State launches unprecedented review of HMO coverage cancellations

State authorities, in an unprecedented move, have opened the door to reinstate insurance coverage for thousands of patients whose medical coverage was summarily canceled by health care insurers

"This is a milestone day," said Cindy Ehnes, the director of the Department of Managed Health Care, the Schwarzenegger administration's regulator of California's HMOs.

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.

Reaction from political players in the health care debate was positive.

Also Thursday, 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.  

"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.

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.

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.

The Schwarzenegger administration's action followed the decision by Los Angeles City Attorney Rocky Delgadillo to sue Blue Cross, alleging that the health insurer canceled the health insurance of patients only after they got sick.