The action, which affects thousands of Californians, is the boldest yet in dealing with companies' practice of rescinding coverage of sick policyholders.


Thousands of people whose policies were canceled by California health insurers will have a chance to win back their coverage and get outstanding medical bills paid as a result of an unprecedented move announced by the Schwarzenegger administration today.

The state's action is the boldest yet in dealing with the industry's increasingly controversial practice of canceling individual coverage -- known as rescission -- after patients have gotten sick and submitted medical bills.

Cindy Ehnes, the director of the Department of Managed Health Care, said she would reopen every medical insurance policy dropped over the last four years by the state's five major insurers and submit them for reconsideration to an independent arbiter.

Those determined to have been wrongly canceled would be reinstated and the insurers would be responsible for medical bills incurred while patients were without coverage, she said.

"Rescission is a harsh practice," Ehnes said. "It strips people of coverage and causes them to be uninsurable at the very time they need it most. For the first time we are giving people a second chance to get that health coverage.

"We are putting our full regulatory and enforcement action to work on this. We are opening the door to health coverage for those thousands of Californians who have been impacted over the last four years."

Ehnes' department, Insurance Commissioner Steve Poizner, Los Angeles City Atty. Rocky Delgadillo, lawmakers, legislative committees and the courts are all considering various aspects of the policy cancellations. The state insurers have defended the cancellations as rare and necessary to root out fraud.

An insurance industry spokesman said today that the health plans involved were already seeking to improve their cancellation policies and procedures.

Christopher Ohman, president of the California Assn. of Health Plans, said, "On their own, health plans have been implementing new policies to strengthen and make more transparent the process for rescinding policies."

That includes, he said, "developing an outside third-party review process in which an independent agent validates whether a rescission is warranted. Plans also have simplified and clarified their application processes and enhanced staff training."

Gov. Arnold Schwarzenegger hailed the announcement. "It's outrageous that innocent patients have to live in fear of losing their health care coverage," he said. " I look forward to working with my partners in the Legislature to ensure this egregious practice is stopped."

Also today, Ehnes ordered three of the state's largest insurers -- Anthem Blue Cross, Kaiser Permanente and Blue Shield -- to reinstate 26 patients whose cancellations, known as rescissions, were in her view clearly out of bounds.

Those three companies, along with PacifiCare and Health Net, are the insurers subject to the cancellation reviews announced by Ehnes.

At a news conference in Sacramento, Ehnes said the third-party review of cancellations would begin "within the month" and would cost "several million" dollars. The cost would be paid by the insurers, she said.

The state doesn't know exactly how many policies were canceled over the four years but believes "it's thousands," she said. Asked whether any criminal laws were violated, Ehnes replied that her office was in contact with the California attorney general's office. "We have spoken to them about this issue," she said, but declined to elaborate.

Ehnes launched investigations of the rescission practices of the state's top five insurers more than a year ago in the wake of articles in The Times highlighting the consequences of such cancellations, including patients going without medical care and running up medical debt.

The review of Blue Cross' practices was concluded last year. The others are pending and expected to be announced within weeks. In the Blue Cross case, Ehnes found that all 90 rescissions in the sample reviewed were flawed. She said she would fine the company $1 million, but she has yet to collect.

She has come under fire from lawmakers and consumer groups in recent weeks for her attempts to negotiate an enforceable resolution to the investigations with the five plans and for failing to reinstate many patients.

Ehnes said she had hoped to resolve the problems her department found through an agreement with each plan so that corrective actions would not be tied up in court fights. She said she decided to take action using her enforcement authority when those efforts failed, and she said she expected that some of the plans might choose to fight her.

She said she also moved as quickly as she could after the state Supreme Court let stand a key appellate court ruling that helped define the limited circumstances under which health insurers could cancel individual and family policies.

"I try very hard to do things that ultimately hold up in a court of law, not just a court of public opinion," Ehnes said. "That is my standard and I don't move easily until I feel I have that defensible position. I feel I am in that position. We will vigorously defend any action that is taken and feel like we will be sustained."

William Shernoff, a Claremont lawyer who represents rescinded policyholders, said Ehnes' actions were "wonderful and welcome news."

Jerry Flanagan, a patient advocate with Santa Monica-based Consumer Watchdog, said the possible reinstatement of coverage "is an incredibly important victory. This a landmark step on the road to justice for the thousands of innocent patients whose health insurance was retroactively canceled."

State to review canceled health insurance policies - Los Angeles Times

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