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You receive the devastating news that you have cancer. It is operable, and with prompt care, you have a chance to survive. You make it through the surgery and begin chemotherapy treatments. Then the insurance company suddenly cancels your insurance retroactively. The reason? They allege you lied about something on your insurance application. Now you are left with hundreds of thousands of dollars in medical bills, unable to afford the rest of your chemotherapy schedule, and facing an uncertain prognosis.

This is the situation Patsy Bates, a 51-year-old hair stylist from Gardena, California, found herself in after her health insurance was "rescinded." Bates’ health insurance company, Health Net, Inc., rescinded her policy in the middle of her treatment for breast cancer, saying she provided inaccurate information on her insurance application.

Insurers such as Health Net and Anthem Blue Cross of California have been accused of illegally retroactively canceling, or rescinding, the policies of people whose conditions are expensive to treat. The cancellation usually happens when people are in the midst of treatment and at their most vulnerable. In April 2008, attorneys sued Anthem Blue Cross to try to stop the company from rescinding insurance policies. The attorneys claimed that "the company has engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims, but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most.

Documents disclosed at Bates’ arbitration hearing revealed that Health Net rewarded employees who rescinded coverage of sick policyholders. The company paid bonuses to employees who met cancellation goals and even commended one employee for having a "banner year" when she allowed the company to avoid "$6 million in unnecessary health care expenses." Retired Los Angeles Superior Court Judge Sam Cianchetti, who arbitrated Bates’ case, called Health Net’s behavior "egregious," saying the company "was primarily concerned with and considered its own financial interests and gave little, if any, considerations, and concern for the interests of the insured.

Anthem Blue Cross continued to rescind the policies of chronically ill patients. The company also sent letters to physicians demanding they inform the company of any pre-existing conditions they came across when evaluating patients. Physicians were outraged. The California Medical Association forwarded the letter to state regulators complaining that the insurance company was "asking doctors to violate the sacred trust of patients to rat them out for medical information that patients would expect their doctors to handle with the utmost secrecy and confidentiality."

Anthem Blue Cross eventually settled rescission accusations for $10 million in July 2008. The company denied any wrongdoing and offered to reinstate the policies of 1,770 customers. In the reinstatement mailings, Anthem offered customers $1,000 if they agreed to drop all legal claims against the company.

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