Here is another example of the way private insurers avoid paying legitimate claims. The story was reported in the Los Angeles Times on Christmas day.
A California State Appeals Court looked into the way California insurance companies cancel health insurance policies. Steve Hailey, an Orange County small-business owner, had an insurance policy with Blue Shield of California when he had a car accident that disabled him. Blue Shield first approved more than $450,000 worth of hospital and other medical care, but when the costs of care exceeded the amount or premiums he had paid, they canceled his policy and demanded reimbursement for more than $104,000 they had spent on his account.
The reason for the cancellation? They claimed that Hailey lied about preexisting conditions when he purchased the policy. However, the appeal court found that his wife had filled out the application, and it was written poorly so that it was not sure how she should have answered the questions. The key point, though, was that Blue Shield had become aware of the apparent misrepresentation about two months after the policy was issued, but waited until their was an accident and the payouts exceeded the premiums paid before canceling the policy and demanding reimbursement. Had they canceled the policy when the errors were first noted, the Haileys could have gotten coverage for Mr. Hailey on Mrs. Hailey's policy through her employer. By the time they did cancel, after an unnecessary delay simply to collect premiums, it was too late for the Haileys to make other insurance arrangements.
The California appeals court rejected the cancellation of the Hailey's policy, sent it back to the lower court for trial, and required Blue Shield to pay for the Hailey's costs of appeal.
The insurance company policy, then, was to delay canceling the questionable policy as long as the insured was paying premiums but not making big claims. Only when claims exceeded premiums did they cancel the policy, which prevented the newly uninsured from making other arrangements for insurance.
The decision by the California state court of appeals has no power in any other state. This technique is available to any health insurer who want to use it outside California. So remember
This is another post that describes how private health insurance fails to deal fairly with the insured. My earlier post was Here's why private insurance companies can't finance decent universal health care.
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