SACRAMENTO, Calif. (Legal Newsline)-Following word of an investigation by the California attorney general's office, two of the state's largest healthcare plans have agreed to reinstate 1,092 patients whose policies were dropped after they incurred high medical expenses.

Under a settlement reached by California Department of Managed Health Care, patients whose insurance coverage was rescinded by Kaiser Permanente or Health Net since 2004 will be allowed to purchase new insurance regardless of preexisting medical conditions.

In a statement, Cindy Ehnes, director of the California Department of Managed Health Care, praised the settlement.

"We have made extraordinary progress to wipe the slate clean for more than a thousand consumers who have been without health coverage for up to four years," Ehnes said. "Our goal is to get all consumers, not only those within Kaiser, covered again without having to go through a long process that may not be decided in their favor."

Still, state regulators are trying to reach similar deals with Anthem Blue Cross, Blue Shield and PacifiCare to resolve about 4,000 policy rescissions.

The settlement helps avoid legal challenges by the insurance companies. In the settlement, Kaiser agreed to pay a $300,000 fine to the state without admitting wrongdoing.

The HMO also agreed to procedural changes, including developing simpler coverage applications.

In its settlement with the state, Health Net agreed to reinstate 85 former enrollees.

"Health Net today announced that it will offer coverage to all 85 HMO customers who have been rescinded since 2004 and will work as expeditiously as possible with these individuals to resolve their eligible out-of-pocket costs," the company said.

State Attorney General Jerry Brown's office announced this month it was investigating whether some Californians were improperly kicked off their healthcare plans.

"Insurers shouldn't cancel people's insurance unless the individual outright lied," Gareth Lacy, Brown's spokesman, told Legal Newsline in an earlier interview.

"If they just sign people up for insurance, then cancel it when the person gets sick, that's questionable and we want to look into it," he said.

From Legal Newsline: Reach reporter Chris Rizo by e-mail at chrisrizo@legalnewsline.com.