Blue Shield of California to Pay $2 Million Legal Settlement for Illegal Policy Rescissions

California health insurance provider, Blue Shield, a San Francisco-based not-for-profit company, agreed to pay $2 million to the City of Los Angeles to resolve accusations that the insurance company improperly dropped policyholders after they got sick and needed expensive treatment. The settlement ends an investigation into more than 1,000 so-called rescissions by Blue Shield.

According to evidence presented in court filings, Blue Shield improperly dropped policyholders and paying customers without regard for whether their customers intended to deceive them about preexisting conditions. The practice resulted in some people losing coverage through no fault of their own, often over trivial bits of health history that had nothing to do with the claims that triggered the investigations.

President Obama made rescission a central theme in his push for a healthcare overhaul. In September 2010, a ban on rescissions for unintentional application errors became one of the first pieces of the healthcare law to take effect.

Blue Shield, in earlier agreements with state regulators, pledged to pay $3 million and to offer new coverage to hundreds of former policyholders. In recent years, Blue Shield is among a handful of California insurers that have paid millions to state and local regulators in response to investigations into the systematic dropping of policyholders with expensive medical needs.

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