When Blue Shield of California learned that Ana Maria Simoes needed emergency surgery to remove her gall bladder, the company OKd the operation but also turned the case over to its investigative unit, according to corporate records disclosed Wednesday.
A Blue Shield investigator scrutinized Ana Maria’s medical records and compared them to the application she filled out for coverage, the investigator’s notes show. Ultimately, the investigator scribbled “unable to prove” in her notes, and then opened an investigation into Ana Maria’s husband, Augustine.
This time, the investigator concluded the Chino dairy farmer had failed to disclose that he had high cholesterol, and the omission was used to justify canceling the couple’s coverage.
The cancellation was highlighted by Los Angeles City Atty. Rocky Delgadillo as an example of the allegedly abusive practices at the heart of a lawsuit he filed Wednesday on behalf of the residents of Los Angeles against Blue Shield. The suit contends that Blue Shield has illegally canceled the coverage of more than 850 policyholders including people like the Simoeses since 2002.
Blue Shield spokesman Tom Epstein defended the cancellation of the Simoes’ coverage and called the suit “a cheap political stunt” that was “totally without merit.”
In the past, Blue Shield has said that it cancels policies rarely and that the practice is a legal and necessary tool to combat fraud. The Blue Shield suit is similar to those that Delgadillo filed earlier this year against insurers Anthem Blue Cross and Health Net. Like Blue Shield, those companies have denied wrongdoing and say they rescind coverage only when necessary.
The latest suit accuses Blue Shield, a nonprofit company based in San Francisco, of using complex and confusing applications for coverage to trick individuals into making mistakes that can later be used against them. The suit seeks fines and penalties of more than $1 billion.
“For decades, health insurers have gamed the system and reaped billions,” Delgadillo said. “The time has come to . . . set things right.”
The suit also accuses Blue Shield of falsely advertising its coverage, alleging that the company often reneges when its members need substantial medical care.
Dr. Richard Frankenstein, president of the California Medical Assn., and Dr. Robert Bitonte, president-elect of the Los Angeles County Medical Assn., praised Delgadillo’s efforts to stop the practice known as rescission.
“Having health insurance does not mean you will receive healthcare when you need it,” Frankenstein said. “Insurance companies may promise you the moon and a thousand doctors, but if you really need your medical care you can bet they will be looking for a way to deny treatment or cancel your policy.”
Blue Shield’s Epstein said Delgadillo “asserts that we have committed unfair practices regarding the payment of claims for 400,000 individual policyholders without a shred of evidence that our actions were improper. He fails to mention that, since 2002, we have paid nearly $4 billion in claims for those policyholders. He claims that we used intentionally misleading applications, but our applications were reviewed and approved by two state regulators.”
The company also criticized Delgadillo’s consultations with policyholder “lawyers who have a financial interest in rescission cases,” Epstein said, saying that “he never spoke to anyone in our company nor asked for any documents in our files.”
Blue Shield has “always been careful in our underwriting of health coverage policies and in our investigations of the rare contracts that are rescinded,” Epstein said. “This is why we have rescinded a fraction of 1% of individual and family policies.”
Blue Shield believes that it is the responsibility of applicants to tell the truth, Epstein said.
“If there were no consequences for applicants who misrepresent significant medical conditions, insurance rates would skyrocket for the vast majority of Californians who complete their applications accurately,” he said.
The Simoeses say the cancellation saddled them with $60,000 in unpaid medical bills. They say they were harassed by collection agents, and Ana Maria’s credit was ruined.
“I hope that nobody else has to go through this, and I hope there will be somebody out there who can stop the insurance companies,” Ana Maria said in an interview after standing next to Delgadillo at a news conference. “It is so upsetting to me and my family.”
The Simoeses said they were as honest as they knew how to be on the application. English is a second language for the Portuguese immigrants, and they went to an insurance agent to buy their coverage. They said the agent filled out the application.
They said they gave the agent their physicians’ names and telephone numbers as he was filling out the application. They signed the application, giving Blue Shield permission to review their medical records before issuing coverage and, they said, that is what the agent told them would happen.
Delgadillo contends that, to save money, Blue Shield routinely fails to pull records and verify information on applications.
Augustine Simoes said he was not aware he had an elevated cholesterol level. He said his doctor prescribed Lipitor, a cholesterol controller, and explained only that men his age often needed it.
“The records of everything were at the doctor’s office,” he said. “I don’t know why they are accusing me of lying. I didn’t make anything up.”
Blue Shield’s Epstein said the insurer acted properly throughout. “When all the evidence is in, it will be clear that both Simoeses misrepresented significant facts on their applications,” he said.
William Shernoff, a lawyer for the Simoeses and other policyholders, is cooperating with Delgadillo’s office on the litigation. He criticized regulators at the Department of Insurance and the Department of Managed Health Care for “simply not doing their job.”
But Cindy Ehnes, director of the Department of Managed Health Care, defended that agency’s actions.
“We have protected consumers and restored coverage quickly to more than 1,200 consumers to date,” Ehnes said.
Noting Anthem Blue Cross’ and Blue Shield’s failure to reissue coverage on rescinded policies, she said, her agency was “going back through each of their approximately 2,170 rescission cases to pursue individual fines in each case.”
“The terrible practice of rescissions has caused irreparable harm . . . by making some individuals responsible for large medical bills and hindering their ability to get and keep health coverage,” she said.