City of LA strikes deal with insurer Health Net over dumping of policyholders

The city of Los Angeles has reached a settlement with Health Net over the company's alleged practice of terminating the policies of patients who made expensive medical claims. State regulators previously reached settlements with Health Net forcing the company to reinstate policies. Jeff Isaacs is chief of the criminal and special litigation branch of the City Attorney's Office. In an interview with KPCC's Frank Stoltze, Issacs argued that the city's settlement is better because it provides for more than $6 million in payments to people who lost their policies.

Jeff Isaacs: It'd be distributed automatically, so they don't have to do anything. And the average amount of this distribution will be close to $8,000 per victim, with the range going anywhere from $4,000 up to approximately $220,000.

Frank Stoltze: And that's something that state regulators in their settlements with Health Net have not been able to achieve.

Isaacs: That's correct. Under the state settlement, you have to go through a very, very complicated and onerous process in order to establish your out of pocket medical expenses.

We have a process by which you can also get any of those sums, as well as be held harmless against collection actions that might be ongoing. But this is money on top of that.

Stoltze: This is the result of a filing by your office that said that Health Net canceled policies of people who had big health claims wrongfully.

Isaacs: In essence, yes. It's central allegation was that Health Net had a pattern and practice of canceling retroactively, what we call 'rescission,' canceling health insurance policies when somebody had a expensive medical claim so they would not have to pay that.

Stoltze: And typically, they would argue that they failed to disclose preexisting health conditions on applications that were complicated and confusing.

Isaacs: That's correct, but also, they never did any medical underwriting at the time that people applied. So they didn't check your records until you came in with one of those big claims, and that's when they would order up your medical records.

They would comb them, looking for any discrepancy between your application and the medical record. It didn't have to even relate to the condition that you were being treated for.

Stoltze: The state, in its settlements with Health Net, have gotten the company to agree to simplify its application process and to engage in third party independent review when it wants to cancel a policy. It says that these reforms will prevent rescissions in the future.

Isaacs: We think the state settlements are insufficient. All that the state settlements require are for Health Net to provide what's called a 'corrective action proposal.' So Health Net will be making a proposal to the regulators as to what they think needs to be changed, and then the regulators will decide whether to agree to that or not, with no clear enforcement mechanism.

In our settlement, there's actually a one year moratorium on further rescissions, and the purpose of that is to require Health Net to develop a true, fair, and reliable independent third party review process that has to be approved by our office, and if Health Net fails to do so, we're able to go back to court to compel them to do so.

Stoltze: Finally, you're in court against some other companies too on the same issue.

Isaacs: We filed against Blue Cross and against Blue Shield, who we found to be engaged in the same, in fact, almost identical processes.