After surgery to remove ovarian tumors and four rounds of chemotherapy, Tanya Serrano was looking toward a hysterectomy and, all things considered, feeling pretty lucky. But days after Health Net of Arizona approved the Chandler woman’s surgery, the insurance company canceled and rescinded her policy.
Serrano, they claimed, had violated her contract by omitting prior medical conditions. Health Net would be reclaiming roughly $75,000 in medical bills it already paid and dropping her coverage, effective immediately.
“I just couldn’t believe it. I was in a state of shock,” Serrano said.
“It’s obvious to me what they did. It just seems wrong to me that they can wait for you to get sick, and when you really need your health insurance, they can go back and cancel it.”
Serrano, 31, has appealed the cancellation with Health Net, filed a complaint with the state Department of Insurance and contacted a well-known California attorney to see if he can do for her what he’s accomplished for people there.
Policyholders in California have filed dozens of lawsuits over the past year against Blue Cross, Blue Shield, Health Net and others, arguing the companies are violating state law by insuring them, paying their claims and later rescinding the contracts because of mistakes on their applications.
“People are outraged by what’s happening,” said William Shernoff, a Claremont, Calif., attorney who has filed more than 100 lawsuits in the past year, including several against Health Net and about 70 against Blue Cross, and settled most of them.
“These applications are designed by the insurance companies to be unclear,” he said. “It’s like a trap for rescission.”
Disgusted with insurers authorizing treatment and then sticking them with the bills, doctors in California are asking to join their patients in a separate class-action lawsuit against Blue Cross in hope of changing the insurance giant’s business practices. Hospitals also have sued Blue Cross.
At issue is a 1993 California law prohibiting “post-claims underwriting” and whether it protects consumers from having their policies canceled without consultation and without proof that they intended to deceive the insurance company.
The policies at risk are purchased, usually through agents, by people who are selfemployed or whose employers don’t offer health coverage. Unlike group coverage, individual policies have underwriting guidelines and can be denied, canceled or rated based on policyholders’ medical histories.
Roughly 200,000 Arizonans carried individual health insurance policies in 2005, threefourths of them covered by the state’s largest health insurer, Blue Cross Blue Shield, according to the state Department of Insurance, which gets its information through self-reporting by the industry. In California, Blue Cross and Blue Shield are separate companies, with Blue Cross the state’s largest.
Insurers have maintained they have a right to cancel policies retroactively based on an applicant’s failure to disclose important information, even after the policy had been approved, treatment authorized and doctors, hospitals and other medical providers paid.
They argue that it’s a necessary tool in fighting fraud, which raises rates for everyone, and would never be employed against a policyholder who simply made a mistake.
“The health plans are only rescinding in very clear-cut cases. They’re not trying to rescind for any other reason except for fraud,” said Susan McLeod, public affairs manager for Health Net of Arizona.
McLeod said Health Net does not engage in post-claims underwriting, but reviews certain applications based on the timing and type of claims it receives. An in-house committee reviews each policy rescission before it’s issued.
In the past year, Health Net has rescinded about 90 of its 9,000 individual health policies, she said, and one of those was reversed on appeal.
“It’s a very important decision and we don’t want to lose members,” McLeod said. “But we don’t want to have a relationship that’s based on fraud.”
During a lawsuit deposition in March, a Health Net of California analyst said the company rescinded 200 to 300 policies a year.
In Serrano’s case, Health Net of Arizona noted five items on a 52-question application, submitted electronically in May by her insurance agent, that conflicted with her medical history. The discrepancies were found in documents from her primary care doctor and Banner Desert Medical Center, where she’s been receiving cancer treatment since her diagnosis in July.
“Had these facts been disclosed at the time you applied for health coverage with Health Net, your application for coverage would not have been approved,” the company’s senior risk analyst said in a Jan. 5 letter to Serrano.
Serrano failed to disclose a back injury, depression, a heart murmur and elevated cholesterol and glucose readings, Health Net says.
