Los Angeles City Atty. Rocky Delgadillo alleged in the suit that the insurer sold people false promises of coverage and concealed a scheme to renege on policies for those diagnosed with serious and often expensive medical conditions, including cancer and congestive heart failure. The suit says more than 500,000 people were tricked into buying individual and family policies from Blue Cross.
"Countless Californians who believe they have insurance actually have policies that aren't worth the paper they're printed on," Delgadillo said. An Anthem Blue Cross spokeswoman said the company intended to vigorously defend itself and "strongly disagrees with the allegations." A spokesman for the insurer's parent company, Indianapolis-based WellPoint Inc., declined to discuss the allegations.
The suit, filed in Los Angeles County Superior Court, accuses Blue Cross and WellPoint of violating more than 25 state and federal laws. It demands restitution for patients who were left with medical bills and seeks more than $1 billion in penalties.
The suit identifies allegedly illegal practices that were brought to light in Times articles highlighting problems associated with the cancellation -- known as rescission -- of the policies of sick patients.
In Sacramento today, Cindy Ehnes, the director of the Department of Managed Health Care, is expected to announce the reinstatements of several patients whose policies were rescinded by health plans as well as a process for other patients to have their rescissions reviewed and reconsidered.
Patients whose coverage has been rescinded by Blue Cross praised the filing of the suit.
"It's fantastic -- nobody should have to deal with this," said Jennifer Thompson. Blue Cross dropped the 61-year-old Palm Desert real estate agent last December after she had a hysterectomy for endometrial cancer that the health plan had approved in advance. Thompson was left with about $160,000 in medical bills and without insurance for the first time in her life.
Blue Cross, she said, told her it dropped her for failing to disclose on her application that she had had breast cancer 11 years earlier. Thompson said the application had asked for 10 years of medical history. Still, she said, she asked the agent whether she needed to include the information and he told her no.
Three days after arriving home from the surgery, "I received a letter from Blue Cross telling me they were pulling the rug out from under me," she said. "It was right before Christmas. It was a great gift."
Blue Cross declined to discuss specific rescission cases.
Patient advocates said the suit could be a powerful tool to help dumped patients win back coverage.
"The complaint makes it very clear that a key part of the resolution will be to make sure everyone has coverage," said Jerry Flanagan, a patient advocate with Santa Monica-based Consumer Watchdog.
Delgadillo said Blue Cross "engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most."
WellPoint spokeswoman Shannon Troughton said Anthem executives had wanted to discuss the allegation with Delgadillo before he took legal action.
"Anthem has offered on several occasions to meet directly with the city attorney to provide further information on Anthem's rescission procedures," she said. "To date, the city attorney rejected each of these offers, and we are disappointed by his actions today because of our attempts to meet with him."
Chief Asst. City Atty. Jeffrey Isaacs said the only request for a meeting came Friday from one of Blue Cross' outside lawyers. He said the company had not been forthcoming in providing requested documents.
"It was seen as a typical lawyer delaying tactic," Isaacs said. "We saw no reason to meet with them, and we didn't think this was a particularly trustworthy company given their pattern of lies and deceptions to consumers over the last four years."
WellPoint is developing an outside third-party review process for all rescission cases, Troughton said. She said the company had made changes in 2006 in its process for rescinding policies.
The city attorney's office said the company appeared to have been less than candid about the touted changes. The company said in a February press release that it had developed a new coverage application in response to criticism that the current application was confusing and designed to trap people into making mistakes that could later be used to rescind coverage.
The press release may have been unlawfully misleading because it failed to make clear that the new application had yet to be put into use, Isaacs said.
The city attorney's office brought its first lawsuit against a health plan, Health Net Inc., in February. At the same time, Delgadillo's office launched a website, at www.protectingtheinsured.org, aimed at encouraging patients and physicians to share their complaints about the practices of health insurers.
It has received more than 40,000 hits, he said.
State Insurance Commissioner Steve Poizner said he would examine the allegations leveled in the suit and determine whether action was warranted.
"The practice of rescinding health insurance only after a claim has been filed based on an insurer's failure to do its due diligence before issuing the policy is illegal and deplorable," he said in a statement.