Consumers Sue Insurance Company over Canceled Policies

By FOXBusiness

Cancellation letters from health insurance companies are flooding Americans’ mailboxes, and some recipients are fighting back.

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Two Californian residents s are suing their insurer, Anthem Blue Cross, a unit of WellPoint (NYSE:WLP) claiming the company misled them into cancelling their policies. Catherine Coker, 63, and Paul Simon, 39, claim they were pressured and deceived in 2011 into giving up their plans’ grandfathered status, which would have allowed them to keep the plans for a little longer. They allege that they would have been able to keep their coverage until 2014 under the law’s requirements, but were instead enticed to switch to new—more costly—plans early.  

The plaintiffs’ lawyer, William Shernoff, of Shernoff Bidart Echeverria Bentley in Los Angeles, says insurance companies can make endorsements or amendments to their plans’ to meet the Affordable Care Act’s requirements if they want to so customers won’t lose their plans.

“The reason that old, grandfathered plans are so important to [policyholders] is that the newer plans force them to go into a network of doctors and hospitals that are so small and restrictive, they will lose the continuity of medical care,” he says.

Anthem Blue Cross Blue Shield declined to comment on the lawsuit, telling it had not yet reviewed the suit.

Individuals who purchased plans before March 2010 that meet the law’s minimum essential coverage are able to have them grandfathered in under the new law. The Los Angeles Times reports nearly half of the two million individual policy holders in the state are expected to lose their current coverage ahead of the new year because they don’t meet the reform’s requirements.

Shernoff claims his clients were enticed away earlier than necessary in 2011 from plans the insurer knew were going to be eventually canceled for not offering adequate benefits. The suit asks the courts to block Anthem from cancelling any more policies for those who switched plans unless customers are allowed to switch back to their previously-grandfathered plans.

Fox Rothschild benefits attorney Keith McMurdy says this lawsuit doesn’t hold much water because the plaintiffs would have lost their plans eventually anyway.

“Many grandfathered plans will not survive after January 1, 2014,” McMurdy says. “For insurers, having a non-compliant plan will open the company up to abuse from the government.”

The suit is a “futile attempt” he says to hold the company accountable for what so many individuals are being faced with today. He adds state insurance fraud laws may apply to the case if it’s found the insurance company did deceived or misled customers. However, he notes insurance companies could argue federal preemption, meaning the federal law takes precedence so state laws would not apply.

“It does make for great press [for consumers] suing the insurance companies for doing this,” he says. “I think that more people will be doing this, and there will be more types of litigation of this nature, but it will ultimately end up in a place that won’t result in anything because insurance companies are doing exactly what the law established.”

For Shernoff, the important point here is that his clients want their old policies back.

“When you say that their old plans aren’t good anymore, I would beg to differ,” he says. “A lot of people did not switch or bite on the enticement [to move away from grandfathered policies]. They kept their old policies and doctors and are fine. If people realize they were not told the truth, maybe regulators will step in. You can’t just deceive people.”

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