WellPoint and Blue Shield of Calif. to stop dropping sick policyholders

Stung by criticism and facing tougher federal regulation, two of the nation’s largest health insurers say they will stop the practice of dropping sick policyholders.

The moves Tuesday by WellPoint Inc., the parent of Anthem Blue Cross of California, and Blue Shield of California follow action by Congress and the Obama administration to crack down on the practice known as rescission.

WellPoint Chief Executive Angela Braly said in a statement that the company’s “goal is to make reform work for our members and for the country.”

Cindy Ehnes, director of the California Department of Managed Health Care and the first regulator to take on the insurers over the practice, said the move would help consumers. “People can have more confidence in their coverage, and that’s very exciting,” she said.

Even before Tuesday’s announcements, however, health insurers in California had all but stopped the number of policy cancellations, state records show.

Last year, only four such cancellations were reported to the managed healthcare department, down from 1,552 in 2005.

Since 2004, at least 5,000 Californians had their insurance policies rescinded by the state’s five largest health insurers — Anthem Blue Cross, Blue Shield, Health Net, Kaiser and PacifiCare. That includes about 3,500 policies regulated by the Department of Managed Health Care and another 1,600 policies regulated by the Department of Insurance.

Insurers have defended rescissions, saying they were trying to stop fraud. But a series of Times articles, legislative hearings, lawsuits and regulatory investigations showed that insurers often rescinded without regard for whether their customers intended to deceive them about preexisting conditions on their applications for coverage.

The practice resulted in some people losing coverage through no fault of their own, often over trivial bits of health history that had nothing to do with the claims that triggered the investigations.

Amid the heightened scrutiny, rescissions have been in decline since 2006.

Rescission is “on life support, and they’re about to pull the plug,” said plaintiffs lawyer William Shernoff.

The lawyer won a $9-million judgment against Health Net in 2008 over its rescission of hairdresser Patsy Bates after she was diagnosed with breast cancer. Evidence showed the company paid bonuses to an employee based in part on rescission volume.

In a subsequent settlement, Health Net agreed to a moratorium on rescissions

Outrage over rescission also may have made it harder to sell policies, said Peter Harbage, a healthcare consultant and former advisor to Gov. Arnold Schwarzenegger.

“With the sunlight pouring in, insurers have to rethink their strategy,” Harbage said. “No one is going to buy insurance from a company today if they think that company will just take it away tomorrow. Do you want insurance from a company with a track record for rescission?”

President Obama made rescission a central theme in his push for reform, and the new law makes it moot in 2014 when insurers will be required to sell coverage to everyone regardless of preexisting conditions. Effective later this year, the law explicitly bans rescissions unless an insurer can show that an individual intentionally misrepresented his or her medical history on an application.

On Tuesday, House leaders urged insurers to stop the practice ahead of schedule. They asked the companies to take immediate steps “to ensure that rescissions occur only in cases of fraud or intentional misrepresentation of material fact.”

Last week, Health and Human Services Secretary Kathleen Sebelius lamented a Reuters report that reported that WellPoint targeted breast cancer patients for rescission. WellPoint’s Braly shot back in a letter: “WellPoint does not single out women with breast cancer for rescission. Period.”

On Tuesday, the company announced it would end the practice. Rescissions by its California unit Anthem Blue Cross peaked at 866 in 2005.

At that time, the California unit did indeed target patients with breast problems and other serious conditions for rescission investigations, according to a 2006 Times article. “There is a list,” Anthem Blue Cross employee Sheila Millan said in a deposition. The list included diseases of the jaw, endometriosis, disorders of the female genital tract and, notably, disorders of the breast.

Anthem Blue Cross eventually agreed to pay $11 million in settlements with two state regulators over its rescission practices. Kaiser, Health Net, Blue Shield and PacifiCare all have done similarly.

Kaiser, which cancelled 505 policies in 2005, stopped rescinding policies nationwide the following year, becoming the first company to do so. A spokesman said the company had no plans to resume the practice.

lisa.girion@latimes.com