Working Without a Net

Working Without a Net

One day in the summer of 2003, an insurance broker walked into a hair salon in Southern California and convinced 51-year-old Patsy Bates – a hairdresser and the owner of the salon – that she could save some money if she switched her insurance carrier to Health Net, one of California’s largest health insurers.

This wasn’t a scam, Patsy Bates’ identity wasn’t stolen, she wasn’t cheated out of her money, and when the broker left her shop she had valid health insurance coverage. But what happened next was reprehensible.

I rarely address insurance matters in the e-Alert (trust me, I learned my lesson when I wrote about Sicko), but this is an important story that needs to be told, because it could easily happen to you, me, your loved ones, anyone.

Goodbye and good luck!

A few months after changing insurance carriers, Patsy was diagnosed with breast cancer. While in the hospital, preparing for surgery to remove a lump, she was informed by a hospital administrator that there was a problem with her insurance so the surgery would have to be canceled.

After some negotiating, Health Net okayed the surgery under the condition that three months of insurance premiums be paid in advance. But the company canceled Patsy’s coverage shortly after the surgery, just as Patsy began receiving chemotherapy. With no coverage, Patsy owed nearly $200,000 in medical bills.

Four months later, Patsy resumed chemo thanks to a program that provides treatment for patients with no health insurance coverage.

Patsy later brought a lawsuit against Health Net. In their defense, Health Net executives contend that Patsy provided inaccurate information when she signed up for the health insurance, stating her weight at about 30 pounds less than it actually was, and neglecting to note a heart condition.

Patsy insists she didn’t knowingly mislead Health Net. In fact, the insurance broker who came to her shop asked her questions and filled out the application for her while she continued to work on a customer’s hair. Did Patsy intentionally deceive the broker, or were some of the details muddled in the awkward situation? Or did the broker tweak the information in order to ensure the application would be accepted, guaranteeing his commission?

These questions remain hanging in a he-said/she-said limbo – along with one more key question: If Patsy’s cancer had been diagnosed in 2013 instead of 2003, would her coverage still have been canceled in 2003, or would Health Net have gladly accepted a decade of payments and then cancelled her policy in 2013?

In any case, the cancellation of Patsy’s policy at the worst possible moment isn’t the most reprehensible part of this story. Not even close.

Not in good hands

Typically, lawsuits such as Patsy’s are settled out of court. But when Health Net was ordered to produce details about Patsy’s policy cancellation, the Los Angeles Times asked the arbitrator to make court documents public and he granted the motion.

And what spilled out was pretty ugly.

According to the Times, documents reveal that the senior analyst for Health Net’s rescission reviews – the analyst who cancelled Patsy’s policy – rescinded 301 policies in 2003, saving the company about $6 million in health care expenses. In addition, nearly 1,600 policies were rescinded between 2000 and 2006. Those cancelled policies saved Health Net more than $35 million.

During that seven-year period, the senior analyst earned more than $20,000 in bonuses – not exactly a king’s ransom, but Patsy’s attorney argues that the bonuses were awarded in large part for exceeding set goals for cancelled policies.

Health Net executives claim this program is designed to prevent fraud, but Steve Poizner, commissioner of the California State Insurance Commission, beautifully summed up Health Net’s actions against Patsy as “indefensible, immoral and possibly illegal.”

Nicely put!

But it gets even worse. When court documents were made public, Department of Managed Health Care officials realized that on two different occasions Health Net employees had mislead DMHC investigators who were examining Patsy’s allegations. The result: A $1 million fine from the DMHC.

To you and me, $1 million is a lot of money. To Patsy Bates that’s a lot of money. But to an insurance company that saved $35 million in cancelled policies, a million is chump change. Health Net executives apologized for any “misunderstanding,” and promised they would no longer tie bonuses or other compensation to cancelled policies.

Gee, don’t you just feel warm all over?

Meanwhile, the state is still investigating Health Net’s cancellation practices, and the arbitrator in Patsy’s case has not yet announced a decision about damages that might be awarded to Patsy. I’ll keep watch on this one and let you know what happens.

“Health Insurer Tied Bonuses to Dropping Sick Policyholders” Lisa Girion, The Los Angeles Times, 11/9/07,
“Cancer Patient Loses Health Benefits” ABC News, 11/9/07,
“Lawsuit Claims Health Net Gave Bonuses for Policy Rescissions” Victoria Colliver, The San Francisco Chronicle, 11/10/07,
“Health Net Fined for Lack of Candor” Daniel Costello, The Los Angeles Times, 11/16/07,