Anthem Blue Cross and Blue Shield -- two of the state’s biggest health plans -- agreed Thursday to pay a total of $13 million in fines and to offer new health coverage to more than 2,200 Californians the companies dropped after they became ill.

Neither company admitted to any wrongdoing in agreeing to pay the stiffest penalties yet in efforts by state authorities to curb what they view as an abusive practice of investigating and canceling policies after policyholders run up big medical bills.

Blue Cross, a unit of Indianapolis-based WellPoint Inc., will pay a $10-million fine to the state Department of Managed Health Care, and it will offer new coverage to 1,770 former members it canceled since 2004 -- no questions asked.

“The fine is a record in DMHC history and it sends the message that if you come into California and sell health insurance, you must play by the rules,” department Director Cindy Ehnes said.


Competitor Blue Shield, a not-for-profit health plan based in San Francisco, will pay $3 million and offer new policies to 450 people whose coverage was rescinded over the last four years.

The insurers also agreed to establish a process for former members to recover medical expenses they paid out of pocket after they were dropped as well as other damages, such as homes or businesses that were lost because unpaid medical debts ruined the former members’ creditworthiness.

The agreements bring to a close the department’s industrywide investigation into the problems of rescission that were brought to light in a series of articles in The Times. The problem affects individual policies, the type of coverage consumers without access to employer-sponsored group health benefits purchase on their own. About 14 million Americans, including 3 million Californians, rely on this type of coverage.

Earlier this year, Kaiser Permanente, Health Net and PacifiCare all made similar agreements but paid smaller penalties that reflected their willingness to meet the department’s terms, which, Ehnes said, made the restoration of coverage the highest priority.


“We’ve now restored coverage to 3,370 California enrollees who were impacted by the unfair practice of rescission,” Ehnes said. “This concludes a long and significant enforcement action on the part of the department that has never wavered in our conviction to get health coverage for these Californians.”

The health plans said they were glad to move on.

“Anthem Blue Cross is pleased to have reached agreement,” President Leslie Margolin said. “This resolution allows us to continue to build stronger working relationships with the DMHC and we look forward to coming together in a more collaborative way to address the healthcare needs of Californians.”

Blue Shield’s Tom Epstein said the company recognized that “rescission of a health coverage agreement is a serious matter that has significant consequences. . . . We have treated these issues with the utmost care and have rescinded about one-tenth of 1 percent of our individual health plan contracts since 2004.


“As a not-for-profit health plan committed to access to coverage for every Californian, we have always tried to do the right thing,” he said.

Going forward, the companies agreed to develop new applications for individual coverage that are easier for consumers to understand.

Ehnes said Thursday that the size of the fines for Blue Cross and Blue Shield reflected the additional hardship on canceled consumers caused by their reluctance to come to speedy resolutions.

“We’ve again accomplished a result that consumers could not get otherwise -- guaranteed issue coverage, a process for full monetary losses and no back premiums owed,” she said.


Gov. Arnold Schwarzenegger, who appointed Ehnes, praised the agreements.

“As I’ve said before, patients should not live in fear of unfairly losing their healthcare coverage when they need it most -- and I look forward to working with the Legislature to ensure this egregious practice is put to an end,” Schwarzenegger said in a statement.

The settlement came the same day that a congressional committee held a hearing on the cancellation practices of the nation’s health insurers and the day after Los Angeles City Atty. Rocky Delgadillo contended in a lawsuit that Blue Shield routinely flouted the law by conducting secret and unfair investigations into members’ health histories to find a pretext for dropping them. Delgadillo filed similar suits against Blue Cross and Health Net this year.

“These settlement agreements add up to a raw deal for California consumers courtesy of the DMHC,” Delgadillo said. “They will not make the victims of this insidious practice whole, they will not require that the companies disclose their wrongdoing, and, in my opinion, they will not adequately punish the companies for their shameful conduct.”


The settlements close the department’s investigation into rescissions. But they do not directly affect Delgadillo’s lawsuit, which seeks sweeping remedies and penalties in excess of $1 billion.

Nor do they end a raft of suits filed by individuals seeking financial compensation from the health plans that dropped them.

Also pending are investigations by state Insurance Commissioner Steve Poizner into the rescission practices of health plans’ preferred-provider-type coverage that involve thousands more canceled policies.

The insurance industry has fought to retain the power to rescind the policies of members who fail to disclose medical information on applications that would cause a company to reject them or to charge them higher premiums. They say that rescissions are a rarely used but important tool in rooting out fraud.


But regulators, lawmakers and law enforcement officials have accused the companies of abusing that tool by using confusing applications to trick consumers into making mistakes that could later be used against them and by failing to verify medical histories before issuing coverage.

Critics contend, the companies lie in wait, collecting premiums until a member gets seriously ill and then subjecting them to an often secretive and unfair investigation.

Daniel Zingale, a healthcare advisor to the governor, said the administration was pursuing legislation that would put the burden of proving that rescissions were fair and lawful on the health insurers.

But some legal experts and consumer advocates said they believed the law already did just that.


Jerry Flanagan, healthcare policy director for Consumer Watchdog, criticized the deals -- on the heels’ of the Los Angeles city attorney’s scathing indictment of the companies’ practices -- as outrageous.

“The regulator is rushing in to find the defendants ‘not guilty’ before the trial even begins,” Flanagan said. “The state’s largest insurers are paying pennies on the dollar for a get-out-of-jail-free card. The governor and regulators are obstructing justice by giving the defendant a favorable review to use as a shield in court.”

Flanagan said that in settling with the companies, regulators failed to complete their investigations of their rescission practices -- and failed to publicly disclose their findings as to their legality.

“Punting to the Legislature is dereliction of duty,” he said. “The governor doesn’t need the Legislature to tell him that no innocent patient should ever lose their health insurance again.”


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lisa.girion@latimes.com