Health Net Lawsuit Reveals Bonuses Were Paid to Cancel Policies

Documents that were produced at an arbitration hearing on November 8th reveal a company-wide practice of pulling policies once a major medical claim is made and then looking back at the claimant’s original health insurance application for even minor flaws in order to justify cancellation of the policy. In a lawsuit against Health Net, one of California’s largest health insurers, it was also revealed that bonuses were paid in part for how many policies were cancelled and how much money was saved as a result.

An Industry-Wide Practice

These revelations come at a time when major health insurers, such as Blue Cross, Blue Shield, and Kaiser Permanente, are coming under increased scrutiny in California for canceling policies once expensive treatments are authorized. Policies are often scrutinized for even minor flaws in the original application for health insurance. If a flaw is found, the policy can be canceled, leaving the policyholder with overwhelming medical bills and no coverage.

Lawsuits Over Canceled Policies

These practices are being challenged in courts by policyholders throughout California. Lawmakers and regulators are looking very closely at whether or not insurers have broken the law, both by canceling policies where the application did not show a clear intent to defraud the insurer, and by tying compensation (i.e. bonuses) of claims reviewers to their claims decisions.

Health Net was sued by Patsy Bates of Gardena, California when the insurer canceled her policy in the middle of her chemotherapy treatments for breast cancer. Ms. Bates is seeking $6 million in damages in her Health Net lawsuit.

Health Net Tried to Keep the Information Secret

Health Net sought to keep the documents from going public, but the arbitrator in the case, Judge Sam Cianchetti, ruled that the proceedings would be open to reporters and that all documents produced for arbitration would be public, citing public interest as a reason for allowing the exposure of potentially very embarrassing information about HealthNet practices and procedures.

Health Net lawyers defended the company, claiming the company had not run afoul of state law because the employee for whom bonuses were paid was not a claims reviewer, but an underwriter. Time will tell if Health Net’s defense is convincing enough for Judge Cianchetti.

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