Why Did California’s Campaign Against Anthem Blue Cross Collapse?

I have written a series of blog entries about California’s health care regulators attacking health plans for “rescission,” which the regulators have equated with “post-claims underwriting.” The former consists of revoking a policy because the beneficiary made a material misrepresentation about his health status on his application. The latter consists of a health plan not actually underwriting an individual health policy until an expensive claim comes in, and then using any inconsistency in the original application to trigger a rescission.

Another key difference is that “rescission” is legal, and “post-claims underwriting” is not. So, naturally, if a health plan was engaged in the latter it would try to camouflage it as much as possible to look like the former. Of course, when the regulators went on the rampage against the health plans for “post-claims underwriting,” politicians and the media joined the beatings.

One of the first health plans to be tied to the whipping post was Blue Cross of California (now Anthem Blue Cross, owned by the for-profit health insurer WellPoint), which the Department of Managed Health Care (DMHC) fined $1 million in March 2007.

Or, that is to say, the DMHC claimed to have fined Blue Cross. Today we learn, courtesy of the San Francisco Chronicle, that the state never collected the fine.

Why not? According to the DMHC spokesman, the state just doesn’t have enough money to actually sue Blue Cross, so is mired in negotiations about how big the actual fine should be. Apparently, the state cannot afford to haul Blue Cross into court for every case of alleged “post-claims underwriting”.

Well, I suppose we could accept the notion that the good folks at DMHC just do not want to put the taxpayers’ money at risk on attorneys’ fees that could be overwhelmed by WellPoint’s legal-eagle shenanigans. But when did that ever stop any state from going after a Fortune 500 company that it had in its sights? Think of the Tobacco Master Settlement Agreement or the continuous parade of pharmaceutical firms charged with “fraud” on drug prices by states who don’t know how much pills should cost.

There’s another possible explanation (although the media and the state’s politicians would sooner their tongues turn to flames than utter it): Maybe, just maybe, Blue Cross did not break the law, when it rescinded policies of Californians who had misrepresented their health status when they applied for health insurance.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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