With her heart set on a career as a chef, Heather Galeotti enrolled in a San Francisco culinary school. One winter night, her life took a near-fatal turn when she was hit by a car. The 22-year-old lay in a coma for nearly six months.

Like many insurance disputes, the Galeotti case has its share of miscommunication, bureaucratic wrangling and missing documents. But it remains a stark example of a murky practice by some insurance companies and employers - cutting off coverage retroactively for some patients with expensive medical claims. (adapted photo by flickr user planetc1) Galeotti's shaken family told the hospital that she was covered by her father's health care plan with Kaiser Permanente. The hospital confirmed her status with Kaiser and proceeded to treat her. Medical bills piled up to more than $4 million.

Then in July 2007, five months into Galeotti's treatment, Kaiser stunned the family with a letter. The Galeottis would have to find another way to pay the bills. Based on information received from her father's employer, Kaiser said that the young woman's coverage had not been in effect when she was hit.

"We were just blindsided," said her mother, Maureen Galeotti. "There was no way we could afford it." The case was shifted to Medicaid, where Galeotti's bills would have to be covered by taxpayers.

Ten months later, California insurance regulators ordered Kaiser to cover Galeotti's care, saying that Kaiser had no basis for denying payment "other than to achieve a significant financial windfall" at the expense of her family, the hospital and the state's Medicaid program.

Like many insurance disputes, the Galeotti case has its share of miscommunication, bureaucratic wrangling and missing documents. But it remains a stark example of a murky practice by some insurance companies and employers - cutting off coverage retroactively for some patients with expensive medical claims.

The new health care reform bill bans retroactive decisions by insurers in policies sold to individuals, except in cases of fraud. However, as it stands the ban would not apply to group policies, such as the one held by the Galeotti family, which cover some 150 million Americans.

Heather Galeotti's story, reported here for the first time, came to the Huffington Post Investigative Fund through its citizen journalism project, which seeks to shed light on the inner workings of the insurance industry. Former and current employees at Kaiser responded to the Fund's online requests for help from insiders. Their tips led the Investigative Fund to identify the Galeotti family and obtain records of the case, including internal Kaiser e-mails.

Major insurers in California, including Kaiser, agreed in 2008 to stop retroactively cancelling coverage - a practice known in the industry as rescission. At the time, Kaiser announced that it had not rescinded anyone's coverage since 2006. But the new agreements and increased regulatory scrutiny only applied to patients buying their own individual coverage, not to group policies.

Even so, Kaiser may have violated state law in the Galeotti matter. While declining to comment on an individual case, Lynne Randolph, spokeswoman for the Department of Managed Health Care in California, said that a retroactive cancellation of coverage through an employer is "permissible only when the coverage is cancelled for non-payment of premiums." The Galeottis continued to pay their premiums throughout their daughter's medical crisis.

Despite the state order, officials at Kaiser, the nation's largest nonprofit health plan, continue to maintain that the insurer's actions in the Galeotti case should not be considered a retroactive termination of coverage. That's because -- according to Kaiser officials -- a month before the car hit Galeotti, the employer's group plan notified the family that her coverage had lapsed on Dec. 31, 2006. Kaiser was never informed, so it initially agreed to pay the bills, Kaiser officials said. However, that account is strongly denied by the Galeotti family. The family's lawyer said they never received such a notice, and Kaiser said it does not have a copy in its records. Lawyers for the group plan declined repeated requests for interviews.

Kaiser acknowledged that it made an error by not paying Galeotti's bills, but blamed the mistake on the late notification from the group plan and "a lack of coordination" among departments inside the insurer. Spokesman Won Ha pointed out that Kaiser provides approximately 40 million patient services each year and he described the circumstances presented by the Galeotti matter as rare, with "no regular frequency over the long run."

But because insurance companies are rarely required to report to state or federal regulators how many times they have denied claims or canceled coverage -- let alone to justify why - only the industry knows the statistics.

Records and e-mails obtained by the Investigative Fund suggest that retroactive decisions might not be isolated incidents in group plans. A senior official in Kaiser's regulatory services, referencing the Galeotti matter, wrote in a May 2008 e-mail to senior-level staff: "This type of case comes to special services 3-5 times a month."

Peter Harbage, former assistant secretary for the California state health department, said retroactive cancellations or denials should be treated no differently in individual or group policies.

"Call it whatever you want. It's not different to the family," said Harbage, now a health policy consultant and analyst for the New America Foundation. "The family thought they had coverage. Their insurer told them they had coverage, but then suddenly it's like they never had that coverage, and they're left with the bill."

Harbage added: "If you're not safe in the group market with an insurer as well-respected as Kaiser, then you're not safe anywhere. There's no such thing as an isolated case."

California Enforcement

The practice of retroactively cancelling individual health policies garnered some national attention in 2008 when Rep. Henry Waxman (D-Calif.), then chair of the House Oversight and Government Reform Committee, held hearings that highlighted the consequences for patients and their families.

