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Anthem Blue Cross Faces Lawsuit Over Illegal Cancellations

Apr 17, 2008 | Parker Waichman Alonso LLP

Anthem Blue Cross is the latest insurer named in a lawsuit over illegally canceled policies.  The Los Angeles City Attorney is charging Anthem Blue Cross with deceptive practices and is seeking $1billion in restitution and penalties from the company.  

Los Angeles City Attorney Rocky Delgadillo said Anthem, formerly Blue Cross of California, canceled policies and illegally denied claims when policy holders became ill.  In February, Delgadillo's office filed a similar suit against Health Net Inc. for illegally canceling health insurance coverage for 1,600 customers.

Delgadillo's lawsuit, filed in California Superior Court, accuses Anthem Blue Cross of violating laws prohibiting unfair competition and false advertising.  He accused the company of canceling 6000 policies - many belonging to elderly people - when the holders became sick.  In some case, he said the insurer denied patients with health costs that topped $100,000. “Blue Cross hides from consumers the fact that if the consumer requires an expensive medical procedure, there is a significant likelihood that Blue Cross will cancel their insurance policy,” Delgaldillo said.

One of alleged violations cited in Delgaldillo's complaint involves the use of secret units within the company that targeted consumers who became ill. He said Anthem Blue Cross internally identifies those secret units as the “medical investigation unit” and the “retroaction review unit.” Delgaldillo also accused Anthem of tricking 500,000 consumers into buying worthless insurance policies through the use of false advertising.

When Delgaldillo sued Health Net earlier this year, he claimed that company illegally paid bonuses to employees for meeting policy cancellation targets. The incentive program led to the illegal cancellations.  For its part, Health Net has admitted that such a bonus policy was in effect at the company in 2002.

The Health Net lawsuit was filed the same day a California arbitration judge ordered Health Net to pay $129,000 in claims it denied, while providing $8.4 million in punitive damages and $750,000 for emotional distress for illegally canceling a woman's policy after she was diagnosed with breast cancer.  

In the wake of that decision, Health Net said it would be implementing a freeze on policy cancellations that would last until the company sets up a third-party review panel to scrutinize cases. Health Net also said it would review its practices and the way its brokers and agents are trained.