The breakdown

According to the Department of Managed Health Care (DMHC), the insurers will pay fines and offer coverage to those whose policies were rescinded. Here’s the breakdown:

• Anthem Blue Cross, part of WellPoint Inc., agreed to pay $10 million in fines and offer new coverage to 1,770 former members whose coverage was canceled since 2004 with no questions asked.
• Blue Shield agreed to pay $3 million in fines and offer new coverage to 450 people whose coverage has been rescinded since 2004. The insurer is subject to a total fine of $5 million, but the additional $2 million may be forgiven if it institutes corrective actions.

In addition to the fines and new policy offerings, the insurers also agreed to create a process to assist those whose policies had been canceled to recoup those expenses that would have been covered if they had coverage. However, the insurers would not admit any wrongdoing.

Fines vs. lawsuits: Many disagree on which is better

According to a DMHC press release, Director Cindy Ehnes said that the agreement “sends the message that if you come into California to sell health insurance, you must play by the rules.” While other political figures, such as Governor Arnold Schwarzenegger, have applauded the DMHC’s efforts, others say that paying fines without admitting any wrongdoing doesn’t punish insurers for their conduct.

According to some consumer advocate groups and Los Angeles City Attorney Rocky Delgadillo, the fines – without the admission of wrongdoing – won’t adequately change the way that some insurers do business in California. Only days before the announcement, Delgadillo filed a lawsuit against Blue Shield of California, California Physicians’ Service Inc. and Blue Shield of California Life and Health Insurance Company.

According to press release from his office, the lawsuit accuses the companies of “engaging in unlawful and deceptive business acts and practices, which have led to the denying or delaying of authorization for thousands of health insurance claims or the rescinding of coverage after initially issuing a policy.” His lawsuit seeks penalties in excess of $1 billion. Earlier this year, Delgadillo filed a similar lawsuit against Blue Cross that also has the potential for penalties over $1 billion. Regardless of which may be better, policyholders subject to either may still bring an individual lawsuit against these insurance companies for bad faith insurance practices. If you’d like to speak with a lawyer whose practice focuses in this area of the law to discuss your situation, please click here.