“A little over a year ago, I took my oath as Insurance Commissioner and pledged to make my Administration one of action,” Commissioner Jones said. “I can confidently and proudly say that the Department has fully lived up to that pledge. We have achieved a number of critical successes on behalf of California’s consumers consistent with our vision to be the most effective consumer protection agency in the nation.”

Major Accomplishments of 2011:

Implementing Health Care Reform

The Patient Protection and Affordable Care Act (PPACA) signaled a new day for health care in America. Commissioner Jones has made it a priority of his Administration to implement health care reform.

Literally minutes after being sworn in, Commissioner Jones issued new regulations that require health insurers in the individual market to use a larger percentage of the premiums they collect from Californians to deliver actual medical care, instead of overhead and profit. Then Commissioner Jones successfully sponsored Senate Bill 51 (Alquist), holding health insurers selling to small and large businesses to a similar standard.

 Commissioner Jones also issued regulations requiring health insurers to cover children with pre-existing conditions. These regulations will help thousands of California children get the care they deserve without sending their families into financial ruin.

Jones issued regulations preventing “medical rescissions” and establishing a notice and hearing process for consumers. He also oversaw CDI’s review of health insurance policies for conformance with health care reforms such as the elimination of lifetime limits on benefits and eliminating co-payments and co-insurance requirements for preventative services.

Fighting Excessive Health Insurance Premium Increases 

The battle to prevent excessive health insurance rates escalated early in 2011 when health insurers proposed new rates that would have saddled consumers with annual cumulative premium increases of up to 87 percent. Although the Insurance Commissioner does not have the authority to reject excessive rate increases, Commissioner Jones was able to reduce health insurance premiums by $107 million this year by using existing, though limited, review authority.

Commissioner Jones continued the fight to obtain legal authority to protect consumers from excessive health insurance rate increases. He sponsored AB 52 (Feuer) which would give the Insurance Commissioner real authority to reject excessive health insurance rate increases. This authority currently exists for other lines of insurance including auto, homeowners, property, and casualty, and it is imperative to secure the same authority over health insurance. The bill cleared the Assembly and has made it through all Senate committees and is now eligible for a vote on the Senate floor in January.

 Protecting seniors

Seniors, among the most vulnerable members of communities, often fall victim to predatory scams. Commissioner Jones succeeded in establishing some new protections for them. The Governor signed two important CDI-sponsored consumer protection bills that became law in January. AB 793 (Eng) is designed to stop insurance agents and brokers from exploiting those seniors who recently acquired a reverse mortgage, by inappropriately inducing them to tie up those same funds in unsuitable annuities or other products.

The second law, AB 689 (Blumenfield), more broadly protects seniors and others from the sale of unsuitable annuities.

Premium Rate Savings for Consumers

CDI received more than 7,000 rate, rule, and form filings for property and casualty lines of insurance through December 31, 2011. CDI rejected $50 million in rate increases sought by property and casualty insurers and on top of this obtained close to $398 million in rate decreases using the authority of Proposition 103, for a total annual savings going forward of $448 million for California ratepayers.

New Workers’ Compensation Pure Premium Benchmark

Recognizing the importance of providing timely and meaningful information to employers about workers’ compensation insurance cost trends, Commissioner Jones directed a revamping of the “pure premium” benchmark process. Pure premium is the portion of the workers’ compensation premium needed to cover the cost of claims. While the Commissioner does not set workers’ compensation insurance rates, each year the Commissioner is asked to recommend a pure premium benchmark which helps employers and insurers better understand cost trends in the market. Thanks to the new process established by Commissioner Jones, a pure premium benchmark was approved for the first time in three years, one which is tied to what is actually happening in the market.

Protecting Homeowners from Underinsurance

With natural disasters like wildfires an unfortunate fact of life in California, Commissioner Jones issued new regulations to protect homeowners from being underinsured. The regulations include setting appropriate disclosure standards for agents and brokers who sell homeowners’ insurance and estimate replacement costs.

Rooting Out Fraud

From January through December 2011, CDI’s Enforcement Branch racked up more than 784 arrests for crimes that included auto insurance fraud, fiduciary theft, embezzlement and workers’ compensation fraud. As a result, the courts ordered $13.2 million in restitution due to the investigative actions we took against brokers, agents and producers.

CDI also filed lawsuits against pharmaceutical company Bristol-Myers Squibb for showering doctors with illegal kickbacks to get them to write more prescriptions and against Sutter Hospitals for bogus anesthesia billings. Both of these proceedings show CDI’s deep commitment to go after fraud that causes undue financial strain on California’s health care delivery system.

Making Sure Life Insurance Benefits Are Paid to Beneficiaries

Commissioner Jones held a joint investigative hearing with Controller John Chiang into life insurer death benefit payment practices. The hearing revealed that life insurers with access to the Social Security Administration’s “Death Master File” are not using information about deaths to trigger payments to life insurance beneficiaries. Jones has opened, with other insurance regulators, an investigation of the 10 largest life insurance companies to determine whether they engaged in unfair practices in the payment of death benefits under life insurance policies and annuities. 

