Under Fire for Health Insurance Rate Hikes, WellPoint Goes To Court to Defend Denial of Care

"Insurance companies can always object that something is not medically necessary, but the industry standard is that when you make these kinds of denials you have to review all the pertinent data," said Flanagan.

The Nehme case is the latest in a string of court battles the health insurance giant is facing in California.

A judge ruled in December that the City Attorney of Los Angeles could move forward with discovery in a lawsuit accusing WellPoint of using deception and false advertising to enroll hundreds of thousands of members in individual policies while allegedly engaging in a scheme to investigate and retroactively cancel policies for members with costly medical conditions.

The complaint filed in Los Angeles Superior Court faults the insurer's enrollment application for what it calls "confusing and ambiguous" questions that it says act as a "trap" to increase the possibility that applicant will make mistakes and omissions which can be used later as a basis for revoking coverage after the policyholder becomes ill.

The practice – known as rescission or post-claims underwriting – has been scrutinized by state regulators and congressional investigators, and a restriction on the practice was a key provision in the healthcare reform legislation passed by the House and Senate last year.

WellPoint said in a statement that rescission is "very small percentage" of their business and defended the practice as "an important tool to combat fraud and abuse in the American health care system." WellPoint and other major health insurers have argued that any ban on rescission must be coupled with a mandate requiring all individuals to purchase health insurance which would guarantee that young, healthy people join and stay in the insurance pool.

On another legal front, WellPoint is defending a class-action lawsuit accusing the company of conspiring to use skewed data to underpay doctors' bills for "out-of-network" treatments. The lawsuit, filed by the American Medical Association and other physician groups last year, was sparked by an investigation by New York Attorney General Andrew Cuomo which found that WellPoint and other health insurers used a database provider that set artificially low reimbursement rates for out-of-network care, costs that were ultimately billed to the patient.

Flanagan says that the rate hikes, rescission, and denials based on medical necessity are all "tools of the trade" that the health insurance industry has increasingly employed over the last decade.

"Our health insurance system has evolved because of the increasing financial pressure and incentives on companies to increase profits, they are looking for new strategies to keep costs down," said Flanagan.

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