This is an updated reprint of a diary I posted on Daily Kos in 2009. It describes the “free market” for-profit health insurance industry practices pre-Obamacare and gives the underlying reasons why those companies engaged in questionable business practices. (Hint, it’s basically heartless, soulless, greed)
For those of you who have always enjoyed an employer sponsored health benefit plan or a government backed employer health care plan, congratulations. Under Trumpcare, there will be an attempt to roll the clock back to 2009 for individuals and will even threaten employer sponsored and government health benefit plans.
Every “reform” Republicans will suggest as solutions going forward were either tried in the past with disastrous results to the policy holders and expensive losses to the taxpayer and health care facilities, or simply didn’t work as advertised for the policyholder.
One reform being touted by HHS Secretary Tom Price is to allow citizens to buy policies across state lines. By that he insinuates that consumers could “save” money by buying a policy that does not have to provide the benefits that a state insurance commissioner or legislature has required, These policies are all but certain to be out right fraudulent, and the policy holder will have no reasonable recourse if he or she is defrauded by an out of state health insurance company.
The state of Georgia has allowed out of state insurance companies to sell policies to Georgia citizens for over 30 years. Practically every policy is fraudulent to one degree or another. I should know, I bought policies from at least four of these out of state companies in the past, and they were all fraudulent, But of course, if you don’t get sick, no problem.
Ten Things Everyone Needs to Know About the US Health Insurance System
One “health care reform” suggested by Conservatives is to encourage consumers to purchase high deductible, Individual health insurance policies in the “Free Marketplace.”
While most people are aware that 40 plus million Americans don’t have health insurance, tens of millions of Americans have Individual policies. Sometimes these Americans are described as “Underinsured,” but for all practical purposes, if they get sick, they will discover to their despair that they are not insured at all.
While there is nothing inherently wrong with high deductible plans, there is much that is unhealthful about the Individual policies sold by for-profit health insurance companies
In 2007, the Los Angeles Times first published information in a series of articles that from approximately 2003 to 2007, the 5 major health insurance companies in California had retroactively canceled over 5000 Individual health insurance policies when the policy holders got sick and filed a claim.
According to a more recent article published June 17, 2009, Anthem Blue Cross of California and two other insurers canceled 20,000 sick policyholders over a five year period, saving over $300 million, according to the U.S. House Committee on Energy and Commerce. That’s 20,000 cancellations by just 3 of California’s health insurance companies. This had to be almost every Individual Health Insurance policyholder who fell sick and filed a claim.
Belatedly, the California DMHC cracked down on the problem and insisted on reinstatements. Meanwhile, of course, people were going bankrupt and dying.
On Thursday, April 17, 2008, the California Department of Managed Health Care (DMHC) ordered three major health insurance companies to immediately reinstate coverage to 26 persons whose policies were wrongly canceled when the policyholder fell sick. These 26 were just the most egregious of 286 cases that were studied. More reinstatements were expected to follow. But the insurance companies know that the regulators don’t have the resources or even time to fully investigate the more than 20,000 cancellations of seriously ill policy holders. .
In an investigation of California Blue Cross in 2007, state regulators randomly selected and studied 90 cancellation cases out of more than 1000 complaints. The regulators found that all 90 cases were wrongfully canceled. Unfortunately, the 90 policyholders did not have their policies immediately reinstated or their medical bills paid. The DMHC fined Blue Cross $1 million for the 90 violations. Blue Cross appealed the fine.
However, “California regulators recently admitted that for more than a year they didn’t even try to enforce the $1 million fine against Blue Cross for fear they would be outgunned in court.”
It was bad enough when, according to published articles in 2007, more than 5000 sick Californians had their policies retroactively canceled by the five major California insurance companies that specialize in Individual health insurance policies. But that number represented just the tip of the iceberg.
The House Committee found that some for-profit health insurance companies targeted every policy holder diagnosed with leukemia, breast cancer and 1400 other serious illnesses.
Blue Cross of California admits to canceling 1500 policies each year. If each canceled policy represents a sick individual with a potential medical cost of only $100,000, Blue Cross is “saving” $150,000,000 of potential profit while causing needless human suffering and huge financial losses to innocent families.
In 2007, the Los Angeles Times reported that health insurer Health Net, Inc. paid bonuses to employees based at least in part on their involvement in canceling sick policy holders, saving the company $35 million over six years.