The hearings followed a 2006 series in the Los Angeles Times, which explored how insurance companies were looking for ways to cut costs under pressure from shareholders, policyholders and the government. In some cases, the newspaper reported, certain expensive illnesses could automatically trigger an insurer to investigate whether a patient should have been deemed eligible for insurance in the first place.

California health officials began investigating improper retroactive cancellations after the newspaper reports, but only for people with individual policies.

The state's managed health department recently declared that its 2008 agreements with insurers "to halt illegal rescissions have been comprehensive, swift and binding." Still, some consumer advocates and state lawmakers have questioned the strength of enforcement. A recent report by the Institute of Health Law Studies at the California Western School of Law found that fewer than 300 out of 6,000 people who had been retroactively dropped by their insurer had been reinstated under terms of the agreements.

The health care bill signed Tuesday by President Obama bans rescission in individual health insurance policies, except when insurers can prove fraud on the part of the policyholder.

Still, only about 14 million people hold individual health insurance policies. Experts have argued that patients are more protected in a group: There are usually no requirements for patients to fill out medical history surveys and insurers do not want to risk angering an employer and losing the entire group.

As the Galeotti case shows, however, even people with group policies can be vulnerable.

A Question of Eligibility

San Francisco General Hospital admitted Galeotti on Feb. 27, 2007. She had been run over by a large sport utility vehicle in an incident that police described as a fight between two romantic rivals. "I was conscious enough to hear my friend saying 'Don't die on me, hon, don't die on me,'" Galeotti said in a recent interview.

At first, Kaiser informed the hospital that Galeotti was covered. Its case managers closely monitored her progress and the cost of her treatment. As a student, she came under the policy her father, a custodian, held through the General Employees Trust Fund in Daly City, Calif. Since the young woman was hospitalized she could not attend classes at the California Culinary Academy, meaning that her coverage would eventually lapse without an extension under the policy's incapacitated child clause. The hospital encouraged the family to contact the Trust Fund.

That is when the problems began.

In June 2007 the Trust Fund sent the Galeotti family a letter denying the application, saying inaccurately that their daughter had already graduated from school and was no longer eligible. The family appealed the denial, saying that the graduation date had been pushed back because she had taken medical leave -- a fact confirmed to the Investigative Fund by school officials.

The Trust Fund did not reverse its decision. According to Kaiser, a hospital social worker then mentioned to a Kaiser representative that Galeotti's eligibility was in question. Kaiser contacted the Trust Fund, which on July 23 sent the insurer a one-line fax stating that Galeotti was "last eligible Dec. 31, 2006" under her father's plan. Kaiser officials said that the Trust Fund told the insurer that it had sent the family a letter in January alerting them that their daughter was no longer covered and offering to let her buy continuing coverage, but the family's lawyer said no such letter arrived.

Two days after receiving the one-line fax, Kaiser informed the Galeottis that it had been directed to terminate the young woman's health coverage, effective Jan. 1, 2007 -- almost two months before she had been admitted to the hospital. Kaiser told the family that if Galeotti wanted to restore her coverage retroactively, she could buy into a new plan.

In interviews and in a written statement, Kaiser's Ha said it was not up to the insurer to verify whether Galeotti should be covered. "The group employer -- not Kaiser Permanente -- makes all decisions about canceling or starting coverage for its plan participants based on its eligibility determinations," he said.

The Trust Fund's lawyers declined comment on the Galeotti matter.

The Hospital's Complaint

The case would have stayed off the regulators' radar if not for officials at San Francisco General.

Under Medi-Cal, the state's Medicaid program, the hospital was not getting paid the full amount of its charges for Galeotti's care. So hospital officials began exploring the reasons she was dropped by Kaiser. They filed a complaint with state regulators.

For months, records show, the insurer debated Galeotti's coverage with the state Department of Managed Health Care. In May 2008, after she had been on Medicaid for nearly a year and was re-learning how to walk, the regulators faxed a stern letter to Kaiser, documenting her "improper termination." The letter said, "Given the Plan's significant financial obligation to SF General, and the fact that the Plan continued to receive premium on the Family Account, Kaiser's motives... are suspect."

In September 2008, the insurer paid the hospital. The regulators did not issue a fine.

Even with the payments from Kaiser and some coverage from Medicaid, the Galeotti family said it still owes about $1 million for rehab, medications and other fees.

For Galeotti herself, the recovery has been difficult. She has been living with her parents and undergoing physical therapy since September 2007, re-learning how to walk and talk. "There are good days and bad days," she said. "I still don't walk normally and I'll be in and out of a wheelchair for the rest of my life. I'm frustrated. But I'm here."

Kaiser said it has made "minor adjustments" in its procedures to avoid similar problems with processing claims. Spokesman Ha emphasized that the Galeotti case involved an "unusual and complex sequence of events."

Still, he said, "Kaiser should have handled the processing of this claim better."