cancelled by Blue Cross, Blue Shield and Kaiser. More reinstatements may be ordered as the department winds up its investigation of HealthNet and PacifiCare.

Blue Shield and Kaiser said the department made the public announcement before revealing to the plans which patients were being reinstated. It was unclear whether the plans would fight those specific reinstatements.

“We are in the process of contacting them,” said DMHC spokeswoman Lynne Randolph. She said the DMHC had contacted the health plans for information on cases, and would issue the formal reinstatement orders shortly. “We should have it wrapped up by the end of the week,’” she said.

DMHC Director Cindy Ehnes said her office would review cancellations between 2004 and 2008. “Every single rescission will be reviewed by this department,” Ehnes said, adding that patients would be compensated for their costs in the event the rescission was flawed. “For the first  time, we are giving people a second chance to get that health coverage,” she said.

Ehnes estimated that there would be “thousands” of such cases, but said she was unable to give a precise number because HMOs are not required to report cancellations to state regulators. Legislation to require reporting is pending in the Assembly.

Health plans continue to downplay the rescission issue, pointing out that a small fraction of patients actually have their coverage taken away. And, they say, the ones who do, had their policies revoked because they were not truthful about their health histories on their initial health insurance applications.

A statement from Anthem Blue Cross pointed out the small number of rescissions highlighted in the department’s report, and alluded to the fact that the insurance company did not agree with the department’s interpretation of state law.

“Even under the department’s standard of review, which we do not believe is the applicable standard of review under California law, it concluded that only eight of 90 member cases did not meet this higher standard.”

A spokeswoman for Anthem Blue Cross would not elaborate on whether or not that difference in interpretation of state law may be the foundation of future legal action against the department, challenging the department-ordered reinstatements.

But Ehnes said the eight Blue Cross enrollees who were singled out for reinstatement were only the most egregious cases reviewed by the department. Since Blue Cross controls the lion’s share of the individual health care market in California, where rescissions take place, thousands more Blue Cross rescissions are likely to come under review.  

After the department’s announcement last week, reaction from the left was positive.

“I’m really grateful to the director and proud of her department for taking such a strong position. It is totally appropriate,” said Sen. Sheila Kuehl, D-Santa Monica, the chairwoman of the Senate Health Committee.

“It’s important that the department is moving,” said Jerry Flanagan of Consumer Watchdog, which has been critical of the department. “I think that they have got the message that they need to be sync with their patients.”

If the cancellations are found to be illegal, the insurers would foot the bill for care during which the patient had no coverage. The state also will bring in a third party to review its decisions.

After the announcement, a spokesman for state attorney general Jerry Brown said the Department of Justice was broadly investigating the rescission issue. Brown’s staff has already met with consumer groups, and is planning to meet with leaders in the health insurance industry in the coming weeks to discuss their cancellation and rescission policies. The spokesman said the attorney general was not pursuing criminal charges against the plans, or their leaders.  

 Ehnes announced that medical coverage had been reinstated in 26 cancellations that had been illegally ordered earlier by health insurers. Those cases were part of scores of cancellations by the major health insurers that Ehnes said were suspect. Blue Cross alone illegally canceled coverage in 90 cases, she noted, resulting in a $1 million fine.

Fines are expected against the other four health plans as the deparment winds up investigations of their rescission policies.  
Ehnes said she did not have the authority to reinstate coverage across-the-board, but would consider the cancellations case by case.

The health insurers say the number of rescissions are tiny-one-tenth of 1 percent– in comparison with the total amount of coverage. “While the number of rescissions cases are extremely small, California’s health plans have been in the process of working with policy makers and legislators” to protect consumers, said Christopher Ohman, head of the California Association of Health Plans, a trade association that represents HMOs.

In addition to the review of cancellations, the department also is continuing its investigation of several major HMOs. The results of those investigations, and any fines for potential violations, are expected to be release in the near future, said department spokeswoman Lynne Randolph.

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