When Steve and Leslie Shaeffer's daughter, Selah, was diagnosed at age 4 with a potentially fatal tumor in her jaw, they figured that their health insurance would cover the bulk of her treatment costs.
Instead, almost two years later, the Murrieta, Calif., couple face more than $60,000 in medical bills and fear the loss of their dream home. They struggle to stave off creditors as they try to figure out how Selah can keep seeing the physician they credit with saving her life.
"We're in big trouble," Leslie said.
Shortly after Selah's medical bills hit $20,000, Blue Cross stopped covering her bills and eventually canceled her coverage retroactively, refusing to pay for treatment, including surgery that the insurer had authorized in advance.
The company accused the Shaeffers of failing to disclose in their coverage application an undiagnosed bump on Selah's chin and physician visits for croup. Had that been disclosed, the company said in a letter, it would not have insured Selah.
The Shaeffers say they weren't trying to hide anything. When they applied for coverage, Selah did not have a tumor, at least as far as they - or any physician - knew. The doctor visits occurred after Leslie filled out the paperwork, and they seemed routine, the Shaeffers say. They say they believe Blue Cross was looking for any excuse to dump their daughter and dodge her bills.
Cancellations such as Selah's are fueling a new backlash against health plans. In a series of recent lawsuits, policyholders say they were illegally terminated, causing substantial financial hardship and jeopardizing their health care. California regulators are investigating and say they might take action against Blue Cross.
One woman says an improper cancellation forced her and her husband to put their home up for sale. A man says a cancellation, based on a condition he doesn't have, cost him the chance to become a firefighter.
The suits accuse health plans of dumping sick policyholders without evidence that the consumers intentionally omitted information about their medical condition or history. They also accuse insurers of using applications that are vague and confusing by design, trapping consumers into making mistakes that can be used to cancel their coverage later.
The complaints involve individual policies - the type of coverage sold to people who work for themselves or for employers who don't offer health benefits. Many work-based plans are open to qualified employees regardless of health, but insurers in California and many other states can reject applicants for individual policies based on their condition or health history. Once an applicant is accepted, a state law prohibits health plans from canceling unless the policyholder lied to obtain coverage.
Aside from appealing to the company that dropped them, subscribers' only recourse is to complain to state regulators or sue. Once an insurer yanks coverage, it can be difficult, if not impossible, to get a policy from another carrier.
Health plans encourage applicants they reject and policyholders they cancel to apply to a state-subsidized insurance fund for patients with high-cost or chronic conditions. But the wait can be long. Lacking coverage, patients often have to pay cash up front or go without care.
Outside the companies, no one tracks how often insurers cancel policies. Blue Cross won't say. But an employee said in a deposition last year that a special department considers as many as 1,500 cases for cancellation each week in California alone. A consumer lawyer who saw Blue Cross' cancellation tally sheets described the department as a rescission factory.
The suits also target Blue Shield, the rival of Blue Cross in California. Both companies sell individual policies in the form of insurance, as well as provide care through health maintenance organizations, and both types of coverage are at issue.
California regulators announced investigations in the spring when they learned of the suits through news reports. The state Department of Managed Health Care has concluded that the company systematically violated the law by improperly canceling policies and failing to verify medical information on applications before issuing coverage.
A spokesman for Blue Cross said that the company had no comment because it had not been officially notified of the agency's plans. Previously, the company had denied any wrongdoing, as had Blue Shield. The agency's investigation of complaints against Blue Shield is continuing.
The companies won't talk about individual cases such as that of the Shaeffers. But they say that they cancel policies upon finding misrepresentations in applications and that such actions safeguard the integrity of the individual insurance market.