Los Angeles Daily Journal
February 12, 2009
By Evan George
Staff Writer
Insurer Health Net Agrees to Landmark Rescission Reforms
LOS ANGELES - In a settlement that legal observers called a novel win for consumers, insurer Health Net has agreed to offer new health coverage to 800 policyholders the company dropped after they fell ill and pay those patients out-of-pocket medical expenses as well as some damages, no questions asked.
The Woodland Hills-based company will pay out at least $13 million, which includes a $2 million fine to California and as much as $218,000 in damages to some patients. The company has abolished its practice of rescinding and paying bonuses for cancellations.
The deal is the latest in a string of settlements over the controversial business practice of rescission, in which health plans strip coverage from patients when they get sick. But several details make the settlement stand out from others negotiated by state regulators.
For one thing, the settlement brings to a close not one, but two lawsuits against Health Net, including a civil action filed by Los Angeles City Attorney Rocky Delgadillo. Negotiations involved both public officials and private attorneys representing the policyholders who filed a class action against Health Net.
"The terms of the settlement are tough," said Delgadillo. "This is unprecedented in health insurance litigation."
The deal was announced the same day California Department of Insurance Commissioner Steve Poizner touted his own settlement with Anthem Blue Cross for dropping about 2,300 customers.
That deal resulted in a $1 million penalty but no automatic payments to patients. Under the state's settlement Anthem customers must waive their right to sue and go through a claims process to receive refunds for their out-of-pocket medical costs refunded.
William Shernoff, a partner at Shernoff Bidart Darras & Echeverria in Claremont, represents policyholders in a class action against Health Net. Shernoff said he wanted a deal that would win back coverage for people without having to waive their legal rights.
"The automatic payout to class members - to me that's a big deal because in this type of class action you have to put in a claim to get paid and we know that typically the response is very low, sometimes 10 percent or less," Shernoff said.
Health Net will owe about $6.3 million in automatic payouts to patients for emotional distress and $3 million for medical bills. Patients who incurred higher medical bills will receive higher awards. The company will also pay $500,000 to a cancer and hospital charity and more than $2 million in attorney fees. And the new health care coverage and a moratorium on rescission could cost the company many millions more dollars on top of past settlement payments to California.
"When you add it all up, our estimate is that ... it is in excess of $40 or $50 million," said Jeff Isaacs, chief of the city attorney's criminal and special litigation branch. Isaacs said that meant rescission cost the company millions more than it made off rescissions.
The settlement must still be approved by a Superior Court judge.
"This is really standard-setting, that's for sure," said Bryan Liang, executive director of the Institute of Health Law Studies at the California Western School of Law.
Liang said the automatic compensation, without having to navigate a claims process, made the deal stronger than those struck recently by the state Department of Insurance, which oversees preferred provider plans, and the Department of Managed Health Care, which regulates HMOs.
Shernoff said he hoped Anthem Blue Cross and nonprofit Blue Shield, both of which have many more customers in California, would follow suit and settle, pending class actions over rescission with similar payouts for patients.
"If they would come up with a formula to pay people they rescinded, it would be a giant step in the right direction," Shernoff said. "They're continuing to rescind and continue to fight us in court tooth and nail."
