Anthem Blue Cross, California's largest for-profit health insurer, has agreed to offer new coverage to 2,330 state residents whose policies were rescinded between 2004 and 2008 after they submitted claims for costly medical care, the Los Angeles Times reports (Girion, Los Angeles Times, 2/11). Under the agreement reached with the state Department of Insurance, the insurer also will pay a $1 million fine and offer to cover the medical expenses of the former members for the period their coverage was rescinded. Anthem's parent company WellPoint estimated the total reimbursements at about $14 million.

As part of the agreement, which was announced on Wednesday, the state will drop outstanding charges against Anthem that the company failed to comply with state laws in the way it rescinded members' PPO policies. In 2008, Anthem agreed to pay a $10 million fine to the state Department of Managed Health Care to settle a similar charge that the company canceled HMO-type policies of 1,770 members (AP/San Francisco Chronicle, 2/12). In both cases, Anthem agreed to overhaul its insurance policy sales and management practices and simplify the application process, which is expected to reduce the number of policy rescissions.

Leslie Margolin -- president of Anthem's Blue Cross Life unit, which was involved in the agreement -- said that the company would contact the 2,330 members and provide them with information on how to participate in the settlement. Margolin said, "Under the terms of the settlement, Anthem Blue Cross Life will invite these consumers to purchase coverage on a go-forward basis, regardless of past or present medical conditions," adding, "Additionally, these consumers will be eligible to receive reimbursement of prior out-of-pocket medical expenses" (Los Angeles Times, 2/11).

According to the Times, the new agreement "is the latest in a two-year effort by regulators to crack down on health insurers for dropping sick members on dubious grounds," but Anthem, Blue Shield of California and Health Net "all remain targets of individual and class-action lawsuits alleging that they gamed insurance laws to dump sick people and avoid the costs of their care" (Los Angeles Times, 2/11).

Health Net
In related news, Health Net on Wednesday agreed to pay as much as $14 million to settle a class-action lawsuit filed by William Shernoff and a lawsuit filed by Los Angeles City Attorney Rocky Delgadillo on behalf of 800 of the company's former members whose policies were canceled between 2004 and 2009 after submitting costly claims. Health Net is the only company that has had to defend rescissions at trial, and the first-of-its-kind settlement won preliminary court approval on Wednesday. According to the Times, the former members will be eligible to receive payments of up to $218,000, with the average payment estimated at $7,836. Shernoff said members of the class-action suit will have the option of forfeiting payments under the agreement and filing suit on their own.

The settlement requires the insurer to offer coverage to the former members, as well as cover the medical expenses they incurred after their policies were canceled. In addition, the insurer will pay a fine of $2 million to the city attorney's office, $2.1 million to Shernoff's law firm and $500,000 in charitable contributions (Girion, Los Angeles Times, 2/12). The company also will pay $6.3 million in damages (Reuters, 2/11). According to the Times, in total, Health Net will pay more than $40 million to settle all regulatory action and lawsuits related to the policy rescissions.

In addition, under the settlement, Health Net agreed to halt employee bonuses that were based in part on how many rescissions they performed. The company also agreed to extend its self-imposed moratorium on rescissions until lawmakers or regulators establish standards for the practice, or until the company establishes a third-party review process that is approved by the judge overseeing the case.

In a statement, Health Net said, "Health Net believes all Americans should have access to high-quality and affordable health care," adding, "To that end, we have been working with our regulators and the Legislature to reform the entire system in support of guaranteed issue and an individual mandate, which would make rescissions obsolete."

Delgadillo, who has filed outstanding enforcement actions against other insurers, said he hopes the settlement with Health Net will "serve as a model for other companies which stand accused of engaging in unlawful rescission practices" (Los Angeles Times, 2/12).

Reprinted with kind permission from kaisernetwork. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at kaisernetwork/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork, a free service of The Henry J. Kaiser Family Foundation.

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