Other Notable Achievements

•    Nine CDI-sponsored consumer protection bills were enacted, including bills to protect consumers from being unwittingly enrolled in life insurance “retained asset accounts” and to protect California businesses from being dragged at their cost to other states to resolve disputes with insurers;

•    The Commissioner approved a 12 percent average decrease in residential earthquake insurance rates; and a new component of earthquake insurance that allows homeowners to insure their personal property up to $2,500 without having to first meet the larger deductible requirements of the structure itself;

•    Jones initiated an enforcement action against Blue Shield of California for failing to comply with the California Mental Health Parity Act, and supported legislation, signed by the Governor, to require health insurers and HMOs to cover a proven form of treatment for Autism;

•    CDI issued guidance requiring health insurers to provide all financial documentation related to health insurance rate increases for review by CDI;

•    Commissioner Jones initiated review of medical malpractice rates paid by doctors, nurses, hospitals and clinics;

•    The Commissioner hosted two consumer summit meetings to solicit input from leading consumer organizations;

•    CDI initiated a pilot project in cooperation with the California Department of Child Services, encouraging California insurers to help make a significant difference in the lives of children by voluntarily agreeing to offset insurance benefit payments against delinquent child support payments;

•    The Commissioner initiated actions that can make progress on improving the environment by approving an auto insurer’s application for Pay-As-You-Drive auto insurance; conducting a Green Insurance Summit; and leading efforts at the National Association of Insurance Commissioners (NAIC) to measure the extent to which insurance companies are responding to climate change and global warming;

•    Commissioner Jones also sponsored legislation signed into law to extend the sunset date on the California Organized Investment Network’s (COIN) Tax Credit Program to January 1, 2015. This program encourages investment in underserved communities;

•    CDI successfully took over a troubled workers’ compensation company (Majestic Insurance), developed a rehabilitation plan, and transferred the financially troubled company and its business to a healthy insurance company, with no interruptions in coverage for policyholders.

 “We have made significant progress for consumers this year,” Jones said. “I look forward to another successful year in protecting consumers and making sure that we have healthy insurance markets.”

The attorneys at McKennon Law Group PC LLP took immediate action and filed lawsuits in federal court against the companies which were infringing on TriPharma’s exclusive license through product sales of their own, and filed claims in JAMS arbitration against Imagenetix for, among other things, fraud, breach of contract, and injunctive relief, seeking damages as well as reinstatement of the exclusive license agreement

Even more significantly, the McKennon Law Group PC LLP attorneys were able to obtain the injunctive relief they fought for so vigorously on behalf of TriPharma.  The arbitrator reinstated TriPharma’s exclusive license agreement, extended the term of the agreement, provided a six month abeyance of minimum obligations so that TriPharma could get its business back up and running, and enjoined Imagenetix from selling its weight loss product, or any other weight loss product based on the patent or clinical studies, to any other company.  The award effectively won back the rights that TriPharma had bargained for and which had been stolen by Imagenetix through its various activities relating to the sales and distribution of the product.

The victory for TriPharma and the McKennon Law Group PC LLP law firm was a complete success.  Not only did TriPharma recoup the ability to conduct business, but TriPharma and its CEO were vindicated and awarded significant monetary compensation for the fraud perpetrated on him and his company.  In issuing the award, the arbitrator gave particular mention to McKennon Law Group PC partner Robert J. McKennon:

McKennon l Schindler achieved substantial success in this litigation and its chief trial attorney Robert McKennon demonstrated exceptional skill in cross-examining [Imagenetix’s CEO and other employees].  Indeed, those examinations exposed the lack of credibility of those witnesses, which was a decisive factor in the Arbitrator’s findings and rulings.

Robert J. McKennon and Reid A. Winthrop tried the case on behalf of TriPharma.    

Chong Hing Bank Limited (Bank), a Hong Kong financial services company, began making loans to Elephant Talk Limited (ETL), a Hong Kong telecommunications company, beginning in 1996.  In 2002 ETL reverse acquired a California public shell company called Staruni Corp. in a stock-for-stock exchange in which Staruni became the parent company and ETL became its wholly-owned subsidiary.  Staruni changed its name to “Elephant Talk Communications, Inc.” (Elephant Talk) in connection with the reverse acquisition.

Elephant Talk and the Bank stipulated to a bench trial on all issues.  After a five-day bench trial, the court issued a decision in favor of Elephant Talk on the issue of successor liability, on the first cause of action for breach of contract, on the second cause of action for open book account, and on the Bank’s proposed amendments to add causes of action for intentional misrepresentation and negligent misrepresentation.  The court entered judgment in favor of Elephant Talk on November 2, 2011.

Eric J. Schindler and Scott E. Calvert tried the case on behalf of Elephant Talk.

