Blue Cross To Stop Canceling Policies

Blue Cross had been canceling thousands of policyholder's coverage, once they submitted claims, over minor and inadvertent errors. The tactic is widely known and deplored as "use-it-and-lose-it" health coverage. In order to settle a class-action lawsuit, they have agreed that they must show policyholder deception before final termination. However, the burden of proof is still on the consumer not the insurer. LAT:

"This is a very significant consumer health victory … something we believe they should have been following all along," said Cindy Ehnes, director of the state Department of Managed Health Care.

The deal is expected to send shock waves through an industry that had stood together in defense of insurers' ability to retroactively rescind coverage for any application omission, even honest mistakes. Blue Cross is by far the largest insurer in California's individual market, and its corporate parent, Indianapolis-based WellPoint Inc., is the nation's largest provider of health benefits.

It would be nice to see some other companies, including Well Point step up and agree to do the same on their own, without the threat of class-action lawsuits. Unfortunately, the health insurance industry is only known for making reforms when they are on the other side of a pointy stick.

This should encourage more people to actually use their insurance. Too often those with individual insurance resist going to the doctor over minor ailments for fear the company would cancel their coverage.

Don't expect Blue Cross to magically reform over night. They have a nasty history of not living up to their agreements.

Ehnes of the Department of Managed Health Care said changes at other health plans might take some time because they adamantly maintained that broad leeway to rescind was essential to fighting fraud.

Also, she warned, Blue Cross could undermine its new stance by failing to follow through on improvements to its procedures, such as vetting applications upfront. For some time, she noted, the insurer has included in contracts a provision that the policy could be canceled for willful misrepresentation.

Yet a broad review of Blue Cross rescissions by Ehnes' department determined in March that the insurer failed to live up to that provision because it never asked the policyholders about application flaws before rescinding. Her department hit Blue Cross with a $1-million fine as a result.

Failure to comply with this settlement would bring about severe consequences, but given their checkered past, we cannot assume they will actually follow through. Complicating matters is the burden of proof and actual mechanisms for how this will play out. Blue Cross has agreed to consult their customers about their application problems before they decide if a termination is justified. BUT, and this is a doozy:

Jerry Flanagan, an advocate with the Santa Monica-based Foundation for Consumer and Taxpayer Rights, said the deal was a step in the right direction. But, he said, the problem won't go away unless regulators require health plans to prove to them that an applicant intentionally lied before any rescission is final. The proposed settlement maintains policyholders' current right to appeal to regulators only after a cancellation.

"The burden should be on the insurers to prove a patient lied, not on the sick patients who don't have insurance anymore to have to work their way through the regulatory process," Flanagan said.

Blue Cross will try and game this to their advantage. This will reduce the number of policy holders who have their coverage unfairly rescinded, but it seems highly unlikely to eliminate it.