Personal Injury Law

Health Net agrees to settle rescission lawsuits

By Edward Bills

The Woodland Hills, California insurer will pay as much as $14 million to close the books on litigation over the canceling of health policies.

The lawsuits were brought on behalf of 800 former policyholders whose coverage was dropped after they submitted substantial medical bills.

Under the deal, which won preliminary court approval Wednesday, individuals whose health insurance policies were canceled since 2004 are eligible for payments of up to $218,000. The average payment is expected to be $7,836.

The settlement would resolve a class-action lawsuit as well as a suit filed by the Los Angeles City Attorney.

In addition to the payments to customers, it requires Health Net to pay a fine of $2 million to the city and to contribute $500,000 to charities. The law firm that filed the class-action suite will earn $2.1 million.

The settlement follows a two-year crackdown by state regulators on the widespread and controversial practice known as rescission. In deals with regulators, insurance providers Health Net, Anthem Blue Cross and Blue Shield all have agreed to make substantial changes in the way they sell individual coverage in an effort to reduce the number of rescissions.

In all, Health Net has agreed to pay more than $40 million to resolve the regulatory actions and litigation over rescission.

Health Net is the only company that has been forced to defend rescission at trial. Nearly a year ago, an arbitration judge awarded $9 million to a hair salon owner whose coverage Health Net dropped after she was diagnosed with breast cancer. The rescission forced her to suspend her chemotherapy treatments for several months.

That was one of 1,600 rescissions that helped Health Net save $35.5 million over several years, according to trial documents. The trial also revealed that Health Net paid bonuses to an employee based in part on how many rescissions she carried out.

Health Net stopped those bonuses and, under the settlement, agreed not to reinstate them.

Full post as published by Bodily Injury Blog on February 12, 2009 (boomark / email).