Blue Shield of California Unit Reaches Deal on Rescissions

Blue Shield of California's Life & Health Insurance Co. will reinstate medical coverage to almost 700 Californians whose policies were improperly canceled as part of a settlement between the insurer and the California Department of Insurance, the Los Angeles Times reports (Girion, Los Angeles Times, 1/7).

State officials announced the agreement on Tuesday (Calvan, Sacramento Bee, 1/7).

Blue Shield did not acknowledge wrongdoing in the settlement, according to spokesperson Tom Epstein (Young, AP/San Francisco Chronicle, 1/6).

Blue Shield will offer new coverage to consumers whose policies were canceled between Jan. 1, 2004 and May 31, 2004 without taking into account pre-existing conditions.

Details

Under the agreement, the insurer agreed to:

• Reimburse consumers whose coverage was canceled for medical expenses they paid out of pocket (Los Angeles Times, 1/7);
• Update its application forms, underwriting process and agent/broker training procedures; and
• Set up an independent third-party review process for insurance cancellations (Robertson, Sacramento Business Journal, 1/6).

Darrell Ng, a spokesperson for the insurance department, said Blue Shield faces up to $5 million in fines if it does not fulfill the agreement (Sacramento Bee, 1/7).

To be reimbursed, consumers must waive their right to sue Blue Shield (Los Angeles Times, 1/7).

As part of the settlement, the state dropped its case against Blue Shield and will not pursue $12.6 million in proposed fines (Los Angeles Times, 1/7).

Criticism

Jerry Flanagan, of the advocacy group Consumer Watchdog, said the settlement "does not adequately protect against future rescissions."

William Shernoff, a Claremont lawyer, is pushing for a class action lawsuit against Blue Shield, arguing that further action for members' whose coverage was rescinded is needed (Los Angeles Times, 1/7).

Context

Insurance Commissioner Steve Poizner (R) announced a similar settlement with Health Net in September 2008, and the state Department of Managed Health Care reached agreements with Blue Shield, Health Net and other major insurers over rescinded HMO coverage earlier last year.