DMHC Orders Blue Shield To Reinstate Policies

The Department of Managed Health Care has ordered Blue Shield of California to rescind warnings of coverage cancellation for some 21 enrollees whom the agency said were erroneously informed their premiums had gone unpaid.

The order is apparently tied to litigation disclosed today between Blue Shield and CenCal Health, the public Medi-Cal plan for Santa Barbara and San Luis Obispo Counties.

Most of the enrollees who were told their coverage was in jeopardy had serious health issues, according to the DMHC. Two were hospitalized as of last week awaiting unspecified organ transplants, the agency said. It did not mention CenCal in its order.

According to a lawsuit filed July 11 in San Francisco County Superior Court by Blue Shield, CenCal has been purchasing Blue Shield individual policies for its most seriously ill members, thereby transferring the cost of their care to the San Francisco-based insurer.

According to Blue Shield's lawsuit, CenCal shifted about 40 seriously ill enrollees to Blue Shield over the past 18 months, costing it $12 million to date.

“CenCal targeted its sickest members and advertised the scheme to providers who would benefit from higher rates for these members, even paying the member's premiums using a CenCal employee's corporate credit card,” Blue Shield said in a statement. “Moreover, CenCal continues to collect money from the state for each of these members while not covering many of their medical expenses. CenCal has publicly admitted this was done to 'help shift the cost of their medical care to the other insurance carrier, allowing CenCal Health to limit its financial exposure to only the monthly insurance premium.'”

CenCal CEO Bob Freeman confirmed that the 21 Blue Shield enrollees were originally referred from his plan, but that it was done under the auspices of the California Department of Health Care Services' Health Insurance Premium Program, or HIPP, which is authorized under federal law. According to the DHCS, one of the primary criteria for HIPP eligibility is when “enrollment in an individual or group health insurance plan shall be considered cost-effective when the cost of paying premiums, coinsurance, deductibles, other cost-sharing obligations, and administrative costs, are projected to be less than the amount paid for an equivalent set of Medi-Cal services.”

The San Francisco-based Blue Shield said that it was working with the DMHC to move those enrollees back to CenCal, but that 21 still remained on its rolls. Blue Shield Vice President Steve Shivinsky said the DMHC order was related to the litigation.

Freeman said CenCal has been using the HIPP since 1990, and that 55 beneficiaries were currently enrolled in private health plans through the program. He added that the agency decided to wind down the program late last year because it was becoming too burdensome to administer. He did take issue with Blue Shield's accusations of patient dumping.

“We don't enroll anyone directly,” Freeman said, noting that local insurance agents do the enrollments and that CenCal subsequently pays the premiums.

According to Freeman, all 21 of the Blue Shield enrollees were undergoing dialysis care. Medicare will pay for dialysis coverage, but federal law requires that any patients with private insurance receive dialysis services for at least 30 months before moving over to federal coverage. That issue has been a source of friction among private insurers, which pay dialysis providers much higher rates than Medicare. DaVita Healthcare Partners, one of the nation's largest dialysis providers, earns its entire margin on dialysis from privately insured patients.

Citing state regulatory codes, the DMHC said Blue Shield was required to provide a minimum 30-day grace period before canceling a policy for non-payment of premiums. The agency said in the case of “approximately 21 patients” their coverage was threatened with cancellation due to late or no payments (each of the enrollees had their premiums paid for by a third party).

According to the DMHC order, Blue Shield had issued a warning on July 7 to the enrollees regarding non-payment of premiums, although the regulator said the San Francisco-based insurer had already received July premium payments from the third party. The notice warned that any future premiums paid by the unidentified third party would be rejected and that the enrollees would have to make payments personally by Aug. 1 in order to keep their coverage in place.

The DMHC issued the order rescinding cancellations as of July 8, a swiftness suggesting that its leadership thought the issue was extremely serious.

No fine was mentioned in DMHC order, although the agency has the legal right to issue one in the future, according to agency spokesperson Rodger Butler.

Butler declined to comment as to whether DMHC officials considered Blue Shield's conduct to be willful or the result of a clerical error, saying that an investigation was ongoing.

Shivinsky said in an email that Blue Shield was “considering all of our options.”