L.A. sues Anthem Blue Cross over rescissions

The state’s largest for-profit health insurer, Anthem Blue Cross of California, was accused today of a widespread pattern of falsely advertising and fraudulently selling individual and family medical coverage, a rapidly growing part of the market.

In a lawsuit, Los Angeles City Atty. Rocky Delgadillo alleged that Anthem Blue Cross of California and Anthem Blue Cross Life & Health sold consumers false promises of coverage and concealed a scheme to renege on policies for those patients who incurred serious and often expensive medical diagnoses, such as cancer and congestive heart failure.

“Countless Californians who believe they have insurance actually have policies that aren’t worth the paper they’re printed on,” Delgadillo said. “They believe they have insurance because they trust what companies like Blue Cross are telling them.”

Anthem Blue Cross denied the allegations, and a spokeswoman said the company intended to vigorously defend itself in this matter.

“Anthem Blue Cross strongly disagrees with the allegations that were made in a complaint filed by the city attorney,” said Shannon Troughton, spokeswoman for Anthem Blue Cross and its parent company, WellPoint Inc. “Since the original inquiry from the city attorney’s office, Anthem has offered on several occasions to meet directly with the city attorney to provide further information on Anthem’s rescission procedures.

“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.”

The WellPoint spokeswoman declined to discuss details of the allegations, citing privacy concerns of patients and not enough time to review the lawsuit and its contentions. But WellPoint has said that policy cancellations are a rare but necessary tool to root out fraud and keep premiums affordable.

“Rescission affects a very small percentage of new enrollments – roughly one-half of 1% out of 300,000 new individual applicants each year,” she said. In 2006, she noted, Anthem Blue Cross implemented steps to strengthen and make more transparent its process for rescinding policies and is developing an outside third-party review process for all rescission cases.

The suit accuses the California Blue Cross units and Indianapolis-based WellPoint Inc. of violating more than 25 state and federal insurance, fraud and truth-in-advertising laws. The suit demands restitution and reinstatement for patients who lost coverage and were left with medical bills as a result of the alleged scheme to drop sick policyholders.

The suit comes amid growing scrutiny of the health insurance industry by the courts, law enforcement officials, regulators and legislators in California and other states as well. In Sacramento, a legislative oversight committee headed by state Sen. Sheila Kuehl (D-Santa Monica) called on state regulators in a hearing last month to do more to stop allegedly improper cancellations and order the companies to reinstate coverage.

Like Anthem Blue Cross, the state’s other insurers have stressed that policy cancellations are rare and are a tool to prevent fraudulent claims. At the same time, the companies including Anthem Blue Cross said they were looking to improve the process.

The suit identifies as allegedly illegal a number of practices that were brought to light in articles over the last two years in The Times highlighting problems associated with the cancellation of sick patients, a practice known as rescission.

The suit asks that a Los Angeles County Superior Court judge order the companies to stop the practices, pay back consumers for medical bills that should have been covered and reinstate improperly rescinded policies.

It also asks for civil penalties of $2,500 to $5,000 per alleged violation. If all is proved, the maximum possible penalty is more than $1 billion, Delgadillo said.

“The company has 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,” Delgadillo said. “We further allege that more than 500,000 consumers have been tricked into purchasing largely illusory healthcare coverage based upon the company’s false promise.”

Delgadillo brought his office’s first lawsuit against a health plan, Health Net Inc., in February. At the same time, Delgadillo’s office launched a website– 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.

In addition, Delgadillo said his team of lawyers and investigators was cooperating with state insurance and HMO regulators as well as policyholder lawyers. He also is working closely with medical societies and was scheduled to meet today with leaders of the Los Angeles County Medical Assn. about problems they say they experienced in getting paid for authorized medical care for their insured patients.

Patients whose coverage has been rescinded by Blue Cross praised the latest enforcement action.

“It’s fantastic – nobody should have to deal with this,” said Jennifer Thompson.

lisa.girion@latimes.com