California may fine Blue Shield for cancellations

LOS ANGELES (Reuters) Dec. 14 California's top insurance regulator filed an enforcement action against Blue Shield of California Life & Health Insurance Co on Thursday, accusing the company of illegal behavior toward policy holders and seeking a $12.6 million fine.

California Insurance Commissioner Steve Poizner has asked an administrative law judge to fine Blue Shield $12.6 million after an investigation into consumer complaints yielded 1,200 violations of insurance law in 2004 and 2005.

Poizner said his agency would audit the company's claims handling through the current year and then would scrutinize the state's other major insurers.

"This is very important and people are complaining about it and I assure people we will get to the bottom of it," Poizner told Reuters. "We are sending a message to every health insurance company in California to clean up their act."

The allegations against Blue Shield include retroactive cancellation of policies after insured individuals made claims, denial of legitimate claims and failure to pay claims in a timely manner.

In a statement, Blue Shield President Duncan Ross said the company is "outraged" by the fines for what it considered "nonsubstantive issues." He accused Poizner of trying "to retroactively change the rules in the middle of the game" for the insurance industry.

"The department's position penalizes practices that have been previously approved ... and have been followed for years by all health insurers," Duncan said.

The lawsuit goes to an administrative judge in Sacramento who will rule on the allegations and the fine and on the department's demand that Blue Shield pay out-of-pocket expenses for policyholders whose claims it illegally denied.

Blue Shield faces a proposed class action lawsuit brought by former policy holders who accused it of trying to avoid paying claims by retroactively canceling their policies on the grounds they lied on their applications.

The retroactive cancellations at Blue Shield and four other HMOs are under review by the state Department of Managed Care. The other HMOs under review are Kaiser Foundation Health Plans Inc, PacifiCare Health Systems Inc and Blue Cross of California, which is operated by WellPoint Inc. UnitedHealth Group Inc bought PacifiCare in 2005.

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