California fines plan for failing to reveal policy cancellation incentive

California regulators are investigating other insurers and tightening regulations to limit individual insurance rescission. Meanwhile, a new law gives doctors protection.

By Emily Berry, AMNews staff. Dec. 10, 2007.

Health Net has agreed to pay the state of California $1 million for failing to tell the whole truth to regulators about how it rewarded its employees who cancelled individuals' health insurance. The company -- and others -- could face more fines in the future as the California Dept. of Managed Health Care continues to investigate insurance rescission practices.

Still in the courts is a lawsuit by physicians and hospitals over insurers not paying for care authorized for a patient whose policy is later pulled, although a new law mandates that an insurer pay for care even if it is determined after the fact that an individual policy should be rescinded.

The Dept. of Managed Health Care on two occasions asked Health Net officials whether they offered incentives to employees to cancel policies and was told incorrectly that there were no such programs, department spokeswoman Lynne Randolph said. California law does not allow insurance companies to compensate claims reviewers for decisions they make on claims.

"We expect that in any investigation the health plans are going to be truthful in their answers to us," Randolph said. "It was crucial for us to come out early and so quickly with the fine. We didn't want to wait to even assess the validity or existence of the bonus program."

The Woodland Hills, Calif.-based company referred to the matter as a "misunderstanding."

"We are sorry for any misunderstanding with the DMHC," Health Net CEO Jay M. Gellert said in a prepared statement.