State regulators for the first time have ordered a health plan to reinstate the insurance coverage of a patient whose policy was ruled to have been illegally canceled.
In an order posted Wednesday, the Department of Managed Health Care ruled that Kaiser Foundation Health Plan illegally canceled coverage for a Northern California woman in urgent need of medical attention for large kidney stones. The cancellation was illegal, the agency ruled, because there was no evidence the woman intended to deceive the health maintenance organization about her medical history.
The agency's action is the latest salvo in a growing controversy over cancellations of individual health insurance policies that have saddled patients with huge medical bills. With the order against Kaiser, all three of the state's largest health plans are now embroiled in the controversy.
Blue Cross of California, owned by Indianapolis-based WellPoint Inc., recently settled more than 70 lawsuits and claims filed by patients who accused the state's largest health insurer of illegally canceling their coverage after they got sick. Suits have also been filed against Blue Shield of California.
The agency's action against Kaiser was the second time in less than a month -- and only the second time ever -- that it has sided with a consumer in a cancellation case. In the first case, the agency fined Blue Cross $200,000 after finding it had illegally rescinded a Southern California woman's policy, but it did not order her coverage reinstated.
The agency is investigating several complaints of improper cancellations against Kaiser. But, until the latest reinstatement order, the agency had issued no findings against the HMO in a cancellation case.
The Northern California woman's case provides the first details to come to light of a Kaiser cancellation and illustrates the perils of replacing group health coverage with individual insurance. Unlike with group plans, insurers can deny individual policies to consumers with preexisting medical conditions or other health problems.
The woman and her family had Kaiser coverage through her employer for 20 years. When she left her job, the family purchased from Kaiser a continuation plan commonly known as COBRA that is protected by a federal law. After that expired, the woman and her family bought individual coverage from Kaiser.
Four months after the switch, the HMO dumped her. Kaiser claimed she omitted information about her health from the application the HMO required her to fill out when it sold her the individual plan. Kaiser also threatened to report her to law enforcement for fraud and billed her for $13,000 worth of treatment.
The problem, regulators concluded, was that Kaiser faulted the woman for not disclosing an appointment she had for arm and neck pain with a Kaiser physician. "The enrollee had no reason to believe that Kaiser was not on notice of her arm and neck pain at the time she filled out her Personal Advantage application," Amy Dobberteen, assistant deputy director of the state agency, said in the order. "Not only did a Kaiser physician treat her ... but Kaiser also filled and paid for her pain medication."
The agency ruled the rescission illegal because Kaiser made no showing that the woman "willfully misrepresented her health history."
It also said the cancellation was particularly egregious because the woman, whose name was not disclosed, couldn't afford to pay for medical treatment on her own and needed the expertise of Kaiser doctors who had treated her before.
"She fears she will be forced to go to an emergency room because she is no longer able to see the Kaiser urologists who treated her for this condition for the 20 years she had healthcare coverage with Kaiser," Dobberteen said in the order.
Kaiser, along with other insurers, believes that it can revoke coverage for any omission or misstatement in an application that would have led the insurer to decline coverage initially. And, they say, revocation is a necessary weapon against fraud.
But regulators and consumer lawyers disagree. In their view, California law prohibits insurers from revoking coverage for innocent mistakes.
Kaiser spokesman Jim Anderson said the HMO was already engaged in arbitration with the woman when regulators got involved. But their involvement speeded up the process.
"As soon as we learned that there was some medical urgency, we started looking for ways to move the process more quickly," he said.
The woman got back into treatment last week -- more than a week after the Department of Managed Health Care first directed Kaiser to reinstate her and two years after her coverage was revoked.
The woman first appealed to Kaiser. But when the HMO denied her appeal, she joined a class-action lawsuit filed in January 2005 in Alameda County Superior Court, one of about 10 suits filed every year contesting cancellations by the HMO. That suit was settled confidentially last September. Anderson said the accord set up a process for expediting arbitrations of individual complaints. That process was underway in the woman's case when she complained to regulators in late September.
Anderson said he could not guarantee that another member would not be canceled for failing to disclose conditions treated by Kaiser physicians. But he said it was less likely because the HMO was working harder to scrutinize applications before issuing coverage.
Kaiser now allows people declined for individual coverage to return to group or other plans in which they cannot be denied coverage. Also, an application question about untreated symptoms, which was challenged as vague, now is more precise.
Consumer lawyers and patient advocates say changes implemented by health plans in response to lawsuits and other criticism do not go far enough.
"Decisions about when insurance can be denied or revoked must be taken out of the hands of insurers who have a financial incentive to refuse to pay when we get sick and need it most," said Jerry Flanagan, a healthcare advocate with the Foundation for Taxpayer and Consumer Rights.