New legislation targets health plan abuses

California would crack down on HMOs that unfairly cancel or limit their patients’ health plans under new legislation prompted by the recent conduct of Blue Cross and other health plans. The proposal would force health management organizations to get approval from the state’s top enforcement officials — the insurance commissioner or the head of the Department of Managed Health Care — before denying coverage.

The bill is sponsored by the 35,000-member California Medical Association, which was angered by a letter that Blue Cross sent to some doctors that requested medical information on their patients. Blue Cross said it needed the information to help determine whether the patient had fully disclosed his or her medical condition, and that it had the right to cancel coverage of patients who do not disclose “material medical history.” Doctors said the request breached patient-confidentiality rules.

“This bill puts an end to the days where insurance companies served as judge and jury over their policyholders, and ensures public oversight over the cancellation practices of insurance companies,” said CMA President Richard Frankenstein. “Insured Californians will no longer have to live in fear that their coverage will be stripped from them by a greedy insurance company at a moment’s notice, just when they need it most.”

Late Tuesday, in a surprise move, Blue Cross announced it had stopped sending the letters. Earlier Tuesday, Blue Cross spokesman Nick Garcia said the HMO sought the information to “ensure that it mirrors what is reflected in the physician’s notes for that member. We believe the sending of the application satisfies this obligation. This notification process has been in place for several years, and to date we have not received any calls or letters of concern.” Garcia added that “it is important to note that of the approximately 300,000 new individual Blue Cross members each year, this letter pertains to less than 1,000 HMO members per month.”

On Wednesday, the state said the HMO’s decision to halt the letters followed lengthy discussions between state regulators and Blue Cross, prompted by the doctors’ complaints. The state spelled out its options, which included issuing a cease-and-desist order against Blue Cross. “We contacted them. They knew there was a possibility of a cease-and-desist order,” said Lynne Randolph, a DMHC spokeswoman. “We have frequently used that (a cease-and-desist order) in the past.”

The bill, AB1945 by Assemblyman Hector De La Torre, D-South Gate, was crafted over the past three weeks. It was introduced Wednesday.

De La Torre’s bill comes in the wake of regulators levying fines against major HMOs including HealthNet, Blue Cross and Blue Shield after it was revealed they actively sought to purge sick, and therefore expensive, members from their rolls. HealthNet was even offering bonuses to employees for information that led to policyholders being dropped.

Those revelations first came to light after a series of stories in the Los Angeles Times.

The bill is the latest battle in the war between doctors and health plans. Earlier this week, the Times reported that Blue Cross had tried to enlist the help of physicians, saying the company had the right to drop patients who do not disclose “material medical history.”

“Any condition not listed on the application that is discovered to be pre-existing should be reported to Blue Cross immediately,” the letter states.

Frankenstein said his group was “outraged” by the Blue Cross letter. “The insurance industry has made billions by unfairly canceling health policies when people need coverage most, with little to no oversight prior to canceling the policies,” said Frankenstein. “The recent letter from Blue Cross asking doctors to rat out their patients epitomized the depths to which an insurance company will sink to cancel policies. At some point, someone must stand up and say ‘Enough!’”

Blue Cross later rescinded the letter, saying it was “creating a misimpression and causing some members and providers undue concern.”

CMA has called Blue Cross “the poster child for insurance company bad behavior,” and a CMA spokesman said De La Torre’s bill is a direct reaction to actions by Blue Cross and other HMOs.

Earlier this year, a state appeals court ruled that insurers could not cancel a medical policy unless they showed that the policyholder intentionally misrepresented his health or that the company had investigated the application before it issued coverage.

Critics had claimed they were being having their insurance policies revoked for unintentional omissions on their health histories.

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