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The Dumbest Thing I Have Ever Seen An Insurance Company Do

6a00d8341c909d53ef01157023e340970b-pi And, I’ve been in the business for 37 years.First, let me
stipulate we really need a system of universal care where everyone gets
to have insurance. But we don’t yet so certain rules are unavoidable
until we do.

Here are a few separate clips from today’s Los Angeles Times article, “Health Insurers Refuse to Limit Rescission of Coverage:

“Executives
of three of the nation’s largest health insurers told federal lawmakers
in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive.

“The hearing on the controversial action known as rescission,
which has left thousands of Americans burdened with costly medical
bills despite paying insurance premiums, began a day after President
Obama outlined his proposals for revamping the nation’s healthcare
system.”

“But they would not
commit to limiting rescissions to only policyholders who intentionally
lie or commit fraud to obtain coverage
, a refusal that met with dismay from legislators on both sides of the political aisle.”

“The
executives — Richard A. Collins, chief executive of UnitedHealth’s
Golden Rule Insurance Co.; Don Hamm, chief executive of Assurant Health
and Brian Sassi, president of consumer business for WellPoint Inc.,
parent of Blue Cross of California — were courteous and matter-of-fact
in their testimony.”

“The industry has tried very hard in this
current effort not to be the bad guy, not to wear the black hat,’
Begala said. ‘The trouble is all that hard work and goodwill is at risk
if in fact they are pursuing’ such practices.”

“But rescission
victims testified that their policies were canceled for inadvertent
omissions or honest mistakes about medical history on their
applications. Rescission, they said, was about improving corporate
profits rather than rooting out fraud.”

“Late in the hearing,
Stupak, the committee chairman, put the executives on the spot. Stupak
asked each of them whether he would at least commit his company to
immediately stop rescissions except where they could show ‘intentional
fraud.”

“The answer from all three executives: ‘No.”

For those of you not versed in the details of medical underwriting, let me explain a few things.

Lying on your health insurance application is fraud
and you can lose your insurance when you intentionally do it to gain
coverage. That is good policy and basic to contract law. An example
would be someone who went to the doctor because of severe headaches,
didn’t disclose it when applying for insurance, and a short time after
getting coverage was diagnosed with a brain tumor. Common sense would
tell you not to withhold such information—particularly when the
application makes you attest that you have revealed all.

But
sometimes people forget to put things down. Let’s say you went to the
doctor for a back problem onetime five years ago, didn’t put it down,
and were diagnosed with diabetes a few months after your health
insurance became effective.

It would be an inadvertent and non-material misstatement
to sign your health insurance application having promised you told all
but left something, that in the end did not matter, off of it. It is
always important to be thorough and honest in filling out a health
insurance application but sometimes we forget things.

In all the years I worked for an insurer—from underwriter to COO—we never penalized anyone for an inadvertent and immaterial misstatement. I never knew of a competitor who did either.

Why would you? How could you sleep at night knowing you retroactively canceled (or rescinded) a sick person’s health insurance because of something that really didn’t matter?

Fast
forward to the California rescission controversy. A number of health
insurers have been doing just that. More, they continue to defend it
even in the face of California Insurance Department fines and plenty of
lawsuits.

Then, they do it right in the middle of a national
health care debate the day after the President of the United States
flew to Chicago and told the American Medical Association private health insurers should have to compete with a public health plan that could well run them out of the business if it ever passed.

So
here they sat in front of a Congressional Committee and were asked if
they would stop retroactively canceling sick people’s health
insurance—not for real fraud but—for inadvertent non-material reasons.

Representatives of the three companies each took their turn and said, “No.”

Two things.

I’ve
brought a lot of good folks into this industry over the years. People
who still need this to work so they can pay for their kids’ college
education and fund their retirement plans.

This is the kind of corporate leadership they have to rely upon so that this industry can continue?

The current health care debate turns on who can best make our system work.
My sense is that it will take the genius of individual creativity to
separate the 70% of this health care system that is the best in the
world from the 30% that is waste. Who can do the best job on that?
Government? The private sector?

I believe the private sector.

And, this is the leadership I have to defend?

Robert Laszweski has been a fixture in Washington health policy
circles for the better part of three decades. He currently serves as
the president of Health Policy and Strategy Associates of Alexandria,
Virginia. Before forming HPSA in 1992, Robert served as the COO, Group
Markets, for the Liberty Mutual Insurance Company. You can read more of
his thoughtful analysis of healthcare industry trends at The Health
Policy and Marketplace Blog, where this post first appeared.

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Andrew EriksenjamesJohn R. GrahamWendell MurrayPhysician Disability Insurance Recent comment authors
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Andrew Eriksen
Guest

I work alongside hundreds of physicians every year and can tell you that a system is only as successful as the adoption of by physicians. Private payers are nervous and so are physicians and they are going to do everything in their power to stop this initiative. Medicare has already proposed a 25% reduction in there physician fee schedule for 2011 and they changed the retroactive billing guidelines which cost thousands of physicians millions of dollars. I just don’t see the support for a nationalized program in this economy. We cannot continue to spend our way into a deeper recession… Read more »

james
Guest
james

Over the past fifteen years, one of the things you couldn’t discuss was this remarkable set of data—perhaps the most remarkable data-set we know of in the world:
Total health expenditures per capita, 2003
United States $5711
Australia $2886
Austria $2958
Belgium $3044
Canada $2998
Denmark $2743
Finland $2104
France $3048
Germany $2983
Ireland $2466
Italy $2314
Japan $2249
Netherlands $2909
Norway $3769
Sweden $2745
United Kingdom $2317
Those are astonishing data. Over the past fifteen years, they’ve almost never been discussed. Everyone but Krugman understands—you simply mustn’t discuss them.