Discretionary clauses are provisions typically found in group life, health and disability plans that give the administrator/insurer the sole discretion to interpret the policy and to decide if a plan participant or beneficiary is entitled to plan benefits.  In ERISA cases, federal courts have interpreted these clauses to give administrators/insurers a higher standard of review when courts review their decisions.  This meant that the federal courts were required to give greater deference to decisions denying plan benefits under life, health or disability coverages, rather than weighing all the evidence under a “de novo” standard of review and making their own determination as to whether the insured was entitled to benefits under the policy or employee welfare benefit plan.

In voicing his support for the bill, Commissioner Jones explained:

"Discretionary clauses have been increasingly relied upon by insurers to reject legitimate claims for disability insurance when a consumer becomes disabled - insurers know that many consumers will give up their claim and that those who challenge the claim denial face a very high legal burden to overcome the denial since the discretionary clause vests sole discretion in the insurer to decide if the consumer is disabled.  SB 621 levels the playing field and gives consumers an even chance to prove that they are entitled to disability and other insurance, by eliminating the 'discretionary clauses' that insurers have been putting into their insurance policies."

SB 621 goes into effect on January 1, 2012

In his article entitled “Don’t take a health insurer’s rejection as the final word on your medical claim,” Tom Murphy of the Associated Press cites a recent report from the Government Accountability Office which found that overall, appeals have an approximately 50% success rate.  The article lists a number of actions policyholders can take to increase the likelihood of success on appeal.  Murphy mentions obtaining and submitting copies of the entire medical file, enlisting a treating doctor to write letters explaining the policyholder’s relevant medical history, understanding policy language, writing a detailed letter with supporting records and information and complying with all deadlines.

Here is Murphy’s article verbatim:

FIGHTING AN INSURANCE CLAIM DENIAL CAN PAY OFF

By Tom Murphy, The Associated Press
Published Friday, April 8, 2011

INDIANAPOLIS — Don't take a health insurer's rejection as the final word on your medical claim.

Appeals can have a surprising success rate if patients shape a good argument with help from their doctor, some research and a healthy dose of persistence. Insurers always offer at least one chance to appeal when they deny a claim. Here's how to make your case.

For starters, what are the odds of success?

A recent report from the Government Accountability Office found a 50 percent success rate of appeals to insurers in some states.

Insurance companies often make the initial decision to deny a claim based limited information like a diagnosis or procedure code from a claim form the doctor submits. They rarely see a patient's file for that first decision, said Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illness Inc., a non-profit that helps patients with claim denials.

"When you provide them with additional clinical information ... it may turn out to be a very easy decision for them," she said.

What are the first steps to take after receiving a rejection?

Learn as much as you can about the reason. Get the policy language and any information the insurer used to make its decision. Patients are entitled to this, so persist if the insurer moves slowly.

It's also important to know the insurer's appeal process. This should be laid out in the letter you receive telling you about the rejection. Understand the deadlines for appealing.

"These deadlines are serious," Jaff said. "I've never seen an insurance company grant an extension."

How do you build your case?

Write a detailed argument with records backing up your claims. Enlist your doctor's help.

If the insurer says it doesn't have to pay because your condition existed before your coverage began, a doctor may be able to argue otherwise.

The insurer may say the treatment isn't medically necessary. Your doctor can illustrate how all alternatives were exhausted before you started receiving the treatment in question.

Rely on more than just a doctor's statement.

"Insurance companies do not assume everything a doctor says in a letter is 100 percent true and accurate," Jaff said. "What they really want to see are the medical records."

Patients should be prepared to send their insurer any of those confidential records that would support their case.

If the insurer deems a treatment experimental, some additional research may be needed, and your doctor can help there as well. Medical journal articles can show an insurer that your treatment is a widely accepted practice.

If the doctor is unwilling or unavailable for help, Jaff recommends for research the National Institutes of Health website www.pubmed.gov . Patients can use it to search medical journals around the world for articles on their treatment.

Abstracts, summaries and some articles are free. Those that are not can be pricey, costing between $30 and $50 to buy online. But patients also can check with a medical library near them for copies.

Asking for a compassionate allowance can be another strategy for patients. Some insurance policies will make exceptions to cover something if it could be lifesaving.

An employer that offers a self-funded plan also might be persuaded to overrule the insurer and permit coverage, but Jaff said this is rare. Self-funded plans are generally used by big employers. In those cases, they provide the actual insurance and the managed care company just administers the plan.

Ask your human resources department if your company plan is self-funded.

What are the keys to a successful appeal?

Keep your emotions out of the argument and give the insurer something new to consider. Avoid rehashing information the company already has.

"It's a business decision, it's not personal on the insurer's side," said Pat Jolley of the Patient Advocate Foundation, another non-profit that helps people handle payment problems.

Know your insurer's appeal process. Some may offer a couple rounds of internal reviews and provide a specialist to examine your claim. That means you can have an oncologist review your claim for cancer treatment.

Keep detailed notes of your contact with the insurer, including which representative you spoke to and when.

Send appeals by certified mail to document when an insurer receives them in case the company later claims you missed a deadline.

Communicate in writing whenever possible. This keeps you from having multiple phone conversations with different insurance representatives who provide different answers.