Blue Cross spokesmen denied having a policy to evaluate employees based on policy cancellations, however, documents obtained by the House Committee on Energy and Commerce show that at least one employee earned a perfect score for “exceptional performance” that took notice of the employee’s diligence in helping to drop thousands of sick policy holders and saving the company $10 million.
But the problem is not limited to California. In fact, it’s a nationwide problem.
ABC News quotes Connecticut Attorney General Richard Blumenthal, “According to the insurance industry’s own estimate, thousands of similar rescission investigations into policy holders occur every year, and most of them lose all their coverage as a result….” “These incidents are hardly isolated and random – they are part of a pattern, a prevalent practice in this industry that very simply has to be stopped.”
It doesn’t take a psychic to predict that as more consumers sign up for Individual health insurance policies, this practice of retroactively canceling policies will soon be a nationwide problem. And no state regulatory agency has the resources to fully investigate thousands of these cases.
If the Health Reform bill now being considered by Congress merely subsidizes the purchase of Individual health insurance policies by the uninsured, the insurance industry will reap an immediate windfall but it is more than likely that those policies will be cancelled if the policy holder falls ill.
In July 2008, Anthem Blue Cross and Blue Shield of California agreed to pay the state of California $!3 million in fines and offer new health plans to more than 2200 citizens who had their coverage rescinded since 2004 after becoming ill.
But will these policies be worth the paper they are written on?
According to a Business Week article published August 6, 2009, the Senate Finance Committee was anticipating an average 24% co-pay for policy holders under the Health Reform plan. Depending on whether or not Congress puts a reasonable top limit on a patients share of a years total medical bills, 24 % may well be unaffordable for many of the uninsured. But according to the article, United Health has been urging an even more “industry friendly ratio,” and the Senate Finance Committee is considering a 35% co-pay for consumers.
That means if the yearly out of pocket limit is $10,000, a sick policy holder would have to pay $3500, an amount which most uninsured Americans would not be able to afford. Hospitals and medical professionals will end up taking the loss.
To better understand why this unhealthful situation exists in the United States, here are…
Ten things Everyone Needs to Know About the US Health Insurance System
1. For-profit health insurance companies have a conflict of interest with their policyholders.
2. For-profit health insurance companies have no economic incentive to give good customer service to their policy holders.
3. For-profit health insurance companies “churn” their policyholders because …
4. For-profit health insurance companies only “lease” their policy holders.
5. For-profit health insurance companies avoid risk sharing and engage in risk avoidance.
6. For-profit health insurance companies are members of the finance industry, not the health care industry.
7. 30 to 40 million Americans have Individual, Limited Benefit or “Discount” Policies and are thus underinsured, they actually have illusionary health insurance policies. .
8. In reality, millions of Americans actually have reliable life time health care benefit policies, not for profit health insurance, and that is because their employer, either the government or a large corporation, protects their health care interests, not their health insurance company.
9. Group insurance is not health insurance nirvana.
10. It is probably not possible to have honest for-profit health insurance.
http://www.dailykos.com/story/2009/8/10/202715/304?new=true
1. For-profit insurance companies have a conflict of interest with their policyholders.
Like any for-profit corporation, the primary fiduciary and legal obligation of a for-profit insurance company is to the shareholders. That obligation is to earn profits. For-profit health insurers are profit driven, not patient driven and thus not customer driven. For-profit health insurers earn money when they collect premiums and lose money when they pay claims. This situation creates a conflict of interest between shareholders and policyholders which results in numerous questionable business practices.
One example of questionable behavior by a Georgia insurance company is the recent contentious contract dispute between Blue Cross of Georgia and Piedmont Hospital. While contract negotiations involving large amounts of money are rarely benign, at one point, Blue Cross broke off negotiations, prolonging the dispute needlessly. While it is impossible to say what Blue Cross’s motives were, the results were undeniable.
The dispute was a perfect example of the business practice of “Good Customer / Bad Customer” in action. The contractual interruption had no effect on healthy and thus profitable Blue Cross policyholders, the good customers. However, numerous sick Blue Cross customers, the bad customers, were faced with the choice of delaying needed operations and procedures or paying thousands of dollars out of pocket.
Blue Cross customers with Individual policies who were patients at Piedmont were simply out of luck. Group Policy holders who worked for large businesses or government entities could only hope that their employer would change insurance companies, which several Atlanta businesses and the Fayette County government promptly did.
