Golden State Backlash

Les Masterson, for HealthLeaders Media, April 23, 2008

With the strength of a San Andres Fault spasm, California officials have retaliated against managed care organizations following a number of alleged missteps.

It seems like a week doesn't go by without a negative managed care article with a California city dateline. In this past week alone, two stories perpetuated the image of managed care as heartless.

The Los Angeles city attorney sued the state's largest health insurer charging that Anthem Blue Cross unlawfully canceled the coverage of as many as 6,000 Californians. In the other case, the state Department of Managed Health Care announced an independent arbiter will review policies canceled by five major insurers over the last four years to make sure they were not wrongly canceled. If rescinded in error, the state will reinstate the individual policies and require the insurer to pay the patient's medical bills that were incurred while the person was not covered.

Many officials have taken aim at the industry because of individual coverage cancellations, also called rescissions. Officials have supported the causes of individuals who have lost coverage and face mounting health bills and declining health. Cindy Ehnes, director of the Department of Managed Health Care, called rescission "a harsh practice," and has already ordered three of the state's largest insurers to reinstate 26 patients' policies.

Health Plan Insider readers have surely followed the proceedings in California, which plays into the perception of health insurers as unfeeling bean counters. Beyond this week's news, here are four stories from the Golden State that have blackened the eyes of managed care over the past four months:

  • In the most widely publicized case, CIGNA initially declined a liver transplant for a 17-year-old leukemia patient named Nataline Sarkisyan at the Pediatric Liver Transplant Program at UCLA, saying it "does not cover experimental, investigational and unproven services." After protests from doctors and nurses and picketers to the company's Glendale, CA, offices, CIGNA changed its mind, but it was too late. The girl's family had already taken her off life support and she died a short time later. Sarkisyan's story became a major piece of former Sen. John Edwards' presidential campaign.
  • The California Department of Insurance fined PacifiCare $3.5 million after the department reportedly found the UnitedHealth Group subsidiary had more than 130,000 claims-handling violations over two years. PacifiCare could be on the hook for an additional $650 million to $1.3 billion in fines. In response to the PacifiCare case, the California insurance commissioner launched an audit of the largest health insurers to address claims-processing violations.
  • The Los Angeles Times reported on Blue Cross of California sending letters to physicians asking them to report pre-existing medical conditions that the insurer could use to rescind coverage. The insurer agreed to stop the practice after the story was published, but not before enduring a public relations disaster.
  • An arbitration judge whacked Health Net with a $9 million judgment in a case involving a breast cancer patient whose coverage was canceled during chemotherapy. Los Angeles City Attorney Rocky Delgadillo also opened an investigation into whether the company illegally rescinded the policies of at least 1,600 members.

Taken separately these articles are not pretty, but collectively they have created a climate where managed care is forced to explain itself. Elected officials are pursuing health insurers, and managed care reform could be the ultimate result.

Some of the problems are surely managed care's fault, but there are some overarching unanswered questions:

  • Is rescission a fair safety gauge to protect health plans (and consequently their members) from astronomical costs?
  • Is rescission a way to assure that people are truthful when filling out individual health plan applications?
  • Are the applications clear enough so people understand what they are filling out?
  • Are officials targeting insurers because they believe there is a better way to provide health plans to Californians or are health insurers merely an easy target to gain notoriety?

Managed care officials should keep tabs on California. The aftershocks from the Golden State could shake the industry to its core.

Les Masterson is senior editor of Health Plan Insider. He can be reached at


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