Blue Shield of California on Tuesday said it will reinstate coverage for 678 state residents whose health insurance was improperly canceled between Jan. 1, 2004, and May 31, 2008, after they got sick, the Los Angeles Times reports. Blue Shield also said it will reimburse out-of-pocket medical expenses for people whose coverage was rescinded during that time. As a result, the state has dropped its case against the insurer and will not pursue $12.6 million in proposed fines.

The agreement comes more than one year after state Insurance Commissioner Steve Poizner accused Blue Shield of 1,262 violations of laws and regulations that resulted in the recession of hundreds of policies, the Times reports. Poizner said that he hoped the settlement would "put an end to rescission practices that were hurting consumers." He added, "Canceling someone's insurance can have devastating medical, emotional and financial impacts. I will continue to take action against those insurers who do not live up to their agreements."

Under the agreement, consumers must waive their right to sue Blue Shield before they can obtain medical reimbursement. Blue Shield also agreed to simplify its applications and improve its underwriting process. The Department of Managed Health Care reached similar agreements last year with other insurers in California, including Kaiser Permanente and Health Net, that also were accused of improperly rescinding coverage (Girion, Los Angeles Times, 1/7).

Please note: The Kaiser Family Foundation is not associated with Kaiser Foundation Health Plan, Kaiser Permanente or Kaiser Industries.