Want to keep your health insurance in California? Be sure you dont get sick.

Customers across the state accuse Blue Cross of California and its subsidiary, Blue Cross Life and Health, of canceling their policies as soon as hefty bills start to roll in.

When Jessica Bath of Morro Bays son Jack was born with a hole in his heart, Blue Cross took a closer look at her medical records and rescinded her coverage.

Heres how it works: After a consumer applies for health insurance coverage, a company has two years within which it can cancel (rescind) coverage if it believes the applicant has made a false statement on the application or perhaps failed to disclose a medical fact.

This situation applies to the individual, private insurance market. Policies issued through an employer are not subject to underwriting (background investigation).

Among Blues shady practices recently uncovered: letters to physicians asking them to double-check health insurance applications for accuracy and report any errors to the company (usual result: pre-existing condition = fast-track to being uninsured.)

Powerful allies

Consumers have picked up powerful allies in battling Blue during the past year. Both Blue Cross and Kaiser Permanente were fined by Californias Department of Managed Care for improperly cancelling policies, and the states Department of Insurance is seeking to fine Blue Shield Health and Life Company for $12.6 million.

More recently, the 35,000-member California Medical Association and the California Hospital Association (representing 450 hospitals) joined pending consumer class actions against Blue, charging unlawful rescission of over 6, 000 policies.

What does this mean to someone whos suddenly found themselves among the nations 47 million uninsured?

It's hard to say but the game may be up soon. In a case similar to Jessica Baths, Blue Cross cancelled Raudel and Maria Rodriguezs policy after Raudels medical bills topped $100,000. The Rodriguez family filed a class action, alleging that the company engaged in post claims underwriting, or illegally canceling after the bills got too high.

In another coup for consumers, both the trial court and the Court of Appeals ruled that consumers cant be forced to waive a jury trial and shoehorned into binding arbitration without a clear and specific warning. Unknown to many consumers, arbitration rulings have several drawbacks: theyre expensive (and consumers must pay half), they dont create legal precedent and they cant be appealed to a higher court.

LA takes action

Officials across the state have gotten involved, including Los Angeles City Attorney Rocky Delgadillo, who has sued Blue Cross for fraud and created a Web site, www.protectingtheinsured.org, where doctors and patients can post their own experiences with health insurance problems.

The Department of Managed Care has ordered 26 of the most outrageous cancellations to be reversed, and promised to investigate all rescissions between 2004 and 2008 by the five largest insurers in the state.

The five largest companies selling individual policies in California are Anthem Blue Cross, Kaiser Permanente, HealthNet, Inc., Blue Shield of California and PacifiCare of California.

While there may not yet be an across-the-board solution to the problem, individual consumers are winning some pretty impressive victories.

Patsy Bates, diagnosed with breast cancer, recently won a $9.4 million judgment against HealthNet, which cancelled her insurance while she underwent chemotherapy; $8 million of that amount was for punitive damages, awarded to punish a defendant for intentionally unlawful conduct.