Consumer Watchdog – Consumer Watchdog Raises Concern that Health Policy Cancellation Rules Have Been Derailed in Deal With Kaiser

Sees Improvement But is Concerned About Loss of Legal Remedies

Santa Monica, CA -- A settlement with Kaiser Permanente over more 1,000 patients whose health coverage was retroactively cancelled is an improvement on past proposals because it acknowledges that patients can make claims for repayment of losses resulting from policy cancellations such as bankruptcy or loss of a home.  In past proposals patients could not recover costs incurred after policies were wrongly cancelled.

However, Consumer Watchdog said that such a deal is no substitute for regulations promised 18 months ago by the Department of Managed Health Care (DMHC) which regulators said today will not be issued.  Consumer Watchdog said that the Department appears to be trading away tough regulations for new legislation that is likely to favor insurance companies.

"Punting this issue to the legislature where insurers have immense lobbying power risks regulation that is more loophole than protection," said Jerry Flanagan of Consumer Watchdog. "The Department has both the ability and the responsibility to develop strong regulations that could be put into effect faster than legislation and provide immediate protection."

Consumer Watchdog also raised concerns that today's "voluntary settlement" with Kaiser stacked the legal deck against consumers whose policies were wrongfully cancelled by forcing them into mandatory arbitration, potentially limiting class action lawsuits, and by letting insurers off the hook for punitive damages.

Under the agreement with Kaiser, patients who paid more than $15,000 out-of-pocket for medical expenses resulting from policy cancellations, or who suffered other damages like bankruptcy, loss of a job or home, would have to submit to arbitrators chosen by the DMHC and Kaiser with no patient input.  It appears that patients would have to pay for their own attorneys, which would be cost-prohibitive for most.

Patients who were retroactively cancelled -- in so called "rescissions" -- would be allowed to buy new coverage from Kaiser, without limitations due to their health conditions, and retain the right to take their cases to court.  However, Consumer Watchdog said that patients with less than $250,000 in damages would have difficulty finding an attorney to take such a case.  The fine print of the settlement would also create roadblocks to future class action lawsuits brought by those patients with smaller damage claims.  

"The Department has clearly acknowledged the loss and harm to patients whose coverage was illegally and callously rescinded," said Flanagan. "However, many of these patients will likely face a cadre of Kaiser attorneys in a complicated and difficult closed-door arbitration where they have to act as their own lawyers.  Kaiser should be required to pay the attorney fees of patients seeking redress for substantial past medical expenses and damages resulting from the loss of coverage."

Consumer Watchdog said the agreement only offered to "sell" new coverage to patients, not to "reinstate" former coverage which would have provided automatic recovery of medical costs rather than subjecting patients to a hostile arbitration.

The Department of Managed Health Care (DMHC) previously granted Consumer Watchdog's petition for new rules to protect innocent patients from wrongful retroactive cancellations -- so-called "rescissions" -- in December 2007 but now is backing away from completing them.

Read Consumer Watchdog's 2006 petition calling for the new rules.

Read DMHC's December 2007 response granting that petition.

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