Blue Cross Fined $1 Million for Illegally Cancelling Health Insurance Policies
[Posted 04/05/07]

The Department of Managed Health Care (DMHC) recently fined Blue Cross $1 million for routinely violating state law by cancelling individual health insurance coverage after policyholders got sick. This fine comes after CMA in 2005 reported this issue to DMHC and demanded that the department take action.

DMHC examined 90 randomly selected policy cancellations and found that in each case Blue Cross used computer programs to systematically cancel policies without any indication that the policyholders intentionally lied on their applications to cover up preexisting medical conditions — a standard required by state law.

Not only does this practice put patients at risk, both financially and medically, but it also leaves physicians and hospitals holding the bag for services rendered in good faith, often with prior authorization. CMA is working with DMHC to ensure that physicians are appropriately reimbursed for services provided in good faith to Blue Cross policyholders.

CMA is sponsoring a bill (AB 1324) that would confirm that it has long been illegal for insurers to rescind or modify authorization after services are rendered in good faith. This bill would also reaffirm that the law protects patients from retroactive cancellation of health insurance policies.

Insurers maintain that they have the right to cancel a policy, even after approving treatment, if important information is missing or incorrect on an application for coverage — regardless of whether the error was an intentional attempt to deceive.

CMA has petitioned to join a class-action consumer lawsuit already filed that seeks to stop Blue Cross from engaging in this unfair and illegal business practice.

Contact: CMA’s legal information line, 415/882-5144 or legalinfo@cmanet.org.