Blue Cross of California on Friday agreed to stop canceling individual health coverage unless it can prove that policyholders "intentionally misrepresented" their medical histories on applications for coverage, USA Today reports (Appleby, USA Today, 5/14). The agreement is intended to settle a class-action lawsuit filed on behalf of up to 6,000 policyholders since 2001 who allege that their coverage was canceled improperly. Under California law, insurers can cancel policies if policyholders misrepresent their medical histories when applying for coverage. Consumer advocates say the law applies only to intentional situations, but Blue Cross and other health insurers have maintained that the law permits cancellations for unintentional mistakes, errors and other inconsistencies about medical histories on individual coverage applications.
Under the agreement, the insurer has said it would consult policyholders about application problems when deciding whether rescinding coverage is justifiable. William Shernoff, a plaintiff attorney in the case, said Blue Cross also has agreed to use a new application that is "designed to minimize mistakes." Blue Cross' parent company, WellPoint, denied any wrongdoing in the settlement.
Lawyers on Monday are scheduled to present the proposed settlement to Los Angeles County Superior Court. Pending court review, canceled policyholders would be notified of several options, including dropping a cancellation claim in exchange for $1,000 and having the decision re-examined. If the cancellation is reversed, Blue Cross would pay the patient's medical bills that would have been covered under the policy (Girion, Los Angeles Times, 5/11). Blue Cross spokesperson Shannon Troughton said the company denies any wrongdoing and is settling the class-action lawsuit to avoid the costs of a lengthy trial (USA Today, 5/14).
The deal follows months of negotiations among an attorney in the case, the California Department of Managed Health Care and the state Department of Insurance. DMHC Director Cindy Ehnes said it could take longer for other health insurers to adopt the new regulations because they contend that rescinding coverage without limitations is necessary to reduce fraud. DMHC in March fined Blue Cross $1 million for failing to ask policyholders about application errors before revoking coverage (Los Angeles Times, 5/11).
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