Health Net Inc. is one of California’s biggest for-profit insurers and has had a practice of canceling the policies of ill people. On February 22, 2008, an arbitration judge ruled that the company should pay more than $9 million to one Patsy Bates, a breast cancer patient whose coverage was canceled in the middle of her chemotherapy.

Patsy Bates is a grandmother, 52 years of age, who owns a hair salon. The cancellation of coverage was in 2004 and Bates was facing over $129,000 in medical bills. She had to stop her chemotherapy treatments and search for a way to pay that amount. She found a charity which helped her out.

The judge called Health Net’s actions “egregious” and stated that it had acted in bad faith. Part of his 21-page ruling stated:

“Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured.”

The arbitration hearing revealed that Health Net had paid bonuses to employees who met a cancellation quota and saved the company certain amounts of money.

Health Net’s Chief Executive has ordered an immediate stop to cancellations. He plans to change the company’s practices and retrain the sales force. Worried about the public’s confidence in his company, he has pledged to stop all cancellations pending the establishment of an external review process which will in future approve cancellations.

Would he have done these things had Patsy Bates not brought her suit? This ruling is the first of its kind, and now other insurance companies, which had previously defended such cancellations, are looking at changing their own practices. Cancellations were previously defended on the grounds that they were to hold down costs by weeding out people who may not have disclosed all pre-existing conditions when they applied for their insurance. In the case of Patsy Bates, Health Net had previously defended her cancellation, and stated that they would not have insured her had they known of her weight and heart condition. Apparently Bates’ insurance broker had filled out the application from her verbal answers as she worked on a client’s hair.

The judge wrote in his ruling:

“It’s difficult to imagine a policy more reprehensible than tying bonuses to encourage the rescission of health insurance that keeps the public well and alive.”

Have you experienced a sudden cancellation of your health coverage? If so, please contact us for a free consultation, and we will look at your situation to see if you have a legal claim.