On March 7, 2011, Insurance Commissioner Dave Jones announced new regulations aimed at protecting seniors from financial abuse by those selling seniors an unsuitable annuity.  Here is the press release:

“Seniors and their family members need to know that not all annuities are a good fit for their individual circumstance,” Commissioner Jones said. “While a new annuity may seem like a good idea, all too often, unsuitable annuities have cost some seniors their life savings.”

An annuity is an insurance contract that is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner, either immediately or over a period of time. These new regulations are an important step towards ensuring that seniors are not deceived into tying up their money in long term annuities when they cannot pay their living expenses, and are fully aware of the products they are purchasing.

The purpose of the new regulations is to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers aged 65 and older that result in the sales of annuities so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. The proposed regulations are based on the National Association of Insurance Commissioners Suitability in Annuity Transactions Model Regulations of March 2010. The regulations require insurers to establish a system to supervise the recommendations made by the insurer or by the insurers’ agent to a consumer that result in the purchase of an annuity. The regulations exempt certain transactions — direct response solicitations where there is no recommendation made based on information collected from the consumer, for instance, as well as annuities used to fund certain other investments, such as ERISA plans.

The regulations set forth duties of insurers and insurance producers that in recommending to a consumer the purchase of an annuity, or the exchange of an annuity, the producer or insurer must have reasonable grounds for believing that the recommendation is suitable for the consumer based on information given by the consumer about her finances and investments. The regulations make it clear that insurers and insurance agents shall not sell an annuity unless there is a reasonable basis to believe that the annuity is suitable based on the consumer’s financial needs and objectives. The regulations require insurers to establish a supervision system designed to achieve the insurers’ and the producers’ compliance with suitability standards and allow insurers to contract out the supervision function. The regulations require that all insurance producers be adequately trained pursuant to California law prior to soliciting the sale of an annuity. The regulations give the Commissioner the authority, among other things, to order an insurer to take corrective action when he determines that a violation of the regulations has occurred. The regulations also specify record-keeping requirements for producers transacting annuities. The new regulations have been filed by Commissioner Jones with the Office of Administrative Law, where they are available for public comment and review before becoming law.

Purchasing insurance and other financial products such as annuities that meet an individual’s specific needs can be challenging. Since an individual’s financial situation may change over time, it is important to review and understand any insurance policy or contract to decide if it is still appropriate. Insurance Commissioner Jones offers the following tips to seniors who are considering purchasing a new or replacement annuity policy:

•    Obtain all proposals in writing.
•    Don’t be pressured into buying any insurance product. Take enough time to review the information before making any decisions.
•    Do not sign anything you do not understand.
•    Consider having a trusted family member, friend or advisor participate in discussions concerning the purchase of any insurance product. 
•    Make sure the agent, broker and insurance company are properly licensed to sell the product you are considering purchasing.
•    Make sure you receive a full disclosure of all information relating to the benefits and possible negative consequences regarding the replacement of an existing annuity.
•    Obtain a full disclosure of all surrender charges and related time frames in connection with an annuity prior to purchase.

This information provided is not all inclusive and does not negate or preempt existing California law.  If a senior or anyone has questions or wishes to discuss any insurance matter, the officers at the CDI Consumer Hotline are available to help. Please call 1-800-927-HELP (4357) or visit www.insurance.ca.gov. “  

For additional information about annuities, visit http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0020-life/life-insurance.cfm

Initially passed in 1990, the Credit Card Act was enacted “to address the misuse of personal identification information for, inter alia, marketing purposes.”  It prohibits retailers from asking customers for their personal identification information and recording it during credit card transactions.  Specifically, section 1747.08(a) provides that no firm shall “[r]equest, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, which the . . . firm . . . accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise.”  Since its initial passage, there have been multiple class action lawsuits against retailers violating this statute.  As recently as 2008, California 4th District Court of Appeals addressed this specific issue in Party City Corp. v. Superior Court, 169 Cal.App.4th 497 (2008) where it held that ZIP codes were too general to be covered by the Credit Card Act because they pertain to a group of individuals, not a specific individual. 

Not to be deterred, Jessica Pineda brought a class action against Williams-Sonoma for violations of the Credit Card Act “and Business and Professions Code section 17200 et seq.  Her lawsuit was based on a 2008 visit to a Williams-Sonoma Store in California.  While making her purchase, the cashier asked for her zip code, but did not tell her what the information would be used for.  Thinking the information was necessary to complete the transaction, Pineda provided the information.  Later, using specialized computer software, Williams-Sonoma conducted a “reverse lookup” and was able to determine Pineda’s previously unknown mailing address by matching her name and zip code in a third-party database.  This information was then stored in Williams-Sonoma’s own database for use in direct-mail marketing campaigns.  Aware of the court’s prior holding in Party City, Pineda pursued her class action on the grounds that an essential element was missing from the prior cases.  Namely, allegations that Williams=Sonoma actually use of the acquired ZIP code.  Rather than rule that harm was a required element, the court instead overruled Party City altogether.   

