Insurance Law

'Unprecedented Peek' at Health Insurer Claims-Handling

Due to the important public policy issues implicated, a former California judge overseeing an arbitration over a health insurer’s cancellation of a policyholder’s coverage has opened up the hearing to reporters and made public documents produced for the case.

By doing so, former Los Angeles County Superior Court Judge Sam Cianchetti has offered an “unprecedented peek” into the claims-handling procedures not only of Health Net Inc., one of the state’s largest medical coverage providers, but of the medical insurance industry in general, reports the Los Angeles Times.

Documents disclosed yesterday show that the Woodland Hills, Calif.-based company avoided paying about $35 million in claims by rescinding coverage on 1,600 individual policies between 2000 and 2006, the newspaper reports. Such cancellations are based on findings by the insurance company that the policyholder didn’t qualify for coverage at the outset, typically because the policyholder had undisclosed medical issues. However, such cancellations generally leave sick individuals with no way to pay crushing medical bills and hence are currently under scrutiny by state legislators.

What makes the cancellations particularly controversial, according to the newspaper, is that Health Net was apparently paying bonuses to employees who made the cancellation decision, based on the number of policies they rescinded, according to the documents.

“State law forbids insurance companies from tying any compensation for claims reviewers to their claims decisions,” the Times article states. “But Health Net’s lawyer, William Helvestine, told the arbitrator in his opening argument Thursday that the law did not apply to the insurer in the case because (Barbara) Fowler was an underwriter–not a claims reviewer.”

He also said that the number of policies cancelled by Fowler, a Health Net senior analyst in charge of rescission reviews, was only one of a number of factors considered when her bonus was determined.

The policyholder whose coverage is at issue in the arbitration is Patsy Bates, 51. A hairdresser in Gardena, she is seeking $6 million in compensatory damages because her coverage was rescinded while she was being treated for breast cancer.

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