Health protection yanked

By Sarah Arnquist
The San Luis Obispo Tribune
May 3, 2007

Four months after her first son, Jack, was born, Jessica Bath received a letter from her health insurance company, Blue Shield of California, saying she and Jack were no longer covered. Jack was born at Sierra Vista Regional Medical Center on April 8, 2003, with a hole in his heart. Bath was counting on Blue Shield to pay for a scheduled surgery to repair it.
Suddenly, both she and Jack were uninsured.

“It was absolutely devastating for us,” Bath said. “How were we going to pay for his heart surgery?”

Blue Shield claimed it was canceling the Morro Bay resident’s policy because she had a medical condition, which she failed to disclose when she applied for the insurance. She and her lawyer contend the condition was insignificant and did not have anything to do with her son’s heart problem.

Bath filed a lawsuit this week in San Luis Obispo Superior Court claiming Blue Shield illegally canceled her policy. The suit alleges that once Blue Shield faced costly medical expenses for Jack’s care, the insurance company combed through her medical records and found a reason to deny her coverage.

Bath’s attorney, Ray Mattison of the San Luis Obispo firm Ernst and Mattison, said the case fits a pattern of similar lawsuits filed in Southern California accusing insurance companies of “post-claims” underwriting, meaning they search for reasons to cancel a policy after members file claims.

“It’s like somebody gives you an umbrella but wants it back once it starts raining,” Mattison said.

Civil lawsuits represent only one side of a claim. Blue Shield had not reviewed the facts of this specific case as of Wednesday. But based on the information it had, spokesman David Seldin said, the company doesn’t believe Bath’s case is one of post-claims underwriting.

Insurance companies must be able to cancel policies of people who do not fully disclose their medical history to combat fraud, Seldin said. Blue Shield rescinds less than onetenth of 1 percent of the more than 250,000 individual policies it has in California, he said.

“The reason we do it in those rare instances was because applicants were guaranteed policies based on significant untruths,” Seldin said.

Scores of claims

More than 2 million Californians have individual health insurance policies. Those are different from group insurance policies through an employer or organization, because individuals do not automatically qualify for insurance and must go through a process known as underwriting.

The applicants disclose their medical history to the insurance companies in a detailed questionnaire, and insurers can charge them higher prices or deny coverage entirely to people who are riskier based on their medical history.

California law says insurance companies cannot cancel a policy after a member needs expensive medical care unless they prove the policyholder intentionally withheld information during the application process.

Over the last year, scores of lawsuits and claims have been filed in Southern California against insurance companies over allegations that they illegally canceled individual policies after members got sick.

Last fall, Blue Cross of California agreed to settle 70 such cases and change some internal policies, but the company admitted no wrongdoing.

Following those lawsuits, the California Department of Managed Health Care began investigating insurance companies for practicing postclaims underwriting, starting with Blue Cross.

In March, the state regulators fined Blue Cross $1 million for routinely canceling policies of individuals who filed claims. They found that in all 90 cases investigated, the insurance company broke state law that allows rescission of a policy only if the insurer proves members intentionally withheld information when they applied for insurance.

Next month, the Department of Managed Health Care is expected to release the findings from its investigation of Blue Shield’s rescission practices, said DMHC spokeswoman Lynne Randolph. Investigations into Kaiser Permanente, Health Net and PacifiCare will follow.

Bath’s is the first lawsuit of this kind that Randolph had heard of outside of the Los Angeles area.

‘We were blindsided’

When canceling Bath’s policy, Blue Shield claimed that had Bath disclosed a pre-existing medical condition when applying for insurance, her application would have been rejected, according to the complaint.

Mattison said Bath did not intentionally withhold information about a minor gynecological issue on her insurance application. The complaint does not state the medical issue, and Bath refused to disclose it, citing privacy concerns.

Mattison said the medical issue was insignificant, did not warrant canceling her policy and had nothing to do with Jack being born with a hole in his heart. The medical records will become public record if the case goes to trial.

Moreover, Mattison said, the insurance company could not legally cancel Jack’s insurance based upon an alleged misstatement of Jessica Bath’s medical history.

Blue Shield never interviewed Bath before or after canceling her policy to investigate why the information was not included, Mattison said. The insurers never proved she deliberately withheld information, as the law requires, he said.

Seldin said Blue Shield has a right to cancel a policy even if the failure to disclose medical information was not intentional. The courts have sided with the company in previous cases on this point, he said.

The company cannot possibly investigate the full medical records of every applicant and must rely on what they disclose, he said.

“This is a trial lawyer with a weak legal argument trying to get public sympathy,” Seldin said.

After Blue Shield canceled Jack’s insurance, Bath scrambled to find other options. The surgery costs tens of thousands of dollars.

The worst-case scenario was selling her home to pay for the surgery. But she discovered Jack’s condition qualified him for two public programs, California Children’s Services and Medi-Cal, which paid for the surgery.

Today, Jack is a healthy 4- year-old who enjoys playing with his younger siblings.

Bath said she never appealed the cancellation because she didn’t know she could or where to turn for help. She focused on getting Jack care.

“We were blindsided,” she said. “It was horrifying.”

The 30-year-old mom said she is suing Blue Shield now to prevent other people from having a similar experience.

The complaint does not request a specific amount for damages. There is also a classaction suit on behalf of Jessica and Jack Bath requesting that Blue Shield stop rescinding policies based on alleged misrepresentation in an application.

“It’s definitely not a monetary issue,” Bath said. “It’s just that what they did was wrong.”