Blue Shield, one of California’s largest health plan providers, may have to pay a $12.6 million fine for over 1,200 claims handling and regulatory violations that resulted in hundreds of policyholders losing their medical insurance.

The controversy

California’s Insurance Commissioner, Steve Poizner, has said that he plans to officially announce the details of the fine today – December 13, 2007. According to a report in the Los Angeles Times, approximately half of the over 1,200 violations related to wrongful insurance policy cancellations. Others related to claims handling practices in which the company failed to pay interest on claims, delayed the claims process and mishandled appeals of claim decisions in many cases.

The buck stops here

Poizner is letting insurers know that ‘the buck stops here’. According to Times, Poizner said,"My message to all health insurers in California is that I will not tolerate inappropriate rescissions and shoddy claims handling” – and apparantley, he means business.

Health Net, Inc., another of California’s largest insurers, was recently fined $1 million by the California Department of Managed Health Care for paying bonuses to employees who found ways to rescind policies and then for lying to the Department about its practices. The company allegedly saved over $34 million in claims over six years. Other insurers, such as MEGA Insurance and Kaiser Permanente have also been fined by the Department for wrongfully rescinding policies.

California courts agree

Poizner is not the only one telling insurers to stop rescinding policies to avoid paying valid claims. The California 2nd District Court of Appeals recently ruled against Blue Shield when the company failed to pay a policyholder’s medical bills totaling over $100,000. The court told the insurer that the practice of post-claims underwriting, or looking back at the policy for errors once a claim is submitted, is “flatly prohibited”.

Wrongful rescissions equate to bad faith

All insurers must treat their policyholders in good faith and deal with them fairly. Insurance companies who wrongly rescind policies are acting in bad faith. If this has happened to you, contact an attorney whose practice focuses on insurance bad faith to find out your options. For a free consultation with an experienced attorney, please click here.