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Blue Cross to stop dumping patients for inadvertent errors

Victoria Colliver, Chronicle Staff Writer

Saturday, May 12, 2007

Blue Cross of California and patients' attorneys agreed to a settlement that requires the insurer to stop canceling health policies of customers who had given inaccurate medical histories unless the insurer can show the policyholders lied on applications.

The two sides presented the agreement to a Los Angeles County judge Friday in a bid to settle a class-action lawsuit on behalf of as many as 6,000 current and former policyholders whose individual coverage had been rescinded since 2001.

The agreement, if approved, could bring important consumer protections to the individual insurance market. People with individual policies are vulnerable to insurance cancellation because, unlike those with group or employer-sponsored coverage, their applications undergo individual medical underwriting.

"This settlement by a major health plan ... could lead to highly significant changes," said Cindy Ehnes, director of the state Department of Managed Health Care, which fined Blue Cross $1 million in March after determining the insurer failed to investigate potential flaws in members' applications before rescinding claims.

The plaintiffs accused Blue Cross of dropping their coverage after they sought treatment, leaving them with expensive medical bills. The insurer justified the action by pointing out mistakes in their applications.

A key legal issue addressed in the proposed settlement is the question of whether insurers must prove that applicants intentionally misrepresented their health histories before rescinding coverage. Plaintiffs have maintained that any discrepancies were minor, inadvertent or due to confusing application forms.

Despite those proposed protections, doctors and hospitals said the agreement exposes patients to big medical bills and fails to address unpaid claims owed to physicians and medical centers.

"It appears like a big sham to me because it really does not protect the patients' rights and has serious problems for both providers and the patients," said Daron Tooch, a Los Angeles lawyer representing the California Medical Association and all the state's hospitals in a related claim filed against Blue Cross.

William Shernoff, an attorney in Claremont (Los Angeles County) said he believes the doctors and hospital groups are miffed because they weren't part of the settlement discussions. "They're just upset because they weren't invited to the party,'' he said. "I guess when you're not invited, you say the party wasn't good anyhow."

The settlement must still be approved by the court. Los Angeles County Superior Court Judge Anthony Mohr, in response to concerns raised by health care providers, requested additional information and set a hearing date of June 7.

Blue Cross has denied any wrongdoing. The company released a statement saying it agreed to the settlement "to finally put to rest all claims involved in the lawsuit." It also reserved the right to contest the requirement that it prove applicants willfully misrepresented their histories.

"Rescissions are rare and difficult for all involved, but are a necessary part of the underwriting process to safeguard against fraud and misrepresentation," the company stated, adding it rescinds less than 1 percent of new enrollments.

A settlement is also expected to affect similar cases filed against other insurers, such as Blue Shield of California.

Shernoff said the settlement would send a powerful message to the industry. "If they want to play ball in the marketplace, they'll have to clean up their act," he said.

Under the proposed settlement, policyholders who are part of the class have several options to seek restitution.

They could demand to have their cases re-reviewed by Blue Cross or drop their claim in exchange for $1,000. If Blue Cross does not overturn its initial decision, the proposal allows them to seek independent reviews by former California Supreme Court Judge Edward Panelli, who helped mediate the settlement.

Tooch said the proposal leaves either the patients or the medical entities holding the bag. "I think a lot of patients will take the $1,000 thinking they're released of liability," he said.

Shernoff said the settlement releases patients from liability. He said he expects the issue of money owed to doctors and hospitals to be resolved.