The Latest Developments In Private Health Insurance: What Do They Mean To You?
As appeared in the Los Angeles Business Journal
By Lourdes DeArmas
You are a business-savvy individual. Day in and day out you look to protect yourself from the “what ifs.” Like millions across the nation, you make the right decision to have health insurance and purchase an individual plan. You seek out a reputable insurance company, pay your premiums on time, and schedule annual check-ups. You feel that you have protected yourself and your family. But are you safe?
The Foundation for Taxpayer and Consumer Rights in California has reported that health insurance companies have announced a 2006 first-quarter profit increase by as much as 15-20 percent. This increase is partly because insurance companies paid less in medical claims compared to the previous year. Although the insurance companies are celebrating now, their celebration may be short lived.
Across the country, patients are filing lawsuits against insurance companies for canceling health insurance policies and refusing to pay medical bills. The lawsuits allege that insurance companies are trying to avoid paying legitimate claims by canceling policies after an insured makes a claim, pointing to a wrong or incomplete answer in the patient’s application for insurance.
The Los Angeles Times recently reported that over 2 million Californians purchased individual policies from California insurance providers. Unlike employer group health insurance plans, insurance companies can decline coverage or charge higher premiums to individuals based on “preexisting health conditions.” In addition, insurance companies can also retroactively cancel an individual health insurance policy if the insured intentionally withheld or misstated past medical conditions when applying for insurance.
Lawsuits recently filed in Los Angeles County focus primarily on the insurance companies’ practice of retroactively canceling policies of individual health plan members seeking medical treatment due to purported discrepancies in the application. California state law prohibits insurance companies from canceling coverage after a claim has been filed, unless the individual health plan member made a material misrepresentation on the medical history application.
The lawsuits accuse the insurance companies of routinely utilizing vague, ambiguous, and confusing medical history questionnaires during the application process. Allegedly, these applications have led individual applicants to make simple mistakes that the insurance company later uses to cancel the policy. According to the lawsuits, the individuals filled out the application as honestly as possible based on their understanding of the questions, received coverage and paid their premiums. Unfortunately, the individual insureds were later diagnosed with a medical condition which neither the insured nor the treating healthcare provider believed existed at the time of the application. Nevertheless, the insurance company’s response to the claim was to cancel the policy.
These retroactive cancellations have led to unpaid medical bills and severe hardship for the insured whose policy was canceled:
Michael Norris of Los Angeles was left with more than $20,000 in medical bills when his insurance company retroactively canceled his 5-year-old son's coverage following surgery to remove a mass of tissue at the back of his throat. Mr. Norris was accused of failing to disclose on the application his son's prior earaches and speech impediment.
Steve and Leslie Shaeffer of Los Angeles faced more than $60,000 in medical bills when their health insurer canceled her 4-year-old daughter’s coverage after she was diagnosed with a potentially fatal tumor in her jaw. The Shaeffers were accused of failing to disclose on the application an undiagnosed bump on their daughter’s chin.
Parvin Mottaghi of Glendale was left with more than $100,000 in medical bills when her insurance company retroactively canceled her policy following an approved open-heart surgery by claiming that her application was incomplete.
Due to the mounting number of lawsuits, state regulators, including the California Department of Managed Health Care (DMHC), have become involved. Cindy Ehnes, the director of the DMHC, said "Consumers must be confident that their health insurance will be available to them and not be afraid that they could be canceled after making a claim. Protecting access to healthcare is our main concern, and it is clear that consumers have been harmed by the practices off some insurers."
The state's largest health insurer, Blue Cross of California, is currently implementing a plan to change some of its procedures for canceling individual health plan member's insurance policies. This includes creating an ombudsman who is charged with representing the interests of the individual health plan members by investigating and addressing complaints. Other positive changes that Blue Cross is considering are revising its appeal process and working with state regulators to simplify the application questionnaire to avoid future mistakes by applicants.
It will be interesting to see if the rest of the health insurance industry follows Blue Cross’ lead and changes their current practices. In the meantime, an individual health plan member whose policy is suddenly canceled after making a claim may be left with no option other than filing a lawsuit to fight for his or her medical benefits.
Lourdes DeArmas is an associate with The Quisenberry Law Firm which specializes in insurance litigation for all types of insurance policies, including health and disability, property and directors and officers liability.
