Health Insurance – Frequently Asked Questions

Most life, health and disability policies may be written either on an individual or group basis. Individual policies are underwritten with respect to the individual being covered and are not obtained in the employment setting. Group policies are not individually underwritten and are typically provided to employees in the employment setting by employers or unions. Another important distinction between individual and group policies is that enrollment and claims for benefits under group policies are often administered by a third-party administrator (“TPA”) rather than by the insurer. For example, in an employee group policy, the employer is often the plan administrator, responsible for enrolling new members and for submitting claims on their behalf for policy benefits. Insurance companies typically act as claim administrators. Whether a policy is an individual or group policy can make major differences in insured legal rights. It is therefore critical to evaluate what law applies to the policy.

Under California law, MCOs are called “health care service plans” and are more commonly referred to as HMOs, PPOs, and POSs. The Department of Managed Health Care has jurisdiction over these types of policies. The Department of Insurance regulates all other types of policies.

MCOs are required to maintain grievance procedures approved by the Department of Managed Health Care. They are required to resolve grievances within 30 days or explain in writing the reasons for any delay or denial of health care services. The grievance procedure is voluntary and in addition to any other available remedy provided by law. However, the utilization of independent administrative review is a condition to an MCO’s statutory liability under Civ. Code § 3428. Insurers are required to provide an “independent medical review” if the claim denial involves a determination of whether a service is medically necessary.  If a dispute is not subject to an independent medical review, the Department of Managed Health Care may order the plan to promptly offer and provide covered benefits or order reimbursement by the plan.

Medical Necessity: Many policies have limitations for “reasonable and medically necessary” expenses.  What is “medically reasonable and necessary” care is often disputed. A frequent issue is whether the insurer is bound by the treating physician’s determination that treatment was “medically necessary.”  If the policy itself does not clearly address this issue, insureds usually argue that the uncertainty should be resolved in favor of coverage and the insurer must pay for whatever treatment is ordered by the treating physician. Utilizing an overly-restrictive standard of “medical necessity” may constitute “bad faith” by the insurer. If a group policy is provided by an employer and is governed by ERISA, such plans usually confer a discretion on the plan’s medical administrator to determine what treatment is “medically necessary.” Such decisions may be upheld so long as it is not an abuse of discretion. An attending physician’s opinion that a treatment is “medically necessary” is persuasive but not determinative. See Dowden v. Blue Cross & Blue Shield of Texas, Inc., 126 F.3d 641, 644 (5th Cir. 1997) (applying ERISA).

“Usual and Customary” Medical Expenses: Insurers may deny a health claim because the procedure is not “usual and customary.” Courts are likely to side with insureds as to what fees are “usual and customary” in order not to interfere with the insureds’ access to physicians of their choice. Courts are not likely to sympathize with an insurer’s objections to the amount of fees after an insured has already incurred the debt without notice from the insurance company as to what amounts would be accepted as “usual and customary.” Before suing an insurer for medical benefits that the insurer has denied as medically unnecessary, the insured must exhaust the “independent medical review system” established by the Department of Insurance and Department of Managed Health Care. “Coverage decisions” are not subject to such review (the approval or denial of health care services substantially based on a finding that the provision of a particular service is included or excluded as a covered benefit under the terms of the insurance contract.).

Preexisting Conditions: Individual health policies are normally designed to cover only losses due to illness contracted and commenced while the policy is in force. Various types of provisions are therefore used to avoid coverage for preexisting health conditions. These provisions are strictly construed against the insurer and in favor of the insured. However, group health insurance policies and managed care plans limit the scope and length of exclusions for preexisting conditions.

Experimental or Investigative Treatment: Many health insurance policies exclude coverage for treatments or procedures that are “experimental or investigational.” Whether and to what extent a treatment or procedure is “experimental or investigational” is fact-intensive and often requires expert testimony.

An insurer is required within 30 working days to pay a covered health insurance claim or send written notice to the insured (and to the health care provider that provided the services at issue) that the claim is contested or denied, stating the factual and/or legal basis for its action. Interest accrues at the rate of 10% per annum on claims not paid or contested within the 30-working day period. Ins. Code. §§ 10123.13, 10123.147.

False statements made by the insured in applying for health insurance do not entitle the insurer to rescind “unless such false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer.” Ins. Code. § 10380. The insured is not bound by any statement made in an application for disability insurance unless a copy of such application is attached to or endorsed on the policy. Health insurers are prohibited from engaging in “post-claim underwriting,” defined as “rescinding, canceling or limiting of a plan contract due to the plan’s failure to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with an application before issuing the plan contract.” Health & Saf. Code § 1389.3.