The benefit to Blue Cross was immediate. If only 100 sick policy holders whose medical bills amounted to an average of $50,000 a year switched insurance companies, Blue Cross of Georgia would “save” at least $5 million.
2. Because for-profit health insurers have a conflict of interest with their policyholders, for-profit health insurance companies have no economic incentive to render good customer service (that is, to pay medical claims) for their customers, the policyholders.
This state of affairs is almost unique among legitimate businesses in the marketplace offering a product or service to consumers. For-profit health insurance companies make money when they collect premiums, they lose money when they pay claims. This simple, undeniable fact seems to have eluded conservative economists, pundits and politicians who believe that the free marketplace will somehow provide reliable health insurance to the American people. The reality is that any health insurance company that is patient centered and competes on the basis of good customer service will make less profit than its peers. In today’s competitive and greed based environment, neither the management, the directors or the shareholders of a for-profit insurance company would permit the company to operate in any way except that which maximizes profits.
The management of a for-profit health insurance company knows full well that every new policy holder is not a valued customer but instead has the potential to be a huge liability in the future. When a policyholder becomes ill and files a large claim profits are reduced. To prevent such a result, all too often the health insurance company denies or delays payment or even cancels the policy. In the business of health insurance, profit has no conscience.
In 2009 money paid out in medical claims was called the Medical Loss Ratio. (MLR) Since the MLR is entered as a loss on the company’s books, for-profit insurance companies thus have perverse economic incentives in their relationship with their customers in comparison to most other businesses.
Some health care experts suggest that for-profit insurance companies should be required to spend a certain percentage of their premium income on medical claims, as much as 90%. Several states already require companies to spend 80-85%. Many non-profit health insurers spend 90 to 95% on claims. However, the trend among for-profit insurance companies today is to spend 85% or less. Several mid-size companies specializing in the individual market only spend 60 - 70% of premium income on medical claims, the rest is administrative costs and profits..
A legislated MLR would help to protect consumers and would level the playing field among all insurance companies by requiring an ethically challenged company to play fair or leave the business. At present, the lowest common denominator among business practices in the industry inevitably becomes the standard business practice or industry norm of all for-profit companies. Even ethically oriented for-profit and non-profit insurers must adopt some of the questionable business practices of their unethical competitors in order to compete with those companies which can charge lower premiums because they successfully scheme to pay fewer claims.
Gresham’s Law, the bad drives out the good, is true for health insurance as it is for many other commodities and financial activities. Today, bad for-profit health insurance is driving good health insurance out of the marketplace.
3. For-profit insurance companies “churn” their customers, the policyholders.
Insurance companies prescreen applicants and only sign up healthy policyholders. The policyholders are placed into small or soon to be “closed pools.” Insurance companies know from experience that after only two or three years, the “pool” will contain as many sick individuals as if the pool had not been prescreened. Since insurance companies only make money by collecting premiums, not paying claims, each of the small “pools” of policy holders has to be eliminated entirely. In theory, insurance companies are forbidden in some states by law from canceling the policies of sick individuals, so all of the policy holders must be induced to drop the policy themselves. In other words, everybody out of the pool.
Several companies proudly advertise, "you will not be singled out for a premium increase." This is actually true. For these companies, every policyholder gets a big premium increase.
Churning is the health insurance industry practice by which a company strives to eliminate policyholders by charging exorbitant premiums in the second, third and fourth year, with the result that the policy is no longer affordable to anyone except the sick individuals in the pool. Since the sick individuals cannot obtain insurance elsewhere, they are trapped in “insurance lock” and hold on desperately as long as possible.
Since the pool is closed to new policyholders, hence the “closed pool,” this creates what is called the “death spiral.” The death spiral begins when the healthy people start dropping out of the pool due to premium increases, the insurance company then justifies imposing ever more exorbitant premiums on the sick individuals. Eventually the sick are forced to drop the policy as well, and either go bankrupt or become medical wards of the state.
Although the insurance companies sometimes weep crocodile tears about the existence of the death spiral, in fact, the death spiral is a standard insurance industry tool used to induce hold-out policyholders to cancel or drop their policies
The purpose of churning is to eliminate the majority of policyholders in the pool before they file a major claim, and the death spiral is the tool used to eliminate the hold-outs.
