Blue Cross of California on Thursday agreed to only rescind individual health coverage if policyholders intentionally misrepresented their medical history on applications for coverage, the Los Angeles Times reports.
The announcement represents a proposed settlement in a class-action lawsuit filed on behalf of up to 6,000 policyholders since 2001 who allege that their coverage was canceled improperly.
Ongoing Lawsuit
Under California law, insurers can cancel policies if policyholders misrepresent their medical history on their applications for coverage.
Consumer advocates say the law applies only to intentional situations, but Blue Cross and other health insurers have maintained that the law permits cancellations for unintentional mistakes, errors and other inconsistencies about medical histories on individual coverage applications.
The deal follows months of negotiations among an attorney in the case, the Department of Managed Health Care and the Department of Insurance.
Cindy Ehnes, director of the Department of Managed Health Care, said it could take longer for other health insurers to adopt the new regulations because they contend that rescinding coverage without limitations is necessary to reduce fraud.
DMHC in March fined Blue Cross $1 million for failing to ask policyholders about application errors before revoking coverage. The insurer now has agreed to notify policyholders before any decisions.
William Shernoff, a plaintiff attorney in the case, said Blue Cross also has agreed to use a new application that is "designed to minimize mistakes."
Blue Cross' parent company, WellPoint, denied any wrongdoing in the settlement.
Next Steps
Lawyers on Monday are scheduled to present the proposed settlement to Los Angeles County Superior Court.
Pending court review, canceled policyholders would be notified of several options, including dropping a cancellation claim in exchange for $1,000 and having the decision re-examined.
If the cancellation is reversed, Blue Cross would pay the patient's medical bills that would have been covered under the policy (Girion, Los Angeles Times, 5/11).