The Court found further support in “the legislative history of the Credit Card Act in general, and section 1747.08 in particular, [which] demonstrates the Legislature intended to provide robust consumer protections by prohibiting retailers from soliciting and recording information about the cardholder that is unnecessary to the credit card transaction.”  Here, the ZIP codes at issue were not collected for identification purposes nor were they necessary in order to complete the credit card transaction.  Instead, Williams-Sonoma collected the ZIP codes specifically for marketing purposes.  The difference is key.  Had Williams-Sonoma collected ZIP codes for identification purposes, it would have been governed by Civil Code section 1747.08(d).  This statute allows a business to require reasonable forms of identification from cardholder, such as a driver’s license, but it may not record any of the information on that license, including the cardholder’s ZIP code.  It would be inconsistent with the intent of the Legislature to allow in subdivision (a) what would be explicitly forbidden in subdivision (d) - namely the requesting and recording of a ZIP code.  The logical conclusion, the court held, is that the term “personal identification information” as used in section 1747.08, includes a cardholder’s ZIP code.

Within California, the effect of this ruling is significant.  Retail stores routinely ask customers for their ZIP code for both marketing and regional sales forecasting.  The potential effect is compounded by the fact that in 2008, this practice was considered exempt from the Credit Card Act by the court’s holding in Party City.  Seemingly overnight, actions that were previously authorized could now subject retail stores to statutory penalties up to $250 for the first violation and $1,000 for each subsequent violation.  At a minimum, California retailers should take a close look at their information collection practices and consider updating those policies in light of this decision.  

Blue Shield, which has recently garnered attention for requesting premium rate increases of up to 59 percent for individuals in California, denied nearly two million claims last year, trailing only Anthem Blue Cross, which denied nearly six million claims.  PacifiCare had the highest percentage of denials at a whopping 44 percent.

For the first three quarters of 2010, seven of California’s largest insurers rejected 13.1 million claims, 26 percent of all claims submitted, a number only slightly below the 26.8 percent rate for 2009.  The data, new findings by the Institute of Health and Socio-Economic Policy, the CNA/NNU research arm, is based on data from the California Department of Managed Care.

PacifiCare – 43.9%
Cigna – 39.6%
Anthem Blue Cross – 27.3%
HealthNet – 24.1%
Blue Shield – 21.9%
Kaiser Permanente – 20.2%
Aetna – 5.9%

Since 2002, these seven companies, which account for more than three-fourths of all insurance enrollees in California, have rejected 67.5 million claims.  Cigna, which denied 40 percent of claims, showed the biggest increase from 2009, increasing its rejection rate by 5.3 percent.  Kaiser Permanente accounted for the biggest drop, a one year decline of 7.4 percent in denials.  Blue Shield slightly increased its denial rate by .3 percent from 2009.

“These rejection rates demonstrate one reason medical bills are a prime source of personal bankruptcies as doctors and hospitals will push patients and their families to make up what the insurer denies,” said CNA/NNU Co-President DeAnn McEwen.  The national reform law signed by President Obama last spring has, to date, had no impact on the high pace of insurance denials, she noted.

McKennon│Schinder LLP is proud to announce that its founding partner Robert J. McKennon has been recognized as one of Southern California’s "Super Lawyers" and he will appear in the upcoming 2011 edition of Southern California Super Lawyers magazine.

Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 13 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of  lawyers nationally after being nominated and voted on by their peers. 

• Implementation of federal health care reform, and that includes continuing his fight for the authority to reject excessive health insurance premium increases;
• “[T]o level the playing field for consumers and business as they deal with insurance companies . . . to make sure that consumer complaints are being addressed and that insurance companies are not taking advantage of consumers;”
• Ensuring that California has a viable and competitive insurance market.

To succeed in the protection of consumers, Jones has directed the Department of Insurance to file by January 30, 2011 “annuity suitability” regulations aimed to “protect consumers from being sold annuities that are not suitable for them.”  Additionally Jones has directed the Department of Insurance to develop regulations to protect “life insurance beneficiaries from the abusive use of retained asset accounts.” 

To ensure California has a functioning and competitive insurance market, Jones wants to see new products brought to consumers in California.  “Consumers and businesses need choices, and keeping a viable, robust market, with competition, is important.”

Jones also feels that it is “essential that we root out fraud, which is a burden on the market, insurer and consumers alike – fraud by policy-holders, fraud by scam artists, fraud by vendors, and fraud by insurers and agents who promise one thing and deliver another – or don’t’ deliver at all.”

The next four years under Insurance Commissioner Jones promises to be one of the most consumer oriented terms ever in California.  It will be interesting to see how the insurance industry responds to him and his proposals.   

The Regulations:

• Require all California resident fire and casualty broker-agents and personal lines broker-agents, who have not already done so, to satisfactorily complete one three-hour training course on homeowners' insurance valuation prior to estimating the replacement value of structures in connection with, or explaining the various levels of coverage under, a homeowners' insurance policy;
• Require insurers, agents and brokers that provide replacement cost estimates to applicants and insureds to document who created the estimate and the sources or methods used to create the replacement cost estimate; and
• Require that all replacement cost estimates communicated to applicants or insureds be complete, based upon specifically enumerated standards set forth in the regulations.

