Health Net of California Fined $1M for Lying To State

California’s Department of Managed Health Care (DMHC) fined California insurer Health Net $1 million on November 15th 2007 for failing to disclose information to the DMHC about its program to pay bonuses to employees for rescinding policies.

DMHC investigation

According to the DMHC, it has been investigating California health plans that offer individuals health insurance policies for engaging in the illegal practice of post-claims underwriting or rescinding health insurance policies without proving that the applicant willfully misrepresented themselves on the health application.

The DMHC has been conducting investigations of several of the largest insurance companies in California since 2005, which includes Health Net. It reported that it held on-site interviews with Health Net on two occasions, October 17th and November 6th 2007, and asked Health Net officials whether they had a compensation program that provided bonuses to employees for rescinding insurance policies. Health Net denied having the programs in both instances.

Tables turned

Two days after the last interview, the tables turned when a judge ordered Health Net to produce documents in a lawsuit brought against the company for rescinding an insurance policy. Those documents showed that Health Net did have such a compensation program. Although Health Net officials attempted to keep those documents private, the judge refused, the DMHC was notified and fined the insurer for lying.

New regulations proposed

The DMHC has stated that it is proposing new regulations that will protect consumer policyholder from illegal rescissions – which seems to increasing. Blue Cross of California and Kaiser Permanente were also both fined recently for rescinding insurance policies without investigation. The DMHC continues to investigate insurance rescission practices from these carriers and state that the regulations would:

  • Clarify the law that requires insurers to show that a consumer policyholder willfully misrepresented their health history before a policy can be rescinded
  • Require health plans to complete medical underwriting before issuing a policy
  • Require health plans to fully investigate questionable responses on health history questionnaires

The regulations are expected to be complete in the early half of next year and the public will have the opportunity to comment.

Illegal rescissions equate to bad faith

Illegal rescissions withhold valid benefit payments to policyholders and make it nearly impossible for those policyholders to find insurance elsewhere. Illegal rescissions equate to bad faith and consumers can take their insurance carriers to bat over it. To contact an attorney who understands how insurance companies operate, please click here.

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