Regulators should eliminate the use of small and closed insurance pools. Each insurance company should have only one pool for all policyholders. Eliminating small pools would eliminate the underlying justification for the use of the death spiral. Premium increases should be based on real economic fundamentals, and not be a tool used to induce policyholders to drop their policies before they file a claim.
Since churning policyholders with outrageous premium increases is an insurance industry tool, the typical double digit premium increases that Individual policy holders receive are not a result of medical inflation, technology or an aging population. Health insurance companies which churn their customers actually know in advance exactly how much they intend to charge their policyholders in future years. To eliminate this practice, regulators should require insurers to disclose the dollar amount of future premium increases when the policy is first sold to the policy holder.
4. For-profit insurance companies only lease their customers and for a relatively short period of time, and as everyone knows, no one washes a leased car.
Because for-profit insurance companies engage in routine customer churning, they have no long-term interest in the long-term health of their policyholders. As a result, for-profit health insurance companies won’t pay health care professionals to provide the systematic preventive care which could prevent illness and suffering and save society money.
5. While insurance is traditionally considered to be “risk sharing,” for-profit insurance companies engage in “risk avoidance.”
Health insurance companies “cherry pick” the healthy customers and deny insurance protection to those who are sick or who are likely to become sick. As a result, commercial health insurance companies “cost shift” the burden of caring for the sick onto the taxpayers and local health care providers. There is no rational reason why for-profit insurance companies should continue to collect billions in premiums and profits from the healthy and cost shift the burden of paying the medical bills of the ill to the taxpayer.
No citizen of the US should be uninsurable or unable to obtain health insurance. If an insurance company wants to exercise the privilege of selling health insurance policies to citizens of the US, they must accept a fair, proportional share of the high risk individuals and also the chronically ill. State and federal governments should budget the minimum taxpayer subsidies as necessary to help cover the higher medical costs of low income and chronically ill individuals.
One of the greatest threats to the health of Americans today is PECS, or Pre-Existing Condition Syndrome. No other civilized country in the world is afflicted with this malady. Americans suffering from PECS are essentially uninsurable, and live in a constant state of mortal and financial danger.
6. For-profit health insurance companies are not members of the health care industry, but the finance industry.
The American health care system uses commercial health insurance companies to provide a significant portion of the health care benefits to the citizens. No other industrialized country in the world does the same. This has resulted in the creation of our present Adversarial Health Care System.
In America’s adversarial health care system, as we are seeing in California, insurers routinely cheat patients, doctors and hospitals. Patients with a questionable health status are forced to attempt to cheat insurance companies to get coverage and if they fail they default on the huge medical bills they incur if they get sick. As a result, doctors and hospitals inflate bills by over charging and performing unnecessary medical procedures, and attempt to avoid treating uninsured and underinsured patients.
The primary purpose of for-profit health insurance companies is to “earn” a profit for their share holders by providing only the minimum in health care benefits to their policyholders. These companies know that one way to retain more of the premium dollars they have collected and earn a high return on their investment is by eliminating sick people from the insurance pool at the beginning, which eliminates many potential claims. For-profit heath insurance companies are well aware that 20% of consumers incur 80 % of all medical bills.
Health care professionals are trained in an ethos of caring, sacrifice and giving. Finance industry professionals are trained in an ethos of acquisitiveness and institutionalized avarice. Financial experts play a necessary role in our society, but their harmful involvement in the nation’s health care should be strictly limited.
While many insurance companies collect a wealth of medical data and employ medical professionals in various capacities, the main duty of these medical professionals is to find reasons to deny claims, not to suggest best medical practices or cures for their ill policyholders.
To eliminate many of the abuses in our health care system, health insurance companies should be held to the same high ethical standards as health care professionals.
7. More than forty five million Americans are uninsured, but another thirty to forty million Americans are underinsured.
These underinsured Americans have Individual high deductible policies or fake Group insurance policies which are fraudulent, semi-fraudulent, or predatory. Several million Americans wrongly believe they are insured because they hold medical discount cards, which can cost as little as $30 a month. These cards entitle the recipient to a 10% to 20 % discount off their doctor or hospital bill. However, patients could obtain the same discount by dropping to the hospital floor and crying their eyes out. Consumers should not waste their money on inadequate and semi-fraudulent health benefit plans.
