Los Angeles City Attorney Files Lawsuit Against Health Net For Cancellations

Main Category: Health Insurance / Medical Insurance
Also Included In: Litigation / Medical Malpractice
Article Date: 23 Feb 2008 - 0:00 PST

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Los Angeles City Attorney Rocky Delgadillo on Wednesday filed a lawsuit against Health Net, alleging that the health insurer sold individual policies to consumers with the intention of dropping coverage if they needed costly treatment, the Los Angeles Times reports. According to the lawsuit, the company defrauded thousands of policyholders through a "wide range of unlawful, unfair and fraudulent acts and practices" with the intention of voiding the coverage to avoid payments for expensive treatment, "rendering that coverage largely illusory."

The lawsuit maintains that the company continued its practices -- which violated more than 20 state laws -- even though policyholders, regulators and appellate courts repeatedly pointed out illegal tactics. Delgadillo said that his office's investigation reveals "wholesale violations of the law," including improper cancellations of 1,600 policies over the past four years and delays in treatment for thousands more while the company conducted cancellation investigations.

Delgadillo said his goal is to get Health Net to follow state laws. If the maximum fine was assessed for each of the company's 100,000 policies sold over the last four years, the company could face hundreds of millions worth of penalties, according to sources close to the investigation. In addition, Delgadillo wants Health Net and two subsidiaries to reinstate improperly rescinded policies and to refund premiums to members, even if policies were not canceled.

Health Net Response
Health Net officials said that the lawsuit is duplicative of other enforcement efforts and denied that it cancels policies when members need costly treatment. Health Net paid $200 million in claims in 2007 on individual policies for more than 100,000 members, which is "pretty substantive and pretty substantial," spokesperson David Olson said. In addition, Health Net has reviewed its cancellation practices since late 2006 and made changes, such as creating an internal independent review, to "protect people's rights in a fair and appropriate way," Olson said. Olson noted that the company is working with regulators to improve its individual policy practices (Girion, Los Angeles Times, 2/21).

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