Monday, March 03, 2008

Bad Boys, Part II

[Welcome Mining Play Forum readers]

Last week we posted on the saga of Health Net and Patricia Bates.

We (actually, it was Hank) contacted Health Net to get their take on the situation. In our first post we were mostly speculating that Health Net had grounds for rescinding the coverage but the news reports really didn't flesh it out for us. We did talk with Margita Thompson, V.P. of Corporate Communications for Health Net.

Margita was very helpful in our initial conversation. We agreed to send her a "transcript" of our understanding of Health Net's position for review and final approval. What follows is attorney speak for the Health Net response.

It is Health Net's position that Health Net operates in compliance with California statutes and does not conduct post-claim underwriting. Health Net is currently revamping its underwriting process for under age 65 major medical plans; going forward the process will include a review by an impartial, outside panel before any rescission are made.

At the time of Ms. Bates’ application, a fraction of the annual bonus of Barbara Fowler was tied to the historical number of rescissions she had done. That bonus structure is no longer in use at Health Net.

The rescission on Patsy Bates policy was approved after a thorough review of the facts. Ms. Bates applied in July, 2003. The policy was originally approved with an effective date of August 2003. In September 2003 Ms. Bates was diagnosed with breast cancer. Shortly thereafter a review of her application and underwriting file was authorized by personnel within Health Net's underwriting department.

Ms. Bates’ signed insurance application disclosed no history of medical problems, even affirmatively stating “Everything OK.” But the medical records obtained from Ms. Bates’ physicians revealed that in the months prior to her application Ms. Bates had repeatedly consulted with her physician about the moderate mitral valve prolapse with which she had been diagnosed as part of her participation in a class action lawsuit against the makers of the diet drug Fen-Phen. The medical records obtained from Ms. Bates’ physicians also showed that on her application Ms. Bates had understated her weight by at least twenty-five pounds. Had she listed her real weight, she would have been uninsurable for a woman of her height given Health Net’s guidelines at the time.

The misrepresentations concerning her undisclosed heart problem and her weight were the basis for Health Net’s January 2004 rescission of Ms. Bates’ policy.

We appreciate the opportunity to "set the record straight" and tell the rest of the story. In addition to the links posted in our story to Fox News and the L. A. Times, readers may also want to read the arbitrator's ruling posted here.

We find it curious that the legal eagles at Health Net chose to start off in a defensive position. Their leading paragraph is a defense of the rescission process as it existed at the time of the Bates application as well as a clarification of the bonus structure.

While the arbitrator seemed to base much of his decision on the bonus, we wonder how impartial he was.

I will admit that having a bonus based (at least in part) on policy rescissions is guiling, that practice should not overwhelm the underlying facts of the case.

To us, the most damning evidence was the omission of facts relating to the health history of Ms. Bates (more on this later).

Each carrier has their own process for evaluating risk and underwriting individual major medical plans. Some access external records that contain data on past medical treatment while other sources have data on prescribed meds for an applicant.

Carriers are also free to contact attending physicians and request medical records or even order a physical exam.

It appears that none of this was done by Health Net when Patsy Bates applied for coverage. Rather, Health Net chose to exercise their right to examine medical records after the policy was issued.

Much was made in the ruling about alleged violations of post claim underwriting.

Our investigation and discussion with Health Net seems to support the fact that Health Net ordered the rescission on factors OTHER THAN her breast cancer.

Policies issued in most states (including California as best we can tell) allow an open window in which carriers are free to challenge any misstatements on the application that could be deemed as fraudulent. The California law would seem to contradict the contestable period.

Or perhaps not.

It would seem that California carriers are able to revisit the underwriting file post-issue for up to two years, as long as there are no claims. Or perhaps they are able to revisit the file as long as the review does not include a review of current claims.

We asked for a clarification, but were unable to get a response from Health Net.

A couple of footnotes, then back to the application.

The agent who took the application is no longer appointed to represent Health Net. A quick check with the DOI in California indicates he has not held a license since 2005.

At the time Ms. Bates applied for coverage with Health Net, she had an in force policy with Universal.

Shortly after she dropped that plan the block of business issued by Universal was acquired by Health Net.

So what about this application?

A key issue that was apparently dismissed by the judge is the accuracy of statements on the application by Ms. Bates. One being, her actual weight.

While we are not privy to the actual information on the application, it has been reported in the press and confirmed by Health Net attorney's that her actual weight at the time of the application was greater than what appeared on her application. They further attest that, had her actual weight been listed her application would have been rejected without further review. The most damning information that came out is Ms. Bates participation in a class action suit against the makers of "Phen-Fen".

Long story short, the makers of two meds used in conjunction with the other produced dramatic weight loss results. However, there were side effects.

In order to claim an award in the lawsuit, you must have medical proof of heart damage.
This information was left off the Patsy Bates application.

We must wonder why the attorney's for Health Net failed to adequately argue their position in the arbitration hearing.

Given this information (about the Phen-Fen) claim one can only conclude the following. Either the claim in the Phen-Fen case was fabricated (and there was no heart damage) or the application filed with Health Net was fraudulent.

I see no other logical conclusion.
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