Health Insurer Must Pay $9 Million for Canceling Sick Woman's Policy

Feb. 25, 2008 — -- When Patsy Bates began her battle against breast cancer, she didn't expect she would also have to battle her health insurer too.

Bates faced the bureaucratic diagnosis of rescission: when a health insurer retroactively cancels your insurance policy. But in a precedent-setting decision announced last week, a California judge ordered Bates' insurer to pay her more than $9 million for dropping her policy after it learned she had cancer.

When Bates, a 52-year-old hairdresser, found out she had breast cancer in 2004 she thought she had reliable health insurance.

But her insurer, Health Net, dropped her coverage while she was in the middle of breast cancer chemotherapy, leaving Bates with $129,000 dollars in unpaid medical bills and no choice but to abandon her lifesaving treatment.

Bates said she had undergone surgery to remove a tumor and had received her first two chemotherapy treatments when doctors stopped treating her because her bills were going unpaid.

"I was devastated. I didn't know what was going to happen," Bates said. "It's boggling that someone can do that to you."

"I have breast cancer and I need my insurance and these people walk away from me," she said. "I was traumatized. Who wouldn't be?"

Angry and sick, Bates sued her insurer. And now, four years later, she has won a significant victory.

Not only did she receive a $9 million punitive damages settlement against Health Net Inc., one of the largest for-profit insurers in California, but the company also announced Friday that it had stopped the controversial practice of canceling sick policyholders' policies.

In the landmark ruling, the outraged judge wrote: "She had valid health insurance … when the rug was pulled from underneath, and that occurred at a time when she is diagnosed with breast cancer, one of the leading causes of death for women."

William Shernoff, Bates' attorney, said, "People count on health insurance when they get sick and if the rug is pulled from them, that's probably just as bad as not having insurance at all."

Health Net said Bates had made mistakes on her insurance application, citing a weight discrepancy and a heart condition. But after the ruling Health Net, which made more than $2 billion in gross profit last year, said in a statement that it planned to immediately stop rescinding policies without an independent third-party review.

"They have to change because people are dying," Bates said. "It's just not my face here, there are a bunch of people that have so much hurt over this."

There is also much money at stake for insurance companies. During arbitration, Bates' attorneys produced internal company documents that showed that Health Net was rewarding employees with bonuses based on the number of cancellations they got.

Employees were asked to meet cancellation quotas and were also rewarded based on the amount of money they saved the company. Bates' lawyers argued that Health Net had saved more than $35 million by rescinding policyholders between 2002 and 2006.

Bates completed her cancer treatment through a state-funded program.

The Associated Press contributed to this report