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.
The way Steve and Leslie Shaeffer saw it, their $498 monthly premium was the price of peace of mind. The self-employed tile installer and stay-at-home mother wanted to make sure that they and their two kids got whatever care they needed, and that the bills would never bury them.
Two years ago, they bought a family health policy from a Blue Cross affiliate, BC Life & Health. Only a couple of months later, Selah's diagnosis put that policy to the test.
Initially, Blue Cross paid for her care. But when the bills surpassed $20,000, it stopped. Then, after collecting the Shaeffers' premiums for most of a year, Blue Cross canceled Selah, saying her parents left key information out of their application for coverage.
The Shaeffers say that's not so. When Leslie filled out the application, the couple said, Selah was a healthy kid who hadn't seen a doctor in months. After submitting the document, Leslie said, she noticed a bump on Selah's chin, but doctors told her they didn't believe it was serious.
It was not until doctors took a biopsy of the bump - almost two months later, and weeks after the Blue Cross policy had taken effect - that the Shaeffers said they had any idea something was seriously wrong with Selah.
But the full scope of Selah's condition did not come into view for a couple more weeks. That's when doctors, after nearly seven hours of surgery, told Steve and Leslie that the tumor had stealthily invaded much of the left side of Selah's mouth and jaw. Surgeons removed chunks of her jaw, mouth and throat wall in an effort to get it all and guard against a recurrence.
Blue Cross ultimately refused to pay for that operation. And it threatened to go after the couple for $19,000 it said it had paid for Selah's treatment before canceling her.
The cancellation jeopardized the girl's care and plunged the family into the financial turmoil they had sought to avoid when they bought insurance.
"It's a sickening feeling," Steve said.
Health plans say such cancellations are necessary to guard against people's lying on applications. The companies rely on the information contained in that document to determine who gets coverage and at what price.
"The reason there is a rescission policy is to prevent fraud," said Chris Ohman, chief executive of the California Association of Health Plans.
But according to the depositions of Blue Cross and Blue Shield employees, fraud has little to do with it. A review of depositions and company documents produced for the suits shows that the health plans routinely scrutinize medical records, back 10 years or more, when subscribers submit claims for certain conditions within two years of signing up for coverage.
If the health plans find information in the records that was absent from the application, they cancel, often without finding out whether the discrepancy was an intentional lie or an honest mistake, according to the depositions.
Some consumer lawyers say that violates California law, which forbids companies from canceling coverage unless a policyholder was intentionally misleading.
Amy Dobberteen, enforcement chief for the Department of Managed Health Care, said the law was clear. Health plans "are not supposed to be waiting until they get a huge claim and then trying to find a way out of it," she said. After a claim comes in, they may cancel only for "'willful misrepresentation.' Those words are plucked right out of the statute."
Health plans see it differently.
Blue Shield takes the position that the applicant's intent doesn't matter. "The contracts state clearly if anything in the application is false or incomplete, coverage may be rescinded," spokesman Tom Epstein said.
He pointed to a 1973 California Supreme Court ruling as the foundation for the position that intent to deceive is not necessary for cancellation.
Blue Cross' parent, Indianapolis-based WellPoint Inc., the nation's largest health benefits company, also cancels California subscribers whether or not they intended to mislead, and it believes the practice is lawful, said spokesman Robert Alaniz.
Consumer advocates said the practice makes a mockery of the purpose of health coverage.
"You think you have insurance, and then, after you get the treatment, you find out you really don't have insurance after all," said lawyer William Shernoff, who represents former policyholders in several suits against Blue Cross and Blue Shield.
The law is on policyholders' side, said Bryan Liang, executive director of the Institute of Health Law at California Western School of Law in San Diego.
The 1993 statute barring cancellation without "willful misrepresentation" trumps the 1973 court decision, Liang said, adding that asserting an older ruling amounted to "trolling for anything that's going to support" the insurers.
The companies say premiums would increase if, before issuing coverage, they had to verify all the information applicants submitted or if they had to investigate all policies for fraud before canceling them.
The regulatory record is on the health plans' side. Over the past two years, 289 policyholders complained to the Department of Managed Health Care that they had been improperly canceled. The agency ruled against policyholders in all but 10 to 20 cases. Those cases, which include some of the plaintiffs suing Blue Cross or Blue Shield, remain under investigation.
Blue Cross parent WellPoint is among the most profitable health insurers. The company, which operates in 14 states, reported $751 million in net income in the second quarter, a 34 percent year-over-year increase.
Blue Shield dumped premature twins Ariana and Natalie Nazaretyan, who are developmentally disabled, before their first birthday. Their parents are left with bills approaching $1 million. The insurer said George and Narine Nazaretyan failed to report a miscarriage and plans to seek fertility treatment. The Nazaretyans say the Blue Shield agent was fully aware of all of that.
Without insurance, Narine can't get an operation to remove thyroid cysts that make breathing difficult. George fears losing his furniture restoration business and the ability to pay for the girls' care on credit because Blue Shield hired a collection agent to recover more than $98,000 it paid out before terminating coverage.
After an inquiry by the Times, Blue Shield halted the collection effort.
Lisa Girion writes for the Los Angeles Times.