Calif. Ignores $1M Fine Of Health Insurer

California regulators admitted Thursday that for more than a year they didn't even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because it feared they would be outgunned in court.

In early 2007, the Department of Managed Health Care pledged to fine the state's largest insurer for "routinely rescinding health insurance policies in violation of state law."

But they never did.

The department's director, Cindy Ehnes, told The Associated Press on Thursday that, when it comes to rescissions, the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.

"In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever," Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.

"They have the largest number of rescissions, so as a practical matter for the department it does present some practical challenges that are different from a Health Net (of California) or a PacifiCare," referring to providers who, along with Kaiser Permanente, have made settlements with the state to reinstate health care coverage.

That means that although Anthem Blue Cross has the highest number of alleged illegal rescissions, it may face the least regulatory consequence simply because of its sheer size, and aggressive legal defense.

Anthem Blue Cross, a unit of Indianapolis-based WellPoint Inc., acknowledged in a statement Thursday that it had seen the March 22, 2007, announcement of the $1 million fine, but noted that "Anthem Blue Cross has not been fined by the DMHC."

The statement went on to say that the insurer is "currently in the midst of settlement discussions."

However, the agency's top enforcement officer, Amy Dobberteen, told the AP on Thursday that after more than a year at the table, negotiations to get patient policies reinstated had failed, and "we are pursuing vigorous enforcement now."

The agency had warning of what it was up against when it issued a $200,000 fine against Anthem Blue Cross for a single rescission in 2006. Dobberteen said the insurer engaged in an exhausting back-and-forth that made it clear that addressing the larger number of rescissions would mean "a very large fight."

The state agency is not the only group to go after Anthem Blue Cross for its rescission practices.

In April, Los Angeles City Attorney Rocky Delgadillo filed a lawsuit that charged the insurer with deceptive practices and unlawful termination of policies. The insurer denied the allegations, saying that it had tried to meet with Delgadillo, but was rebuffed.

City lawyers countered that the insurer had tried to deeply limit the scope of the meetings, so they went ahead and filed suit.

Delgadillo spokesman Frank Mateljan said Thursday that there is no court date set in the suit, and city attorneys have been mired in legal filings since April.

The DMHC fine announcement came on the heels of Gov. Arnold Schwarzenegger's announced comprehensive health care proposal in January 2007, according to gubernatorial adviser Daniel Zingale. Schwarzenegger has spoken out sharply against the practice of rescission, which drops enrollees when they try to make claims on health insurance policies.

"Blue Cross, what they've done is terrible by refusing to go along with these negotiations," said Zingale. "When a company stands outside the fold, then they end up getting the fine and the law."

The governor's proposal failed, the fine remained just a long-ago announcement, and some critics say that's no coincidence.

"This is a fraud on the people of California," said Jerry Flanagan, health advocate for Consumer Watchdog, a Santa Monica-based consumer advocacy group.

"The governor's top regulator talks tough about collecting big fines and then never bothers to ask the company to pay up. In the mind of the governor, it's the best of both worlds: he gets the splashy headlines he likes but he keeps his insurance company pals close."

Anthem Blue Cross, another subsidiary called Arcus Enterprises and their parent company have given the Schwarzenegger campaign more than $256,600 in campaign contributions, according to Consumer Watchdog.

Ehnes and Zingale said the governor had no hand in the failure to enforce the fine.

"I don't go out and do things because it presents some good show," said Ehnes. "To be able to defend the citizens of this state, I have to be able to win in court. I have to make sure that we have defensible positions and we're getting the wins we need for enrollees."

The state's Department of Managed Health Care is the only stand-alone HMO regulatory body in the country, and is tasked with ensuring fair practice for more than 21 million enrollees.