BC Life & Health revoked 1,880 individual health insurance policies in California in 2004 and 2005, and a state agency that examined a sampling says it found that more than half the cases it reviewed were improperly handled.
The Department of Insurance said it studied 83 sample cases and issued citations in 49 of them, alleging 67 violations of fair-claims handling laws.
In one case, the department contended that BC Life, a Blue Cross company, told a policyholder in a letter that it rescinded coverage because of an undisclosed medical condition, even though the condition was clearly stated on the individual’s application.
In another case, the department alleged that BC Life improperly rescinded a policy after miscalculating the period of time between treatment and the effective date of coverage. BC Life declined to reinstate coverage even after the department brought the error to its attention, according to a report issued by the agency.
When coverage is rescinded, it is as if the policy never existed, leaving the policyholder and healthcare providers to settle outstanding charges.
The 67 citations could lead to fines of as much as $10,000 per sustained infraction, as well as follow-up examinations.
The report was posted on the department’s website last week with little fanfare, even though it had been highly anticipated by consumer advocates and lawyers for policyholders who were suing BC Life and other insurers, challenging the rescissions as unfair and illegal.
The Department of Insurance launched an investigation last year when John Garamendi, now lieutenant governor, was the commissioner. The report marks one of the first occasions on which Insurance Commissioner Steve Poizner, who took office in January, has publicly weighed in on a health insurance issue.
“A rescission can be a financial death sentence when you’re ill,” Poizner said in an e-mail. “In my view, even one improper rescission is one too many. When it comes to rescissions, we are acutely aware that these are people’s lives. They’re not just numbers to us.”
A series of articles in The Times over the last year exposed the common practice by insurers in California of canceling individual policies when patients submitted claims for serious illnesses. The practice does not apply to group policies.
A spokesman said that the department was looking at rescissions industrywide and that BC Life was one of several companies under the microscope. The others include Blue Shield, HealthNet, Cigna and Aetna.
Asked to comment on the report, a spokeswoman for Indianapolis-based WellPoint Inc., which owns BC Life, noted that the majority of the citations were for “technical violations of the claims-handling processes” and that “in nearly every case, the DOI concluded that the rescission was appropriate.”
The Department of Insurance is the second California regulator to take on WellPoint, the state’s largest insurer, over its practices in rescinding coverage. In March, the state Department of Managed Health Care, which regulates health maintenance organizations, hit sister company Blue Cross of California with a $1-million fine after reviewing 90 rescissions and finding alleged violations of state law in every one.
Cindy Ehnes, director of the state managed care agency, said she was pleased to see the Department of Insurance applying fair-claims laws to rescissions. Health plans wield a great deal of power in setting up the way their policies work and in deciding what promises to make to policyholders, she said, and it is up to regulators to hold them to those promises.
“It is ultimately about fundamental fairness in the process that the health plan has every opportunity to design in its favor,” Ehnes said.
On the heels of the Department of Managed Health Care’s probe, the Department of Insurance report is evidence that BC Life isn’t playing fair, said Bryan Liang, a physician, lawyer and executive director of the Health Law Institute at the California Western School of Law in San Diego.
“We’ve got verification from another department doing its own investigation that this is happening consistently,” Liang said. “Clearly, the system is broken.... Patients are getting harmed left and right, and nothing is getting done.”
William Shernoff, a Claremont lawyer who represents policyholders suing BC Life, says the report shows BC Life’ rescission process is deeply flawed.
“It’s not a good report card,” he said. “I would say it’s a D-minus.”
Others were critical of what they said was the report’s focus on process rather than substance.
“It is sort of like giving a bank robber a speeding ticket for driving too fast in the getaway car,” said Jerry Flanagan, a patient advocate with the Foundation for Consumer and Taxpayer Rights. “The real question is, what will they do next and are they looking at the underlying crime as opposed to a misdemeanor?”
Department officials said investigators had also examined BC Life’s compliance with other laws, including those that govern rescissions. But Byron Tucker, a department spokesman, said a long-standing policy prohibited the agency from releasing the results of that part of the investigation. Only if formal legal action is taken can those findings be made public, Tucker said.
Doug Heller, executive director of the Foundation for Consumer and Taxpayer Rights, said that was ridiculous. “An agency whose responsibility is to be both transparent and to address the improprieties of the insurance industry should not be hiding behind some memo to keep a health insurer’s dirty secrets behind closed doors,” Heller said.
Scott Svonkin, a former insurance executive and chairman of the Los Angeles County Commission on Insurance, an advisory panel, said he was troubled that the Department of Insurance would end up giving BC Life a “slap on the hand.” He called it a test for Poizner. “Will he step up and take action?” Svonkin said.
Department officials said it was wrong to draw conclusions about the agency or the commissioner at this stage of the investigation. Poizner said in the e-mail that the department was “dedicated to the comprehensive review and evaluation of insurer’s decisions -- especially policies and actions that negatively impact consumers.”
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What the review found
The California Department of Insurance issued 67 citations to BC Life & Health after a review of 83 rescissions carried out in 2004 and 2005. If sustained, each citation could lead to a fine of up to $10,000. Among them are:
* Thirty-two citations for failing to promptly, fairly and equitably pay claims where liability was reasonably clear.
* Twenty-seven citations for failing to adopt and implement reasonable standards for the prompt investigation and processing of claims.
* Four citations for misrepresenting policy provisions to consumers.
The report can be viewed at www20.insurance.ca.gov/epubacc/REPORT/98969.htm.
The company’s formal response can be viewed at www20.insurance.ca.gov/epubacc/RESPONSE/99729.htm.
Source: California Department of Insurance