Bill targets insurer refusals

Spurred by complaints that Blue Cross of California and other health insurers cancel patients’ policies after they get sick, a Southland lawmaker has introduced legislation that would require state regulators to sign off before carriers drop policyholders for allegedly failing to disclose preexisting medical conditions.

Assemblyman Hector De La Torre (D-South Gate) said his bill was prompted by recent letters from Blue Cross to physicians asking them about new patients’ health issues that could be used as a reason for canceling coverage.

De La Torre said his bill was needed because insurance companies “were not intending to abide by the spirit” of a law he wrote last year prohibiting carriers from refusing to pay medical bills for previously authorized services.

“We all agree that if someone is lying and doing willful misrepresentation, then they should not be insured,” the assemblyman said. “But the insurance companies should not be taking premium dollars from someone and dumping them.”

Health insurance companies contend that weeding out people who may not have been forthright when they applied for coverage is an essential part of keeping treatment costs under control.

“We need to make sure that the process for application, rescission and cancellation is fair,” said Christopher Ohman, chief executive of the California Assn. of Health Plans. “But we also want to make sure that the millions of people who do the right thing aren’t left paying for the relatively few who don’t.”

Ohman’s association represents 40 health maintenance organizations and preferred provider organizations covering 21 million enrollees in California.

Ohman said his group’s members were “analyzing the implications” of De La Torre’s bill.

The assemblyman’s bill is the latest in a series of legislative, regulatory and legal actions in California in response to aggressive efforts by insurers and health maintenance organizations to drop patients who hold individual policies after they’ve filed claims.

The practice, known in the health insurance industry as rescission, has been the target of growing criticism from patients, physicians and healthcare reform advocates.

In recent weeks, the state Department of Insurance and Department of Managed Health Care levied $1.3 billion in penalties on Cypress-based PacifiCare for alleged improper claims handling and other violations.

Reviewing health insurers’ proposed cancellations is an important safeguard, said Dr. Richard Frankenstein, president of the California Medical Assn. Companies should not be “the judge, jury and executioner,” he said.

De La Torre’s legislation and similar measures are needed in California as stopgap protections for patients at least until state or national policymakers, health insurers and dozens of other consumer and industry groups can agree on a health insurance plan that guarantees universal coverage, healthcare advocates say.

“Clearly, the insurers are using rescissions as a backdoor way to avoid actually covering people who need care,” said Anthony Wright, executive director of Health Access California. “It’s clear that the insurers can’t be trusted to deny people without some oversight.”

Insurers’ posture on cancellations prompted another Assemblyman, Ted Lieu (D-Torrance), to back a bill this session that would ban insurers from paying bonuses to underwriters based on the number of policies they cancel. The bill has passed the Assembly on a bipartisan vote and is before the Senate Health Committee.

Gov. Arnold Schwarzenegger has not taken a formal position on either the De La Torre or the Lieu bill. But the governor, who wants to create a universal health insurance program in California, believes “it is outrageous for policyholders to live in fear of having their policies canceled,” said spokeswoman Sabrina Lockhart.

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marc.lifsher@latimes.com