The cholesterol and glucose readings are incorrect, Serrano says, she was born with a benign heart murmur, felt depressed in her early 20s during her parents’ divorce and saw a doctor for a pulled back muscle four or five years ago. Serrano says she probably noted those things on paperwork at the doctor’s office, but none of it seemed relevant now.
Plus, she figured Health Net would check her history before issuing her coverage.
“I didn’t get this insurance policy thinking I’m going to deceive them,” she said. “And none of this is even remotely related to cancer.”
Under the application she signed, “any intentional or unintentional nondisclosure, misstatment or omission of fact ... that is material to the underwriting decision” allows the company to cancel or rescind the policy.
Unlike California, Arizona law doesn’t appear to protect consumers from losing coverage because of mistakes on their applications, even if they were unintentional. The law gives health insurers up to two years to deny claims or void policies for misstatements on the application.
Shernoff said there is no due process for consumers, who aren’t allowed to explain themselves, see the documents used to cancel their policies or request proof that the company would, in fact, have denied their application had their answers been different.
Arizona insurance regulators say they get few complaints about policies being canceled retroactively. During 2005 and 2006, the agency investigated 11 complaints about rescissions and ruled once in favor of the policyholder.
Mary Butterfield, assistant director for the state Department of Insurance, said people may forget about conditions they’ve had or assume they aren’t important enough to include. Still, the insurance companies can cancel or rescind the policy.
“Very few of these cases are people who are lying. It’s just that the company doesn’t see it the same way,” she said.
Insurance investigators can examine the contract and make sure the company had proper documentation to rescind it.
Shernoff said that’s not enough. He praised California’s insurance regulators, who have fined Blue Cross and Kaiser Permanente in rescission cases. The Department of Managed Care has scheduled a public hearing today in Los Angeles to gather comments about new rules that would give further protection to consumers from post-claims underwriting.
But Shernoff said other states rely on paper reviews and don’t talk to the policyholders to get their side, much less push for tougher laws.
“Most insurance departments have been looking the other way,” he said. “But a lot of families’ lives are ruined by this practice.”
Serrano’s doctors aren’t about to let that happen.
Dr. John Comerci, a gynecologic oncologist in Mesa who removed Serrano’s tumors and is scheduled to do today’s hysterectomy, said he won’t charge her if her insurance isn’t restored. His fee, however, is just a fraction of the hospital surgery bill, which could reach $40,000 for each of the surgeries he’s done.
“I put a call in to her, and reassured her that we would do whatever we needed to do,” Comerci said. “I just feel for her, because it’s been traumatic from the very beginning.”
Dr. Clayton Polowy, the Mesa oncologist who supervised her chemotherapy, said Health Net has asked his office to refund more than $4,000 for Serrano’s care. Like Comerci, he’ll continue to treat Serrano, regardless of her ability to pay.
“It’s a concern if there’s going to be a trend toward denying patients coverage,” he said. “We can’t wait to find out whether or not things are going to be approved or denied.”
Serrano says she’s grateful for her treatment and her doctors. The cancer was caught early and her prognosis is excellent.
“These doctors are saving my life, and they’re going to get stuck with the bills,” she said. “It’s just not right.”
Serrano and her husband, Irwin, remain enthusiastic and hopeful about the future, even though it’s not the future they’d once envisioned.
“I know I’m not going to end up on the streets. But I do fear bankruptcy,” she said last week, sitting next to Irwin on the couch, surrounded by artwork and his photographs.
“We’re newly married. We want to buy a house. We want to adopt a baby.”
They’re planning to move to Maine to be closer to family later this spring, and put the cancer behind them. Serrano’s once-bald scalp is fuzzy with the beginnings of new hair, and she’s eager to share her story of cancer survival on her blog and through a photography exhibit Irwin is developing.
“It’s changed me,” she said. “I’m not afraid of anything anymore. After you fight death, the rest is easy.”