State investigates illegal health plan policy terminations

State investigates illegal health plan policy terminations

State wants to revise process used by insurance companies to terminate an enrollee''s health policy

Illegal activities at California health plans has sparked a state investigation and proposed new policies on the process used to terminate a patient''s health insurance.

Blue Cross, Kaiser Permanente and Health Net have suffered fines by the Department of Managed Health Care for using what the state said were illegal protocols to terminate enrollees insurance.

A person who applies for individual health insurance has to complete an application that reveals their medical background. The health insurance will then base the premium on the enrollee''s health risk. However, insurance companies have found that some people aren''t honest on their applications. In that case, the insurance company has the right to terminate their policy.

Individual health insurance is the only policy that is underwritten. Group policies are not underwritten because the risk is spread over a large number of people.

When a policy is terminated, medical providers are often left with unpaid bills that, most likely, will never be paid because the enrollee has no coverage. The state wants to make sure the process used to evaluate a potential termination is appropriate and fair.

In November, Health Net was fined $1 million for not being honest when asked if the company has any financial incentives for employees who terminate the most policies.

At the time the question was asked, officials at Health Net told the DMHC they had no such programs.

Then a few months later, DMHC received word from a judge in Los Angeles that Health Net officials had disclosed in arbitration with one of its enrollees that the company had engaged in offering employees financial incentives for finding health insurance applications that had falsifications.

The DMHC responded swiftly, asking the company again if it was true. At that point, Health Net officials admitted they had used bonuses to encourage employees to find people who lied on their health insurance applications and then terminated their insurance.

Such financial incentives are illegal in California. The DMHC issued a fine of $1 million for not telling the truth about the bonuses programs, said Cindy Ehnes, executive director of DMHC.

Ehnes is concerned that other health plans may not have been totally honest when asking if they have any type of financial incentives for employees who find enough evidence to terminate an enrollee''s health insurance.

"Now we are going back to every health plan we''ve surveyed and asked the question again," said Ehnes. The department hopes to have completed its inquiry about the issue by the end of January.

The DMHC has been at odds during the last year-and-a-half with other health plans over the issue of terminating health insurance for its enrollees. In March, the department issued a fine of $1 million to Blue Cross for routine violations of the law related to health insurance terminations. In 2006, Kaiser Foundation Health Plan was fined $325,000 for two illegal terminations.

Once the insurance has been terminated, it''s nearly impossible for the person to get insured by any other carrier, and everyone is left holding unpaid bills.

There are legitimate cases where people lie on their applications for insurance, and the health plan has the right to cancel the policy. However, Ehnes said the plans should do better due diligence when evaluating the applications, rather than waiting for a claim to occur before investigating.

"Health plans practices are suspect when coverage is snatched away when claims for services are filed," Ehnes said.

The DMHC has proposed regulations on the process a health plan should use to investigate potential fraud on the application of an enrollee. The rules include:
• When under investigation, an enrollee can''t be denied medical coverage.
• Health plans must submit a detailed report to DMHC on all the enrollees they terminated.
• The enrollee must be aware they have a right to request a review by DMHC.
• The investigation should be completed within 30 days.
• Any policy termination must be based on willful false statements made on the application.
• Prohibits termination or limitation of coverage after two years.

The review of an application can be very challenging, said David Olsen, spokesman for Health Net. For example, a woman could indicate she had no heart problems, yet know she has been diagnosed with a heart murmur. Since she isn''t being treated for the condition, she doesn''t consider it a problem. After she purchases the insurance, she has a heart attack. Did she lie?

These are the tough questions health plans often deal with, said Olsen. Less than 1 percent of policies go into a review for potential termination.

One way around the problem is to adopt the governor''s health reform plan which requires everyone in the state to purchase health insurance, and the health plans must accept all people regardless of their health background, said Olsen.

Another option would be to have an independent review of all cases before a decision is made, Olsen said.

The public comment period is open in December. Any policy changes could take a year to implement, said Ehnes.

"We just have to do something to ensure minimal fairness to the enrollees," she said.

—By Troy May

Troy May is the executive editor of the Healthcare Journal. You can reach him at tmay@healthcarejournalnorcal.com.