BLUE SHIELD RESPONDS TO DOI
Blue Shield Press Release -Dec. 13: From Duncan Ross, President, Blue Shield of California Life & Health Insurance Company. San Francisco, Calif. Todays allegations by the California Department of Insurance represent a radical departure from the departments widely accepted and longstanding interpretation of the law. The departments position penalizes practices that have been previously approved by the department and have been followed for years by all health insurers.
The department seeks to retroactively change the rules in the middle of the game for the entire industry and proposes to fine Blue Shield Life more than $12 million for being the first company subject to the new rules. The departments position is fundamentally inconsistent with its past practices, grossly unfair, and not within its authority.
The department proposes new legal standards for underwriting and rescission that conflict with decades of court decisions. For many years, Blue Shield Life has filed its application forms and insurance policies with the department, which approved them. Those documents clearly set forth the requirement t hat people who apply for insurance must submit accurate and complete responses regarding their medical history, as well as the consequences for not doing so.
Now, after having approved these applications and policies for many years, the department has determined that the documents do not meet their new standard and wants to apply that judgment retroactively. If the department wishes to establish new rules or create new regulations, the law provides a procedure that includes fair notice and the opportunity for comment. It is fundamentally unfair and contrary to law for the department to make new policy without following those rules.
In addition, the departments interpretation of rescission law is simply wrong. For many years, the courts including the California Supreme Court have clearly stated that an insurer need not demonstrate that an applicant intended to deceive the insurer in order to rescind a contract, as long as the misrepresentation was of such significance that the policy would not have been issued. The department does not have the authority to create a new standard that is contrary to settled interpretation of the law, and that contradicts the statutes themselves, much less to apply this incorrect standard retroactively.
The departments position on attachment is also on shaky legal ground. The department attempts to use the technicality of not stapling an application to a policy to assess more than two million dollars in fines. In reality, California law does not require an insurer to staple the application on the policy. The insurer can also endorse the application onto the policy. During the audit period, we properly endorsed applications onto the policies in a manner that the department had never criticized before. Indeed, we were using the exact same method that other health insurers had been using for years a method that was in full compliance with the only court decision that had interpreted the “endorsed on” requirement under California law.
We are outraged by the excessive penalties for nonsubstantive issues. They are not justified by the facts and we will fight them vigorously. For example, nearly two million dollars of the departments proposed penalties have nothing to do with customer service. They involve minor disputes over the timing and format of responses to the auditors inquiries that are technical in nature and rarely result in fines, and we strongly disagree with the auditors allegations on these matters.
Other fines were levied for providing information electronically rather than in hard copy. There is no precedent for imposing fines of this magnitude for what is largely a collection of technical disputes and inadvertent errors. We acknowledge unintentional mistakes in a number of cases examined by the auditor, none of which involve rescission or underwriting, and we have taken appropriate corrective actions. Many of these cases involve human error and the appropriate staff members have received remedial training. In the vast majority of these incidents, the allegations made by the department involve misjudgments that typically do not result in severe penalties.
Moreover, a majority of the alleged violations concern short-term health contracts that constitute a tiny percentage of our membership and were administered by a third party. We no longer sell short-term health. It also bears noting that this is only the beginning of a process. It does not represent a final judgment on the departments charges, which will be made by judges in legal and administrative proceedings. When all the facts are presented, it will be apparent that the penalties proposed by the department far exceed the penalties historically imposed for similar behavior, and that many of its positions are legally and factually without support.
Finally, we recognize that too many Californians are unable to obtain health coverage, particularly if they are not eligible for group coverage and have preexisting medical conditions. Thats why Blue Shield Lifes parent company, Blue Shield of California, has long supported universal coverage and has actively lobbied for a solution the past five years. If coverage for all could be achieved, every Californian would have insurance regardless of health status and rescissions would be eliminated entirely.