Governor Schwarzenegger has repeatedly vowed to crack down on health insurance companies that dump policyholders who get sick. But this week, he vetoed legislation to strengthen state laws against cancellations. KPCC's Julie Small reports the governor is relying on state agencies to enforce the laws.
Julie Small: It started with a New Year's resolution to get healthy. Orange County resident Karen Knee decided to have a minor surgery.
Karen Knee: A couple little cysts on my head that kind of bothered me, so I thought, you know, I should get those removed. And the little minor surgery, I mean, you just walk into a hospital, and you're in the double digits.
Small: Knee's bill came to $30,000. She expected she'd pay a bit of that, and Blue Cross would pay the rest. But Blue Cross cancelled her policy.
Knee: Because I had not disclosed a pre-existing condition which had been a back spasm that had happened, you know, two, three years prior to that. And I just hadn't put it on my application that I'd been to a doctor because of that.
Small: Knee challenged the cancellation, but got nowhere. She paid the $30,000 bill herself. Cases like Karen's Knee's keep Jerry Flanagan up at night. Flanagan is with the L.A. group Consumer Watchdog.
Jerry Flanagan: The patient's responsibility is to fill out an application as honestly as possible and to report health conditions, not to write down every bump and bruise they ever had, because if that was the requirement, none of us would have health care.
Small: Flanagan says state laws against policy cancellations are clear. Insurers must investigate a customer's medical history before they issue a policy, not after the customer files a claim. It's illegal to cancel a policy unless the customer commits a "willful omission" of a pertinent medical fact on their application for insurance.
Flanagan: Insurance companies claim, though, that we just don't know what that "willful" means. "Willful" is a tricky legal word, and it's confusing to us. It's kind of a ridiculous argument because both the governor and many courts have said that willful misrepresentation means that unless a patient lied on their application, you can't cancel them.
Small: Flanagan backed Assembly Bill 1945. It would have reinforced and clarified the law. But Governor Schwarzenegger vetoed it. The governor's health care advisor Daniel Zingali says the bill would have hurt more than it would have helped.
Daniel Zingali: If we make it so impossible for anyone to ever be dropped from their insurance – in other words if the bill says that somebody who deliberately lied in order to get insurance still has to be carried – then insurers might turn around and deny someone else coverage just because they're afraid of getting in that situation again. So we have to make sure we're protecting the market overall, and all policy holders.
Small: But the bill didn't prevent insurance companies from dropping a customer who lied on an application. It just required the company to prove it. Is that the same as making it impossible for "anyone ever to be dropped" from coverage? Nichole Kasabian Evans thinks it is. She's with the California Association of Health Care Plans.
Nichole Kasabian Evans: This bill created a standard in law that would be nearly impossible to prove, and would really open the door for people to be dishonest on their applications, because it would be virtually impossible for a health plan to prove that a person hadn't been telling the truth.
Small: Kasabian says insurance companies are willing to make applications clearer so no one makes a mistake that'll get a policy cancelled later on. She says insurers also favor an independent review of cancellation decisions. The governor's health care advisor Daniel Zingali think the law should also be clarified, but he says for now, the state is aggressively protecting consumers. He says Anthem Blue Cross, Blue Shield, HealthNet, and other insurers that cancelled polices illegally got fined millions of dollars by state regulators.
Zingali: They were able to get every single patient we could identify their coverage back, their medical expenses paid, no questions asked. So we're confident that whatever regulations they put forward will continue to put the patients first.
Small: But the state didn't resolve every case. Karen Knee's claim is still pending in court. Earlier this year, the Department of Managed Health Care and Department of Insurance drafted regulations to clarify laws banning the cancellation of policies. Their language was almost identical to the bill the governor vetoed. But a spokeswoman for Managed Health Care said the department isn't likely to issue formal regulations any time soon.