The move announced Tuesday by the state's largest for-profit health insurer came after a report on the practice in the Los Angeles Times prompted an outcry from doctors, patients, the governor and even presidential candidates.
Blue Cross said it would stop sending letters that asked doctors to immediately report "any condition not listed on the application that is discovered to be pre-existing."
Gov. Arnold Schwarzenegger called the letter "outrageous" and described the practice as asking doctors to "rat out the patients."
Democratic presidential candidate Sen. Hillary Rodham Clinton said the Blue Cross effort was another "example of how insurance companies spend tens of billions of dollars a year figuring out how to avoid covering people with health insurance."
Blue Cross had for years been sending physicians copies of health insurance applications filled out by new patients, along with a letter telling the doctors that the company has a right to drop members who fail to disclose "material medical history," including a pre-existing pregnancy.
Blue Cross is one of several California insurers that have been criticized for issuing policies without checking applications and then canceling coverage after patients run up major medical costs. The practice of canceling coverage is under scrutiny by state regulators, lawmakers and the courts.
"This letter was part of Blue Cross' pattern of unfairly canceling policies when people need coverage most," said Richard Frankenstein, president of the California Medical Association. "We're relieved that Blue Cross is ending this particular tactic but continue to have serious concerns about this company's practices."
WellPoint Inc., the Indianapolis-based company that operates Blue Cross of California, said it was sending out the letters in an effort to keep costs at a minimum and guard against fraud.