Once trampled and left for nearly dead by her health insurance company, Patsy Bates was rescued by the legal system.

I first told you about Patsy's story a few months ago in the e-Alert "Working Without a Net" (11/28/07). About five years ago, a broker for Health Net (one of California's largest health insurers) walked into the hair salon owned by Patsy and told her he could save her some money on her insurance premiums if she switched to Health Net. A 51- year-old mom with two kids, that sounded good to Patsy, so she took the bait and signed on with Health Net.

A few months later, Patsy was diagnosed with breast cancer. Shortly after surgery to remove a lump in her breast, Health Net canceled Patsy's coverage and stranded her with nearly $200,000 in medical bills and no way to pay for her remaining sessions of chemotherapy.

And if you find that infuriating, buckle up because we've just gotten started.

When Patsy sued Health Net, the LA Times asked the arbitrator of her case to make court documents public. And there the Times found a trove of dirty little secrets. Between 2000 and 2006, Health Net cancelled nearly 1,600 policies, saving the company more than $35 million. And worse: The documents revealed a Health Net incentive plan whereby a senior analyst earned thousands of dollars in bonuses for rescinding policies.

Health Net executives claimed their rescission review program was designed to prevent fraud, but the commissioner of the California State Insurance Commission was buying none of it. He summed up Health Net's actions against Patsy as "indefensible, immoral and possibly illegal."

This is where our story turns sweet for Patsy and deservedly sour for Health Net.

Last month, Los Angeles city attorney Rocky Delgadillo sued Health Net for the cancellation of those 1,600 insurance policies. Mr. Delgadillo told the LA Times, "We intend to vigorously pursue the lawsuit and to pursue our criminal investigation into the company's bonuses scheme, to ensure that Health Net's unlawful, unfair, and fraudulent practices are fully and permanently enjoined, and that restitution is provided to all its past victims."

That alone would be enough to spoil any Health Net executive's week. But the very next day the other shoe dropped when the arbitrator in Patsy's case ordered Health Net to pay her: $129,000 for unpaid medical bills $750,000 for emotional distress $8.4 million in punitive damages Ka-ching! Nine million and change. Just make that check out to Ms. Patsy Bates.

This award was stunning for two reasons: 1) Punitive damages are solely designed to punish and send a message, and 2) Arbitrators usually side with insurance companies rather than individuals (which is why the fine print in most insurance policies state that complaints such as Patsy's will be decided in arbitration rather than in a court trial).

The arbitrator in this case was Sam Cianchetti, a retired LA County Superior Court judge who was clearly appalled by Health Net's bonus program for policy rescissions. In his 21-page ruling, Cianchetti called Health Net's behavior "egregious" and added, "It's hard to imagine a policy more reprehensible than tying bonuses to encourage the recision of health insurance that helps keep the public well and alive."

And what was Health Net Chief Executive Jay Gellert's response to Patsy's ordeal? He told the LA Times, "I felt bad about what happened to her."

Right. As if something just "happened to her." As if she hadn't been deliberately victimized by the predatory policies of the company he's in charge of.

After the arbitrator's ruling, Mr. Gellert told his employees to halt policy cancellations. He didn't halt cancellations when Patsy filed her lawsuit, and he didn't halt cancellations when the LA Times revealed his company's crass and insensitive treatment of its customers. He waited until he had absolutely no other option.

He might as well come right out and say, "We would still be bankrupting customers and putting their lives in danger if we hadn't been caught and exposed for what we really are."

Three more lawsuits similar to Patsy's have been filed against Health Net, and Patsy's attorney has proposed a class action suit on behalf of those 1,600 other customers whose policies were cancelled by the company.

Looks like Mr. Gellert and Health Net will be eating a steady diet of crow.

www.healthiertalk.com

Sources:

"Cancer Patient Awarded $9 Million in Insurance Lawsuit" Thomas Watkins, The Associated Press, 2/23/08

"Health Net Ordered to Pay $9 Million After Canceling Cancer Patient's Policy" Lisa Girion, The Los Angeles Times, 2/23/08, latimes.com

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