California Seeks $12.6M Fine for Blue Shield Cancellations
On Thursday, Insurance Commissioner Steve Poizner (R) plans to propose a $12.6 million fine against Blue Shield of California Life & Health for 1,262 alleged violations involving claims-handling laws and the cancellation of individual health insurance policies, the Los Angeles Times reports.
Poizner said the violations "completely undermine the public's trust in our health care delivery system and are potentially devastating to patients."
Half of the alleged violations relate to the insurer's cancellations of individual policies after treatment claims had been submitted. The department charged Blue Shield with illegally canceling 229 policies involving hundreds of claims.
The penalty marks the first time the department has taken legal action against an insurer over its policy cancellations.
Blue Shield contends that coverage is rescinded if a member's application contains errors about their medical history. The insurer said the cancellations are legal and necessary to prevent fraud.
However, insurance regulators accused Blue Shield of failing to evaluate members' applications before issuing policies. The insurer argues that such a process is time-consuming and costly.
Regulators also accused Blue Shield of routinely failing to attach the applications to the policies when they are issued.
The other half of the violations involved claims handling, in which the insurer was accused of:
- Failing to pay interest owed on claims;
- Mishandling member appeals; and
- Delaying payments.
Duncan Ross, president of Blue Shield Life & Health, said the allegations were "a radical departure from the [department's] widely accepted and long-standing interpretation of the law." He added, "The department proposes new legal standards for underwriting and rescission that conflict with decades of court decisions."
The insurer said it will contest the alleged violations and the proposed fine.
Poizner said he had directed insurance regulators "to target" illegal policy cancellations "on an industrywide basis, and we will continue to take appropriate action as needed."
Meanwhile, the Department of Managed Health Care is continuing an investigation of cancellation policies for Blue Shield's HMO members in California. The probe is expected to be completed in early 2008 (Girion, Los Angeles Times, 12/13).