State steps up scrutiny of insurers

Los Angeles Times Staff Writer

Lawmakers and regulators took aim at California health insurers Tuesday in efforts aimed at making sure they cover members’ medical needs and pay physicians and hospitals what they owe them -- and on time.

A day after the state Senate killed Gov. Arnold Schwarzenegger’s plan to expand healthcare coverage, Insurance Commissioner Steve Poizner vowed to make sure that current insurance laws were strictly enforced and ordered new audits of the state’s largest health insurers.

Poizner acted after his department cited Cypress-based PacifiCare for 133,000 alleged violations of state laws and regulations, which carry fines of as much as $1.33 billion.


Separately, the Department of Managed Health Care alleged that 30% of the PacifiCare claims it examined were improperly denied. That agency is seeking a $3.5-million penalty. Related story.

The company said it was working hard with both regulators to fix problems that it said stemmed from its takeover in 2006 by insurance giant UnitedHealth Group Inc.

Poizner said he planned to complete the broad review of claims-paying practices by year-end. If his investigators find that insurers are failing to promptly pay what they owe physicians, hospitals and members, he vowed to “come down on them like a ton of bricks.”

“Their business is to collect premiums and pay claims for legitimate healthcare expenses,” Poizner said in an interview Tuesday. “We’re talking about basic issues here. This is fundamental to their business.”

The Department of Insurance declined to name which companies would be scrutinized.

Representatives of two of the state’s largest insurers -- WellPoint Inc., which operates Blue Cross in California, and rival Blue Shield -- declined to comment on the prospect of a new audit.

Meanwhile, the state Assembly moved Tuesday to make clear that insurance companies cannot give bonuses or incentive pay to any employees based on their decisions to cancel people’s policies.

The bill, approved unanimously, is part of continuing scrutiny by legislators and state regulators over the way insurance companies handle policy cancellations -- often after patients run up major bills. The insurers defend such cancellations, known as rescissions, as a way to weed out policyholders who made misstatements about medical history on their initial applications.

Assemblyman Ted Lieu (D-Torrance) said he proposed the anti-quota bill (AB 1150) in an effort to close a perceived loophole identified in a Times story in November. It disclosed that Woodland Hills-based Health Net had tied an employee’s bonuses in part to the number of policies she canceled after members submitted claims for medical care.

The bill, which now goes on to the state Senate for consideration, would expand the scope of an existing state law forbidding insurance companies from tying any compensation for claims reviewers to their claims decisions.

A lawyer for Health Net argued in November that the existing law did not apply because the company paid the bonuses to an underwriter, not a claims reviewer.

Lieu said his goal was to eliminate that purported loophole.

“This practice is moving exactly in the wrong direction on healthcare -- denying coverage instead of expanding it,” Lieu said.

Health Net spokesman David Olson said too much had been made of the bonuses. He noted that only a fraction of the underwriter’s annual bonuses were tied to rescissions -- not large enough, he said, to prompt an improper cancellation.

In any event, Olson said, the company no longer tied any part of any compensation to rescissions.

“We support the Lieu bill,” Olson said.

The Lieu bill was supported by the California Medical Assn., the state’s largest physician organization, as well as Health Access California, a consumer group. There was no formal opposition, and it passed the Assembly with wide bipartisan support.

It is the second bill written with the aim of curbing the rescission practices examined in a series of Times articles over the last two years.

Schwarzenegger signed the first bill into law effective Jan. 1. That law requires health plans to pay physicians and hospitals for treatment the companies authorize in advance -- even if the patients are later rescinded.

Assemblyman Hector De La Torre (D-South Gate) said he wrote that law after he read a Times story highlighting the hardships encountered by sick policyholders who lost coverage through rescission.