The Regulations represent the final phase of Poizner’s plan to reduce underinsurance.

In today’s Los Angeles Times Business Section, Duke Helfand writes about an 18-month investigation by the California Department of Managed Health Care into the payment practices of Aetna Inc., Anthem Blue Cross of California, Blue Shield of California, Cigna Corp., Health Net Inc., Kaiser Foundation Health Plan and United Healthcare/PacifiCare. 

California's largest health plans are fined nearly $5 million

The seven companies failed to properly pay medical claims submitted by thousands of doctors and hospitals over the last three years, state insurance regulators say.

California's seven largest health plans were fined nearly $5 million in total Monday for failing to properly pay medical claims submitted by thousands of doctors and hospitals over the last three years.

Insurance regulators said the companies also would pay "tens of millions of dollars" in restitution to medical providers whose claims were underpaid or incorrectly rejected.

The fines cap an 18-month investigation by the California Department of Managed Health Care into the payment practices of Aetna Inc., Anthem Blue Cross of California, Blue Shield of California, Cigna Corp., Health Net Inc., Kaiser Foundation Health Plan and UnitedHealthcare/PacifiCare.

"California's hospitals and physicians must be paid fairly and on time," Cindy Ehnes, the state department's director, told a Los Angeles news conference. "The incorrect payment of provider claims by plans unfortunately is a persistent issue."

Hospitals said Monday's action would send a loud message across California's multibillion-dollar insurance industry.

"In levying these fines, [the state] is addressing an ongoing, systemic issue that harms the ability of providers to care for their patients," said Jan Emerson-Shea, a spokeswoman for the California Hospital Assn.

But doctors blasted the fines, saying they were a "slap on the wrist." James Hinsdale, president of the California Medical Assn., called the penalties "chump change … for highly profitable health plans that systematically deny legitimate claims and routinely block, delay or limit physician reimbursements as one tactic to boost their bottom lines."

The state agency reviewed samples of claims after providers who serve members of health maintenance organizations complained about problems. Auditors said none of the plans met a state legal requirement to pay 95% of their claims correctly. More than 21 million Californians have HMO coverage.

The reviews also found that most of the health plans lacked adequate procedures for settling disputes with providers. In some cases, health plan workers responsible for processing claims also oversaw appeals.

The trade group for health plans said the companies would work with state regulators to improve their performance. But the California Assn. of Health Plans also seized on a piece of positive news from regulators: The fined firms generally met state requirements for paying claims on time.

"We have long recognized that the administrative side of healthcare coverage can take valuable time away from patient care, which is why plans have been working to streamline processes both at the health plan level and in doctors' offices," said Patrick Johnston, the association's president.

Only two health plans commented on the state's action.

Kaiser spokesman Won Ha said the plan, which is based in Oakland, had taken steps to improve its processing of claims in a "timely and accurate manner," although he did not provide details.

"We continue to build on our progress to meet the high standards of the Department of Managed Health Care and other regulators," Ha said. "We are committed to achieving or exceeding all regulatory and customer requirements."

Connecticut-based Aetna acknowledged problems with its payment procedures and said it took immediate action once regulators informed the company of its findings. Aetna pointed out that its penalty — $300,000 — was the lowest of those imposed on the seven health plans.

"Aetna takes our responsibilities to our members and providers very seriously, but we do sometimes make mistakes," spokeswoman Anjanette Coplin said.

Anthem Blue Cross, a unit of Indianapolis-based WellPoint Inc., and Blue Shield of California received the largest fines — $900,000 each. UnitedHealthcare/PacifiCare was penalized $800,000. Health Net and Kaiser were fined $750,000 each, and Cigna was assessed $450,000.

State regulators said the size of the fines was determined by the volume of each plan's business in California and the severity of its violations.

The health plans also must compensate providers for money they are owed, including penalties and interest, within six months. The plans must reopen their records dating back two to three years to their last financial review by the state.

Hospitals are likely to receive the largest share of the money because they submit bigger bills than doctors.

The restitution is the latest good news for some hospitals. Last month, regulators from the managed care department said that seven facilities would divvy up $1.62 million from Anthem Blue Cross to resolve unrelated allegations that the health plan improperly reimbursed the providers for patient costs that exceeded daily hospital rates. Anthem admitted no wrongdoing in the case.

By: Duke Helfand (November 30, 2010)
Copyright © 2010, Los Angeles Times

“California PPOs rank in the middle of the pack compared with the national average, and show some of the lowest overall scores that California has ever seen. HMOs began reporting on quality in 2001, and I got PPOs to join the effort beginning last year. I am grateful for their cooperation, but this report card shows they will have to do better. This should be their wake-up call,” said Commissioner Poizner. “These results show that insurers have a lot of room for improvement, particularly in the area of customer satisfaction. As I promised when I came into office, consumers now have much more information to make choices that are best for them, and to pressure insurers to do better. We all need to use this data to make that happen.”

