California Seeks To Fine Blue Shield $12.6 Million For Illegal Cancellations

The LA Times says that the State of California is seeking a $12.6 million dollar fine against Blue Shield for 1,262 violations of claims-handling laws that resulted in 200 people losing their insurance. Blue Cross and Blue Shield have already been fined $1 million for improperly terminating the policies of the sick and pregnant.

The department’s action against Blue Shield is the latest example of regulators closing ranks on the cancellation issue. Both agencies are seeking regulations aimed at curtailing cancellations, also known as rescissions. And both are investigating the way these are handled at the state’s biggest health plans.

In March, the first of those investigations came to fruition when the Department of Managed Health Care hit Blue Cross, the state’s largest for-profit insurer and a Blue Shield competitor, with a $1-million fine after reviewing 90 cancellations and finding alleged law violations in every instance.

The move against Blue Shield marks the first time the Department of Insurance has taken legal action against an insurer over its cancellation practices. But it may not be the last.

Poizner said Wednesday that he had directed his agency “to target this type of forbidden behavior on an industrywide basis and we will continue to take appropriate action as needed.”

State accuses Blue Shield of illegal cancellations [LA Times via WSJ Health Blog]
(Photo:Getty)

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  1. varco says:

    Does anyone else think that a $12 million fine will just be considered a cost of doing business for Blue Shield, rather than a serious impediment to the practice of wrongful cancellation?

  2. bostonmike says:

    Less than $10,000 per cancellation is totally worth it for Blue Shield, if they can drop people who are costing them $50,000 or more per year in expenses. I know someone who’s on over $100,000 of pain medications per year. I know other people whose expenses have been over $50,000 in a year. The penalties need to be much harsher if they are going to actually stop Blue Shield from cancelling policies.

  3. Scuba Steve says:

    @varco: As long as the practice of cancelling policies is more profitable than 12 million over a 5 or 10 year period, yes, it’s just another cost of doing business.

  4. cccdude says:

    Another reason why private industry LOVES deregulation. All of the profits without having to deal with those pesky moral issues.

  5. ARP says:

    I know that Sicko was a horribly biased movie, but I think the essence of what the insurers are doing is true, find any loophole so they can cancel and don’t have to pay legitimate claims. And you’re right, this fine is the cost of doing business. Most of us have very few options when it comes to medical insurance as our employer usually gives you the choice of 1 or 2 equally evil insurers. Otherwise, the option would be to simply not shop there. I’m all for free market, but not when there’s no meaningful choice.

  6. Fujikopez says:

    I say screw hospitals and doctors, I’m just gonna go back to bloodletting.

  7. dashielm says:

    i didn’t get cancelled for this, but – my wife and i came back from our honeymoon only to find our insurance had been cancelled, which was strange because i had it set up as an automated payment.

    lo and behold three months later i get an email from one of their reps apologizing saying: we’re sorry our credit card authorization system was down. we’d like to offer you full reinstatement and waive the $50 fee all you need to do is pay for the three months since cancellation.

    i asked them why i needed to pay for a service that they cancelled, why should i have to pay for those 3 months when i was uninsured? it’s patently absurd. they came up with some cock-and-bull story. i told them if they expected to keep my business (age 32, zero health problems; wife 26, zero health problems) they would “waive” the charges. you can imagine where that one went… just as well we needed better insurance, but it just goes to show how insignificant we are to them.

  8. marsneedsrabbits says:

    How about the massive fine, plus a free year of insurance for the people cancelled, followed by a full reinstatement of benefits for those people.
    That sounds fair to me.

  9. RvLeshrac says:

    @ARP:

    Sicko wasn’t ‘horribly biased.’

    It is the only decent thing Michael Moore has done since ‘Roger & Me’

  10. qitaana says:

    My husband’s medical care is $250,000/year, baseline, presuming he doesn’t get sicker than he already is. He needs an infusion every two weeks which is $10,000 per visit. Insurance looks for any conceivable reason to drop us… I’m glad we moved to CA, the state seems to defend its citizens a bit more about this sort of stuff.

  11. CaliforniaCajun says:

    I just watched SiCKO. I recommend that anyone who has ever been sick or plans on getting sick should rent it.

    Nail these bastards to the wall. The sooner Americans wake up and demand socialized medicine, the sooner we’ll all be healthier and happier.

    It won’t solve all our problems, but in the worst case, it might prevent some of the institutionalized death sentences that for-profit medicine has made standard in our “First world” country.

  12. CaliforniaCajun says:

    I know that Sicko was a horribly biased movie

    Congratulations on buying into exactly what big pharma and insurance companies want you to believe.

    Who do you think has more interest in your health…a for-profit company in the business of providing insurance, medicine, or hospital services, or a for-profit filmmaker who pays form his own pocket anonymously to one of his biggest critics when that person has a health crisis?

