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May 14, 2007

Blue Cross to stop retroactive insurance cancellations

Blue Cross of California — under scrutiny for retroactively canceling health insurance policies leaving patients with unpaid medical bills — has agreed to a class-action settlement that would sharply alter its practice and could set a precedent for other insurers.

At issue is an infrequently used, but longstanding industry practice: Canceling coverage after patients make costly claims, if insurers find mistakes or omissions on application forms completed by policyholders. The practice, called "rescission," affects people who buy their own insurance, not those covered under group plans, such as job-based coverage.

The proposed settlement, which must be approved by the courts, comes amid increased scrutiny of the practice, particularly in California. State regulators there are reviewing many insurers and have issued fines against two: Blue Cross, which is a subsidiary of WellPoint; and Kaiser Permanente.

In the proposed settlement, presented in Los Angeles County Superior Court on Friday, Blue Cross agreed not to retroactively cancel coverage unless policyholders "intentionally misrepresented" information on their applications.

In March, the California Department of Managed Health Care fined Blue Cross $1 million, saying a review of 90 canceled policies found that the insurer had failed to conduct thorough pre-enrollment investigations on 39 of them and found none in which the insurer had proven the applicant was intentionally deceptive. Blue Cross is contesting that fine.

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Posted by healthinsurance at May 14, 2007 05:02 PM