Patients get a victory as state restores insurance for some, orders reviews for thousands

State regulators Thursday set the stage for the reinstatement of thousands of Californians who may have been wrongfully dropped from health care plans over the past four years.

In an extraordinary move, Cindy Ehnes, director of the California Department of Managed Health Care, ordered immediate reinstatement of more than two dozen patients whose insurance coverage was rescinded. The health plans will be required to pay all medical claims of the patients involved.

Ehnes also ordered independent review of thousands of other "rescissions" made by the state's five largest health plans – Kaiser Permanente, Anthem Blue Cross, Blue Shield, PacifiCare and Health Net – since 2004.

Policy rescissions differ from cancellations. When a policy is rescinded, the plan has no obligation to pay current claims, leaving patients with potentially devastating medical bills for care already provided. Cancellations are more likely to occur after claims are paid, she said.

The department's action drew immediate, if cautious, praise from consumer groups who have been pushing state regulators to enforce existing laws that protect health plan enrollees.

"This is a landmark victory for those 26 people reinstated," said Jerry Flanagan of Consumer Watchdog, a Santa Monica-based health care advocacy group. "Most importantly, it opens the door for thousands more."

Attorney General Jerry Brown said Thursday that his office is investigating health plans and other insurers for wrongful rescissions and insurance claim denials, according to a spokesman.

Gov. Arnold Schwarzenegger also registered his objection to rescissions, saying it is "outrageous that innocent patients have to live in fear of losing their health care coverage. I look forward to working with my partners in the Legislature to ensure this egregious practice is stopped."

Two bills addressing rescissions are in play in Sacramento. And Schwarzenegger said his health care proposal offers a solution: a prohibition of denials based on age or pre-existing medical conditions.

Insurance industry representatives said health plans have been working for the past year – both on their own and with government officials – to develop clear, fair and standardized underwriting and rescission rules.

"Rescissions are not common, but when they are done we very much want a process that is fair and accurate," said Kaiser spokeswoman Kathleen McKenna. She said Kaiser hasn't rescinded a policy in California since October 2006.

Ehnes' order to reinstate 26 enrollees – issued to Kaiser Permanente, Blue Cross and Blue Shield – followed an investigation into practices of health plans offering individual health insurance coverage. Of 28 million insured Californians, about 2.6 million have individual policies.

"These (26 cases) are the most egregious," Ehnes said. "I am using fairly extraordinary authority to pull these out … because I think the aspects of these are so severe."

Ehnes said that under state law, insurers can rescind policies only if applicants deliberately misrepresent health histories. Insurers are prohibited from "post-claims underwriting" – accepting new enrollees, then scouring applications for potential fraud, omissions or misstatements after claims are submitted.

Anthony Wright, executive director of Health Access, a California consumer health group, cited the case of an unnamed Rancho Cordova woman who was being treated for breast cancer when she was abruptly dropped by her health plan. The reason: She had failed to disclose an old prescription for an antidepressant.

Said Ehnes: "We believe that anyone who has made an innocent mistake should never be rescinded." Proper underwriting, she said, uncovers mistakes before potentially harmful rescissions can occur.

In a 2007 review of 90 rescissions by Blue Cross, the managed health department determined none met California legal criteria for discontinuing a policy.

Flanagan, of Consumer Watchdog, praised Ehnes' actions but questioned whether reinstatements would be retroactive to the time the policy was rescinded and whether the health plans would be responsible for all related health expenses.

He also argued that a third-party review of other rescinded policies is unnecessary because the state already has determined the health plans were not following rules. "All illegally canceled patients must be swiftly reinstated in full, without dragging the process through months or years more of review," he said. "That will at least make the insurance companies follow the law on future policy applications."

In response, Ehnes said she does not have the authority to order a blanket reinstatement.

Chris Ohman, president and CEO of the California Association of Health Plans, cautioned that sweeping regulatory action could have unintended consequences. "California is the largest insurance market in the country, and our rates are at or below the national average," he said. "We don't want to jeopardize that."

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