None of the six PPOs on the report card received the highest four-star rating, but Aetna, CIGNA HealthCare of California and United Healthcare (California) each received three stars overall for delivering quality clinical care. Anthem Blue Cross, Blue Shield of California and Health Net each received two stars overall in that category. Rating criteria included asthma care, checking for cancer, diabetes care and treatment of children. The ratings are based on a set of standard measures developed by the National Committee on Quality Assurance.

In addition to grades based on clinical best practices, the report also includes grades, for the first time, on customer satisfaction. While all PPOs got the mid-range 2-3 stars for getting care easily, all insurers except Aetna received the lowest, single-star rating for plan service. This is clearly the area of greatest concern for California consumers and where there is the greatest room for improvement. The Plan Service category includes customer ratings on things like helpful customer service, getting information about your costs and paying claims.

The PPO report card is available at http://www.insurance.ca.gov. The companion report card on HMOs will be released separately early next year.

To the Members of the California State Assembly:

I am returning Assembly Bill 1868 without my signature.

This bill would prohibit the Insurance Commissioner from approving any disability or

life insurance policy if it includes a provision that would reserve discretionary authority

to the insurer to determine eligibility for benefits, and voids certain provisions of a policy

or agreement if it provides or funds life insurance or disability insurance coverage.

This bill is unnecessary, as the Insurance Commissioner already has the authority to

prohibit the use of discretionary clauses.

For this reason I cannot sign this bill.

Sincerely,

Arnold Schwarzenegger

California Governor Arnold Schwarzenegger has the opportunity to sign California Assembly Bill 1868 (“AB 1868”) and to prohibit these discretionary clauses.  In the recent case of Standard Insurance Company v. Morrison, the Ninth Circuit Court of Appeals ruled that the California Insurance Commissioner has the authority to disapprove any disability insurance policies that contain discretionary clauses.

WASHINGTON BUREAU -- The long-term disability insurance (LTD) industry took a licking today during a Senate Finance Committee hearing.

Senate Finance Committee Chairman Max Baucus, D-Mont., said LTD insurers have doctors with conflicts of interest review claims.

“Many of these doctors are employed either by the insurance company or by companies that do a lot of business with the insurance company,” Baucus said. “These arrangements make it far too easy for the doctors to deny claims, terminate claims, or reject appeals.”

Ronald Leebove, a rehabilitation counselor who appeared for the American Board of Forensic Counselors, Springfield, Mo., said private group LTD policies fail to provide the protection insurers promise.

“There are many tricks and tactics used by the insurance companies to deny claims,” Leebove said.

Several witnesses talked about employers’ and insurers’ use of Employee Retirement Income Security Act (ERISA) provisions to give plan administrators’ discretion over LTD benefits decisions, and to ward off challenges of benefits determinations.

Mark DeBofsky, a partner at Daley, DeBofsky & Bryant, Chicago, a law firm, said the courts have gone against legislative intent and transformed ERISA into “a shield that protects insurance companies from having to face the consequences of unprincipled benefit denials and other breaches of fiduciary duty.”

In most cases involving LTD claim disputes, there is not even a trial, DeBofsky said.

“Instead,” DeBofsky said, “courts conduct reviews of claim records assembled and shaped by self-serving insurance companies without hearing any testimony whatsoever, under a procedure that gives more deference to the insurance company than a court would give a Social Security administrative law judge in its review of a Social Security disability benefit claim denial.”

Judge William Acker Jr., a senior district court judge in northern Alabama, testified that the “courts have not rescued ERISA” in its handling of long-term disability cases. “If anything, they have dug the ERISA hole deeper,” Acker said. “ERISA jurisprudence will stay as messed up as it is unless Congress reworks it.”

Paul Graham, a senior vice president at the American Council of Life Insurers (ACLI), Washington, defended disability insurers.

Disability insurance can be susceptible to fraud and abuse, and many states have passed regulations that require short-term disability (STD) insurance and long-term disability disability insurance companies to report instances of suspected fraud, Graham said.

“While fulfilling their contractual and regulatory responsibilities, insurers need to remain attentive to potentially fraudulent claims,” Graham said.

Therefore, he said, an eligibility determination, whether made by the insurance carrier or other fiduciary, is only valid for the information at that point in time and must be periodically re-evaluated to account for changes in the claimant’s condition.

Graham said a 2008 industry study that included a majority of group disability carriers found that 79% of submitted claims were approved.

Of those claims not approved, over 25% were not paid because the claimant recovered too quickly to collect benefits, Graham testified.

Chicago Title sued both PSIC and McGraw, the parent company of PSIC, for breach of insurance contract, bad faith, and declaratory relief .  In a special verdict, the jury found:

1)     The EOI was not legally cancelled before the Mustain’s fire loss on 11/11/2005

2)     AMZ had actual or ostensible authority to prepare and issue the EOI on behalf of PSIC and McGraw

3)     PSIC and McGraw breached their obligation of good faith and fair dealing by failing to pay insurance proceeds to the Mustain’s under the EOI

4)     PSIC and McGraw breached their obligation of good faith and fair dealing by failing to properly investigate the Mustain’s fire loss; and

5)     PSIC and McGraw’s wrongful actions caused Chicago Title to bring the lawsuit against AMZ. 

