Calif. Notes Settlement with Health Net Life

California Insurance Commissioner Steve Poizner announced an historic agreement valued at $25 million between the California Department of Insurance (CDI) and Health Net Life Insurance Company (Health Net) to offer new healthcare coverage to 926 consumers whose individual and family plan policies were rescinded during the past four years and halt improper rescissions going forward.

The settlement, based upon consumer complaints and a market conduct exam of rescissions back to 2004, covers allegations of unfair claims handling and improper rescission practices. It includes

• $14.2 million in potential payments for legitimate, billed medical charges;
• $7.2 million in waived insurance premiums; and
• a $3.6 million penalty.

Under the terms of the settlement, Health Net will not subject the 926 consumers whose policies were previously rescinded to medical underwriting or exclusions for pre-existing conditions. Any medical expenses that would have been covered under the rescinded policies which are not covered by other sources will be reimbursed or paid by Health Net. Consumers retain the option to go through an independent arbitration process to pursue any claims for damages.

"During the settlement negotiations, Health Net was highly cooperative, and I believe their broad-based changes to underwriting and rescission practices will serve as a model and example to other health insurers," said Poizner. "I also commend the state Department of Managed Health Care (DMHC) for helping bring Health Net to the bargaining table."

Health Net agreed to make significant changes to its application form, underwriting process, agent training, and notification of consumers under investigation for information on their applications. Furthermore, it has agreed to establish an independent, third-party review process for future rescission decisions.

Poizner has pursued companies that engage in illegal rescissions or other claims handling violations. Health Net is one of five major California health insurers under investigation for improper rescissions of coverage.