The Schwarzenegger administration will once again intervene -- this time with the state Supreme Court -- on behalf of a man who sued Blue Shield for illegally dropping his health insurance after he was permanently injured in a car accident.

 

The Department of Managed Health Care has summoned representatives from the state’s five largest health insurance providers to Sacramento Wednesday to tell them it intends to file an amicus brief against Blue Shield. The state regulators intend  to explain to health insurers the department's view of how the recent appellate court decision in the Hailey case has fundamentally altered health insurance policy and regulation in California.

 

 

Administration sources say they plan to  use Wednesday's meeting to persuade industry officials to come up with new policies regarding unlawful rescissions of customers' health insurance.    

 

Last year, the Department of Managed Health Care found that Blue Cross illegally dropped 90 customers from their insurance rolls only after those patients made insurance claims. The department is close to winding up investigations into complaints against four other health plans – Blue Shield, Kaiser, PacificCare and HealthNet – in the coming weeks.

 

The meeting "is part of our ongoing investigation into the five largest health plans," said DMHC spokeswoman Lynne Randolph. "The focus of the meetings is to conclude these investigations quickly, and provide consumers with immediate relief from health plan rescission policies.”

 

Administration sources confirm the Department on Managed Health Care also plans to file an amicus brief later this month urging the state Supreme Court not to hear the appeal filed by Blue Shield in the case of Hailey v. California Physicians Service (dba Blue Shield of California), a case that could fundamentally alter state law regarding when it is legal for a health insurance provider to dump a customer from its insurance rolls.

The Hailey decision, which was handed down just after Christmas last year and has been appealed by Blue Shield to the state Supreme Court.

The Hailey decision stems from a case filed by Steve Hailey, who’s health history became the subject of a Blue Shield investigation after he was admitted to the hospital. That query found information on Hailey’s initial health care application was incomplete. When Hailey was permanently injured in a car accident, Blue Shield cancelled Hailey’s coverage retroactively due to his failure to disclose his Hailey’s health history on his original health insurance application form.

While a trial court ruled in Blue Shield’s favor, the appeals court partially overturned that decision and in the process tried to set some parameters for what constituted legitimate grounds for insurers to rescind a patient’s health insurance.

 

With that, the court waded into one of the most emotionally-charged pieces of the health care debate. Rescission cases have grabbed headlines across the country, and recent rulings in California have fined health plans millions of dollars for illegally removing customers' health insurance after the customers file costly insurance claims.

 

In its original amicus brief, the department claimed health plans should only be allowed to rescind coverage when a patient willfully misrepresents their health history when applying for health coverage. The appeals court ruled that willful omission was grounds for rescission. But they also said health plans could terminate coverage if they make “reasonable efforts to ensure
it has all the necessary information to accurately assess the risk before issuing the contract.”

Just what that means is unclear, and will likely have to be resolved through legislation or actions from the administration. 

 

Blue Shield has appealed the appeals court ruling to the state Supreme Court. DMHC will join the plaintiffs in asking the Supreme Court not to hear the case, administration sources confirmed.

Department officials will also use their meeting with insurance providers Wednesday to explain their interpretation of the court ruling and urge them to come up with some new measures to prevent the high-profile receission cases that have been a black eye for the health insurance industry over the last three years.

These rescission cases have gotten lawmakers’ attention. Sen. Sheila Kuehl, D-Santa Monica, will hold a hearing Thursday that will deal with the rescission issue. Three Democratic Assemblymembers – Mary Hayashi, D-Castro Valley, Ted Lieu, D-Torrance, and Hector De La Torre, D-South Gate, have all introduced legislation dealing with the rescission issue.