On appeal the Appellate Court affirmed, ruling in favor of Chicago Title.  The central issue in this case was whether EOI issued by AMZ was an enforceable binder of homeowner’s insurance extending coverage from PSIC for a fire loss incurred by the Mustains.  The EOI was an effective binder for which the loss of the house came within coverage.  The court explained:

The trial court correctly instructed the jury.  The existence and content of the EOI were undisputed.  “Whether undisputed facts establish the existence of a binder is a question of law.”  (Adams, supra, 107 Cal.App.4th at p. 451.) 

The EOI on its face constituted a binder as a matter of law.  It included all of the required elements for a binder under Insurance Code section 382.5, subdivision (a):  The EOI identified the insurer (PSIC), the insureds (the Mustains), the (purported) agent executing the EOI (AMZ), the effective date of coverage, the binder number, and the address of the insured property.  The EOI states, “[t]his is evidence that insurance as identified below has been issued, is in force, and conveys all the rights and privileges afforded under the policy.”  Under “Coverage,” the EOI states, “See Supplemental Information Page(s),” which lists the coverages provided with the amounts of insurance and the deductible for each.  The EOI recites the total annual premium as $776, and included with the EOI was an invoice to Chicago Title in that amount.

But the Appellate Court also found that despite the lack of notice of appointment with the Department of Insurance, AMZ’s acted as PSIC’s agent based on actual and ostensible agent theories.  The issuance of the EOI by AMZ was not out the ordinary course of business between AMZ and PSIC, and PSIC had never complained about AMZ issuing the EOI prior to the receipt of the insurance premiums.  The court explained its ruling that the lack of a notice of appointment was not controlling:

While the lack of a notice of appointment might subject AMZ to fines or a disciplinary proceeding, AMZ’s actions in issuing the EOI as a binder could bind PSIC if the facts otherwise support an agency relationship.  “[Insurance Code section 1704, subdivision (a)] may simply impose further requirements on the conduct of an insurance agent, rather than establishing additional criteria for the creation of an agency relationship.  In other words, it may be unlawful for an entity to act as an agent of the insurer without complying with section 1704[, subdivision ](a), but that entity would still constitute an insurance agent for the present purposes.”  (Oakland-Alameda County Coliseum, Inc. v. National Union Fire Ins. Co. (N.D.Cal. 2007) 480 F.Supp.2d 1182, 1196.)  We agree with this reasoning.

The Appellate Court also found that PSIC and McGraw acted in bad faith because they did no investigation into the Mustains’ claim, as there was evidence that an employee with PSIC concluded “the EOI issued to the Mustain’s escrow was legally inconsequential and not even worth forwarding to the PSIC claims department.”  The court found that PSIC did not investigate whether its policy of authorizing AMZ to cancel a binder by stamping “void” on the EOI was lawful.  The court also stated that “[t]he evidence supported the inference too that PSIC’s policies and practices for issuing EOI’s were created in bad faith to allow PSIC to try to evade liability precisely in the circumstances presented by this case.” 

The new regulations, according to Insurance Commissioner press release, will do the following:

• Prohibit insurers from rescinding policies when they are not in compliance with specified underwriting practices regulations.
• Restrict health condition and history questions on applications to those that are necessary for medical underwriting.
• Require all questions on health insurance applications be clear, specific and understandable.
• Require use of new and improved health history questionnaires approved by the Department before an insurer can rescind.
• Allow consumers to indicate that they are unsure of or cannot remember the answer to a particular health history question.
• Require that agents attest if they help applicants with a health insurance application.
• Prohibit confusing phrasing of application questions like double-negatives and certain compound questions.
• Require that consumers be given a copy of their application to check for discrepancies.
• Require that insurers not rely solely on self-reported health history when possible.
• Prohibit insurers from conducting certain rescission-focused investigations long after becoming aware of a possible misrepresentation or omission by the applicant. Also prohibits insurers from seeking information outside the scope of such an investigation.
• Require that insurers give consumers the opportunity to respond during rescission investigations, and that insurers must listen to consumer-provided information.
• Require that insurers identify and resolve any reasonable questions arising from the application. Insurers must document their effort to resolve these issues and make those documents available to the Commissioner

The new regulations, Article 11 Standards for Health History Questionnaires in Health Insurance Applications, Pre-Issuance Medical Underwriting and Rescission of Health Insurance Section 2274.72(b), requires insurers to apply a “reasonable layperson standard” which “recognizes and takes into account the level of understanding and appreciation of words and terms in a health history questionnaire by the average individual who lacks professional training and experience.”  Health questionnaires will need to take into account the level of understanding of an individual who has no medical background or training.  In addition, the questions asked on an application must be material to the underwriting process, and the consumer will be allowed to indicate they cannot remember, or are unsure of an answer to a particular health question. 

With these new regulations, consumers should have an easier time obtaining and keeping their health insurance.