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INSURERS' ANATHEMA: BREAST CANCER AND PREGNANCY

The cancellation of her health insurance in June 2008 forced Robin Beaton to delay cancer surgery by five months. In that time, the tumor in her breast grew from 2 centimeters to 7 centimeters.

Two months before Beaton's policy was dropped, Patricia Relling also was diagnosed with breast cancer. Anthem Blue Cross of Kentucky, a WellPoint subsidiary, paid the bills for a double mastectomy and reconstructive surgery.

But the following January, after Relling suffered a life-threatening staph infection requiring two emergency surgeries in three days, Anthem balked and refused to pay more. They soon canceled her insurance entirely.

Unable to afford additional necessary surgeries for nearly 16 months, Relling ended up severely disabled and largely confined to her home. As a result of her crushing medical bills, the once well-to-do businesswoman is now dependent on food stamps.

"It's not like these companies don't like women because they are women," says Jeff Isaacs, the chief assistant Los Angeles City Attorney who runs the office's 300-lawyer criminal division. "But there are two things that really scare them and they are breast cancer and pregnancy. Breast cancer can really be a costly thing for them. Pregnancy is right up there too. Their worst-case scenario is that a child will be born with some disability and they will have to pay for that child's treatment over the course of a lifetime."

Isaacs is a former federal prosecutor who spent much of his time with the U.S. Justice Department investigating corporate wrongdoing. Among state and federal regulators, he is now considered one of the toughest and most experienced foes of the health insurance industry. He has hired retired FBI agents to investigate full-time the practices of WellPoint and its Anthem Blue Cross subsidiary in California.

Still, Isaacs feels outgunned: "The industry just has these tremendous financial, legal and political resources that others don't," he said. "In my own state, regulators are often afraid or unwilling to go up against them. It is hard to figure out what the future brings."

In July 2008, Isaacs' office sued Anthem Blue Cross, alleging that more than 6,000 people in the state of California had their insurance canceled due to its "illegal rescission practices." The litigation is ongoing.

Last February, the insurer agreed to pay a $1 million fine and an additional $14 million in restitution to alleged victims to settle another lawsuit. This one was brought against it by the California Department of Insurance, which said the company violated state laws by improperly rescinding the policies of 2,330 people.

A year earlier, Anthem Blue Cross agreed to pay a $10 million fine to settle similar charges brought by a second agency in the state, the California Department of Managed Health Care, alleging that WellPoint had illegally rescinded more than 1,100 policyholders.

Despite the settlements, WellPoint denies wrongdoing. In a statement for this story, the company said: "The settlements you referenced with the California regulators expressly denied any admission of wrongdoing on the part of the company; companies settle matters for a number of reasons."

As part of his investigation, Isaacs has sought information from WellPoint about its use of algorithms to single out women with breast cancer or who are pregnant. The company has fought him vigorously and so far largely kept information from him, Isaacs said.

But in response to an inquiry last year from the House Energy and Commerce Committee, which was investigating rescission, WellPoint said that it initiates a claims review every time policyholders receive medical treatment for certain conditions. The company listed diagnostic codes that could trigger investigations. One was for breast tumors.

During an audit of Anthem Blue Cross by the California Department of Managed Health Care, company employees showed regulators internal records revealing that pregnant women also automatically had their medical histories examined.

WellPoint says that even though the company routinely investigates policyholders with diseases such as breast cancer shortly after a diagnosis, it only cancels policies if it finds something wrong. It says the practice is necessary to keep down costs for other policyholders.

In testimony before the House committee last year, Brian Sassi, the president and CEO of WellPoint's consumer division, asserted: "I want to emphasize that rescission is about stopping fraud and material misrepresentation that contributes to spiraling health care costs. Rescission is a tool employed by WellPoint and other health insurers to protect the vast majority of policyholders who provide accurate and complete information from subsidizing the cost of those who do not."

But state regulators, congressional investigators and consumer advocates say that in only a tiny percentage of canceled health insurance cases was there a legitimate reason.

A 2007 investigation by the California Department of Managed Health Care bore this out. The agency randomly selected 90 instances in which Anthem Blue Cross of California dropped the insurance of policyholders after diagnoses with costly or life-threatening illnesses to determine how many were legally justified.

None were. "In all 90 files, there was no evidence (that Blue Cross), before rescinding coverage, investigated or established that the applicant's omission/misrepresentation was willful," the DMHC report said.