California’s Insurance Commissioner, Steven Poizner, in conjunction with California’s legislature and Department of Managed Health Care’s Cindy Ehnes, are getting serious about ending the insurance industry’s bad faith practices. Poizner summed it up best when he warned California insurers that the state would be coming down on them ‘like a ton of bricks’.

A joint effort

Although Poizner, Ehnes and the legislature are acting together to bring about change in California’s insurance markets, each is going about it in different ways. Here’s how:

Insurance Commissioner Steven Poizner

Poizner has warned California insurers to stop their illegal and careless ways over and over again. Unfortunately, his message has sometimes fallen on deaf ears. So, he’s decided to show insurers that he means business and to hit them where they hurt most – their bottom line. Just Tuesday, Poizner announced the largest potential penalty in California’s history -- $1.3 billion. The penalty involves PacifiCare’s handling of claims over a 17 month period from 2005 to 2007 that uncovered over 130,000 claim violations. In a press release, Poizner put his foot down – and hard. He said:

After years of broken promises to California regulators, it became crystal clear that PacifiCare simply could not or would not fix the meltdown in its claims paying process. We’re going to put an end to that. If PacifiCare can’t understand the ABC’s of basic claims payment, maybe it will understand the dollars and cents of regulatory action.

Although he did not provide specifics, Poizner said that his office will be targeting California’s largest insurers in upcoming market conduct examinations.

Cindy Ehnes, Director of the Department of Managed Health Care

The Department of Managed Health Care (DMHC) recently fined PacifiCare $3.5 million after finding that the insurer, acquired by United Health Care in 2005, improperly denied claims in over 30% of the cases that were reviewed in the same market conduct exam. In a press release, Ehnes said:

The most fundamental purpose of insurance is the promise to pay claims fairly and on time and PaicifiCare has broken that promise. We’re taking strong action today to make sure patients and providers are treated fairly so that they are able to continue to take care of California’s health care needs.

Legislature

California’s legislature is also getting involved. Assemblyman Ted Lieu (D-Torrance) has proposed a bill (AB 1150) that would make it illegal for insurance companies to tie bonuses to policy rescissions. Although this may seem overly obvious to most – even to those with no insurance background whatsoever – it apparently isn’t obvious to some insurers.

Health Net had such a program where it provided bonuses to an underwriter if she found ways to rescind policies. It lied to the DMHC about the program’s existence in 2007, but got caught in its own lie and ended up being fined $1 million. Even after the fine, the Los Angeles Times quoted Health Net spokesman David Olson as saying that, “too much had been made of the bonus issue because only a fraction of the underwriter’s annual bonuses were tied to rescissions”. The new legislation seeks to stop those practices altogether.

If your insurance company has acted in bad faith, contact an attorney who understands how insurance companies work. To contact a qualified attorney to discuss your situation confidentially, please click here. The consultation is free and without obligation.