John R. Graham
Guest

I have never worked for a health plan, so I cannot say from experience what happens on the inside. However, I spent hours reading the regulators’ reports on the California rescissions and am fairly convinced that the insurers were railroaded. And that is what is going on in DC now. If you force the insurer to prove “intentional” misrepresentation, you require the insurer to read the mind of the applicant. The trend today is for the law to demand that the insurer prove the applicant’s misrepresentation, instead of demanding that the applicant prove that he is innocent of misrepresentation when… Read more »

Margalit Gur-Arie
Guest

I don’t know, Wendell. Nate makes me think about angles I never considered, mostly far into right field :-). I know he will not change his opinion, but maybe I can make him think about the left field a little.
Besides, he seems to be a walking encyclopedia of health insurance history and process, which I find interesting because some of those things he quotes are stuff I wasn’t aware of, and I should have been.

Wendell Murray
Guest

Margarit: I hate to tell you this but you are wasting your considered thinking “debating” with “Nate” in this weblog.

Margalit Gur-Arie
Guest

Well Nate, we are going to have to agree to disagree. Killing a few 23 year olds, or letting them die, in order to encourage their peers to buy insurance is preposterous. It won’t save thousands of lives, it will just save thousands of dollars, and even that is probably not true. The 23 year old human brain is not really geared to consider mortality (that’s why kids make really good soldiers). This has nothing to do with the decisions the military is faced with, and I would never claim that I would never hurt a person. I sure would,… Read more »

Nate
Guest
Nate

“I am not content with delivering a death sentence to a 23 year old for being a 23 year old. Even for the Hummer guy, that should know better, this seems pretty cruel and unusual punishment.” This is where tough decisions come in. millions of 23 year olds do the wrong thing becuase they are never confronted with the consiquences of their decisions. Let even a couple 23 year olds die becuase of their bad decisions and suddenly people take notice and do the right thing. So if letting 10 of them died saved thousands what would you do? It’s… Read more »

Barry Carol
Guest
Barry Carol

I would also like to offer a few comments about the Japanese healthcare system. Japan spends less on healthcare (about 7% of GDP) then any of the other major developed countries. Yet, it has the longest life expectancy – 86 years for women and 79 for men. Moreover, according to a recent program on Frontline which compared five healthcare systems around the world, a typical doctor-patient primary care encounter lasts all of five minutes or less. From another source, I learned that the Japanese are free to go to any doctor they want, but if they choose one of the… Read more »

Barry Carol
Guest
Barry Carol

Margalit, While I’m certainly not an expert on the subject, my understanding is that healthcare utilization is an extremely complex issue. Just looking at practice pattern variations within the U.S., you will find that per capita Medicare spending is much higher in the NYC metropolitan area than in the rest of the state. It’s much lower in Northern CA where HMO’s (mainly Kaiser) are widely accepted than in Southern CA where they aren’t. It’s hugely higher in Southern FL than in Northern FL. Within TX, as Atul Gawande’s New Yorker magazine article pointed out, it’s twice as high in McAllen… Read more »

Physician Disability Insurance
Guest

Great article, it is disheartening knowing that insurance companies have so much power to retroactively cancel policies especially when they have the power to decide what is fraudulent and what is not. A client should at least be able to go in front of an independent arbitrator to determine if fraud was committed.

Margalit Gur-Arie
Guest

Thanks, Barry. I can see how it can happen, but is it really happening that way? I am looking for any published studies showing that healthcare utilization, and therefore costs, are really higher in developed countries with universal healthcare, like pretty much all Europe, Japan, etc.

Barry Carol
Guest
Barry Carol

“I find it hard to believe that going to the doctor is such a tremendous fun thing to do that people will just try to get as much of it as possible.” Margalit, I’ll offer a few examples of how healthcare utilization increases when people are completely or largely insulated from the cost. 1. I wake up in the morning with a sniffle, sore throat, low grade fever, headache or some other minor problem. If I have to pay for care out of my own pocket, I will usually wait a couple of days to see if I get better.… Read more »

Margalit Gur-Arie
Guest

OK Nate, I agree that one should critically read any publication, but I cannot agree that if you read something that happens to contradict your opinion, you should go ahead and discard it as being false. I have no reason to suspect that those people testifying at the House Committee hearings were lying and the story seemed to be the same in various media reports. Maybe carriers don’t cancel people for acne treatment, maybe they do. This is not the point. People should not be put in a position to have to lie on applications in order to get care… Read more »

Penny
Guest

Nate– I couldn’t agree with you more on all points. When are these people going to wake up and look the failed universal systems in the UK and Canada that ration care? Is that considered compassionate? Right now if anyone (elderly or young) is diagnosed with cancer in the U.S., treatment begins within days. In the UK, people wait for months often dying before treatment begins. We already know of the awful wait lists for routine procedures in Canada. These countries have exorbitant tax rates and still cannot provide sustainable health care. The wealthy come to the US for procedures!… Read more »

Nate
Guest
Nate

Peter you are completly clueless sometimes. COme back to reality before you comment, how does single-pay mean affordable? Medicare and Medicaid aren’t affordable. Every other country that has any version of single payor is having a financial crisis. Please explain how you define single-pay as affordable. Always available, what does that even mean, insurance is alway available or care is always available? Your speaking gibberish. “I wonder if you would agree that insurance companies would rightly expect a court hearing if someone leveled a charge of fraud against them.” Have you been sued yet Peter? All the stupid baseless things… Read more »