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In 2008, the Los Angeles City Attorney brought suit against WellPoint Inc. and its subsidiaries Anthem Blue Cross and Anthem Blue Cross Life and Health Insurance Companyclaiming the insurance giant was wrongfully rescinding health insurance policies of its insureds. That lawsuit has now been settled for $6 million, although the insurer denies any wrongdoing, with proceeds to be split between the City of L.A. and the County of L.A.

According to Carmen Trutanich, an attorney for the City of Los Angeles, “Patients with health insurance have a right to expect meaningful coverage when they need it most — when they are ill and in need of medical treatment.”

The lawsuit asserted that WellPoint was engaging in illegal post-claims underwriting practices. The insurer was essentially re-evaluating health insurance policies after claims were made and attempting to re-calculate its risk of paying out on policies by rescinding coverage after a claim was made.

Insurers try to plan for risk by capturing all available information about any existing medical conditions at the time the policy is issued, often through extensive and seemingly invasively long applications. But, engaging in post-claims underwriting may be seen by some businesses as a way to avoid the upfront cost of fully researching your medical background and appropriately pricing the policy in the first place.

This practice is false and misleading to the public. It allows an individual to seek care, believing that he or she is properly insured, only to lose coverage after having incurred the billable treatment. It is not only a problem with health insurers, but can also be an issue with long term care insurers and disability insurers as well.

A settlement was reached in a similar lawsuit against Blue Shield for $2 million in 2011.

Source: Los Angeles Times, “Insurance giant WellPoint agrees to pay $6 million in L.A. case,” June 20, 2013

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