More than a year after the healthcare reform law sought to prevent sick patients from losing medical coverage, insurers are still paying for their alleged abuses.

Blue Shield has agreed to pay $2 million to resolve accusations that the company improperly dropped policyholders after they got sick and needed expensive treatment.

The settlement, announced Wednesday by Los Angeles City Atty. Carmen Trutanich, ends an investigation into more than 1,000 so-called rescissions by Blue Shield, a San Francisco-based not-for-profit company.

Blue Shield spokesman Steve Shivinsky said the firm settled to avoid litigation.


“Our process meets or exceeds all legal and regulatory requirements,” Shivinsky said in a statement. “In every instance, we provide immediate notice, ensure multiple layers of review, involve a medical director in the decision, give members an opportunity to provide additional information before we take any action, and follow the guidance of an independent third party review.”

Blue Shield is among a handful of California insurers that have paid millions to state and local regulators in response to investigations into the systematic dropping of policyholders with expensive medical needs.

Insurers defended the practice, known as rescission, saying it was necessary to guard against fraud. But a series of Times articles beginning in 2006, legislative hearings, lawsuits and regulatory investigations showed that insurers often rescinded coverage without regard for whether their customers intended to deceive them about preexisting conditions.

The practice resulted in some people losing coverage through no fault of their own, often over trivial bits of health history that had nothing to do with the claims that triggered the investigations.


In the only rescission case to go to a verdict, Patsy Bates, a hairdresser, won a $9-million judgment against Health Net in 2008 over that company’s rescission of her policy after she was diagnosed with breast cancer. Evidence showed the company paid bonuses to an employee based in part on rescission volume.

Rescissions peaked at more than 5,000 a year in California and had all but stopped by 2009.

President Obama made rescission a central theme in his push for a healthcare overhaul. In September 2010, a ban on rescissions for unintentional application errors became one of the first pieces of the healthcare law to take effect.

Former City Atty. Rocky Delgadillo filed suit against Blue Shield and several other insurance companies in 2008, alleging that their rescission practices violated the state’s Unfair Competition and False Advertising laws.


Blue Shield made changes in its application questionnaire and other business practices that brought the company into compliance with new state rules regarding rescission, according to the settlement with the city attorney’s office.

The money will be split between the city attorney’s office and Los Angeles County. Blue Shield, in earlier agreements with state regulators, pledged to pay $3 million and to offer new coverage to hundreds of former policyholders.

The city attorney’s suit against WellPoint, which does business as Blue Cross Life and Health and Anthem Blue Cross, is pending.

lisa.girion@latimes.com