    Moore may be many things – an attention seeker, certainly. But he certainly has more heart and does far more good than any for-profit health “provider”.

    Spend the $3.00 to rent SiCKO. You might learn something.

  13. rebecca l says:

    man, i love seeing my hmo in the news…

    other lovely business practices of this organization include not covering most birth control, no psych coverage unless it’s a situation that requires hospitalization with a maxiumum of 26 hour-long outpatient sessions, a 15-day delay for guest membership coverage (ie if you have a temporary geographic appointment) then ANOTHER 15-day delay when you move back to your “home” coverage area, limited preventative health care coverage. I was ECSTATIC when I found out they got stuck with a $2,000 ER bill in my name (for four stitches, natch). Those bastards deserve to pay every penny plus.

  14. jamar0303 says:

    @CaliforniaCajun: I watched it in my economics class as part of the lesson on “economics of health care”. It was quite interesting, especially the bit in Cuba and the deleted scene about Norway. Almost makes me wish I was Norwegian like some of my classmates were…

  15. Electroqueen says:

    $12.6 million is not enough. These freakin’ for profit healthcare companies should pay more! I demand more retribution! How could they call a woman’s miscarriage a “elective abortion?!”

  16. kimsama says:

    @qitaana: I’m very sorry. If it’s a condition where he can get better, I hope he does. Good for you for moving somewhere that tries to protect your insurance coverage.

  17. bglav says:

    These costs will get passed right back to the consumer in the form of higher premiums. As always.

  18. johnva says:

    It seems like fines are not an adequate deterrent to this type of behavior. As mentioned, insurance companies will just pass the cost on back to their customers. They can raise prices pretty much with impunity since there is so little meaningful competition and because so many people don’t have the choice to switch providers.

    Maybe we need to bring back the “corporate death penalty” in this country. Basically, if your corporation is found to be persistently and deliberately engaging in a pattern of breaking the law then a judge could order the revocation of your corporate charter and hence your right to exist as a legal entity. All corporate assets would be liquidated and the proceeds would go to the government; shareholders would just lose 100% of their money. I bet if that was the penalty then the shareholders would police company management a lot more stringently.

  19. cerbie says:

    @varco: yes. A psychological blow needs to be made, like paying 100% of the stated price of all medical care for the folks canceled, and pay it to them, if they’ve paid it out of pocket.

  20. ARP says:

    Californiacajun and others- Forgive my lack of clarity. When I mean biased, I mean it was biased. Meaning, it heavily advocated in favor or a certain position and at times minimized the weaknesses of that position. Bias is not always a bad thing. Before you again attack me as a slave to Bush, Pharma, etc. I agree with MM’s position 100%. I think there should be nationalized health care (and not Hillary’s version where the HMO’s still provide it). But lets go in eyes wide open. For many of us, the benefits far outweigh any negatives associated with that system.

  21. Cisslepants says:

    @Electroqueen: That was actually Blue Cross/Blue Shield of Kansas City. It’s the same name, but it’s a separate entity than BC/BS California. All of the 39 BC/BSs are independent from each other, though a number of them are owned in clumps. Those two aren’t related.

    It all still sucks when it comes to cancellations like that.

  22. vex says:

    Where’s the part where the fine helps those 200 people who were dropped?

  23. RvLeshrac says:

    @johnva:

    Good call, but shareholders need to just sit there and shut up. The majority of problems with companies in this country are due to stupid shareholders.

    If you have stock in Dell, HP, or any other company with outsourced customer service, you are *NEVER* allowed to complain about outsourced customer service.

    Shareholders constantly demand higher profits and higher dividends, which is why companies have such shoddy customer service/rebates/etc etc etc.

    If shareholders demanded that the companies be run *WELL* instead of *FOR MAXIMUM PROFIT,* we wouldn’t need The Consumerist.

  24. RvLeshrac says:

    @johnva:

    A relative works for a company that refuses to go public. The owner refuses because he looks at the public corporations in his industry, and sees the horrors of allowing uninformed idiots to tell you how you need to run your business. They steal customers from competitors all the time because they can deliver product 365 days a year. The competitors have to sell out of stock and parts at the end of the tax season to satisfy the shareholders – so they don’t have a huge unsold inventory. The problem with that is that it creates multi-month delays for customers with items on order or items in service at that time.

    So, of course, this other company swoops in with its huge unsold inventory and offers to fill the same order with a better product…. by the end of the week, instead of next month. And at a competitive price.

    Who would YOUR business go to in the future? The company who is so concerned about appearing to be massively profitable that they don’t give two shits about their customers, or the company that charges slightly more and never holds up your business?

    Shareholders are, again, the reasons companies are this shady. They’re cancelling insurance because the shareholders would string them up if they didn’t.