While much of the focus in the present health care debate is on the plight of the uninsured, the underinsured are America’s future uninsured in waiting. Health care experts need to study and generate more public discussion of the plight of the underinsured in order to better understand the underlying causes of America’s health care crisis.
Many conservative economists and politicians are focused on providing “affordable” health insurance to the uninsured with questionable high deductible health plans. Instead, they should do what is necessary to provide “reliable” health insurance to both the uninsured and underinsured. Affordable health plans that are not reliable will needlessly harm countless numbers of Americans, as is happening today in California.
8. Most Americans with “good health insurance” either have a government sponsored health plan or an employer sponsored health benefit plan, not commercial health insurance.
The managers of an employer sponsored benefit plan which uses for-profit health insurance providers exercise vigilance to protect the health care interests of their valuable employees versus the insurance companies profit interests. In fulfillment of their fiduciary obligation to be good stewards with company funds, enlightened company management ensures that their chosen health insurance company provides the contracted medical payments services, or else.
Many large Fortune 500 companies “self insure,” that is, they set aside a portion of their pretax income to pay the medical bills of their employees. Some of these firms use for-profit insurance companies to shuffle the paperwork and to negotiate better prices with hospitals and physicians. In these instances, the insurance company usually has no incentives to defraud the patients or employers, only the hospitals and physicians.
Individuals and small businesses have no clout with insurance companies. Indeed, some experts believe that commercial health insurance companies deliberately exploit individuals and small businesses in order to subsidize large group plans and maintain access to the considerable cash flow which large groups generate.
9. Group insurance is not health insurance nirvana.
Some people advocate the use of Associated Health Plans (AHPs) because they believe that group insurance rates are more affordable than individual or small business rates, but that is not necessarily so. In theory, large employers should be able to obtain lower rates because their in-house human resources department handles much of the preliminary paper work, and the company can deal directly with the insurance company and not pay commissions to an insurance agent for individual policies.
However, AHP’s are actually a collection of individuals with Individual policies, and thus enjoy none of the advantages of Group insurance and all the disadvantages of Individual health insurance.
Still, most large corporations and government entities on average pay much more per month per person, primarily because they ask for and receive more comprehensive and more reliable benefits.
Most insurers which sell Individual policies don’t bother to have health professionals vet each applicant for pre-existing health problems, but do require applicants to fill out a form stating their health status. If an applicant doesn’t cross every t and dot every I correctly, the insurance company will cancel the policy if the policy holder files a claim. Even though it is expressly illegal in California to engage in “post-claims underwriting” for the purpose of canceling a sick persons policy, the for profit insurance companies have done it anyway.
Some liberal health care experts have suggested legislation or reforms that would encourage for-profit health insurance companies to retain individual customers for a longer period, which would in theory reduce the cost of obtaining new policy holders and thus the cost of policies. These experts do not realize that many insurers deliberately “churn” their policy holders in order to maximize short term profits. For these insurers, the expenses associated with obtaining replacement policy holders is a necessary cost of doing business.
Some companies manage to churn the majority of their policy holders in only two years. Consumers with Individual policies who frequently change health insurance companies for whatever reason are playing a dangerous game of Insurance Roulette.
10. Honest for-profit health insurance is probably not a sustainable business model in an unregulated marketplace.
When the first non-profit Blue Cross health care plan was successfully created in Baylor, Texas, the commercial insurance companies naturally investigated the possibility of entering this new health insurance market. By and large, the companies decided at that time that this new business opportunity was too risky considering the potential open ended medical costs of sick policy holders. In contrast, auto insurance and house insurance policies have pre-determined loss limits. The company executives decided that they could obtain a better rate of return on their capital in other investments and business opportunities.
The underlying fundamentals have not changed in the intervening years. What has changed is the tremendous increase in dollars involved and the “death spiral” of the ethical standards of insurance company executives. Today, insurance executives driven by short term profit interests are eager to dip their fingers into the huge money stream which exists and divert as much of the money as possible into their coffers.
In 2009, more than 1000 different entities provide health insurance benefits to the American people. Small and even some mid size companies do not have enough “covered lives” to provide honest health insurance to their customers. However, that has not stopped these small and mid-sized companies from selling policies which they do not intend to fully honor.
To end on a positive note, the odds are good you won’t have a problem with your health insurance company if you don’t get sick.
Conclusion
Since for-profit health insurance companies have a conflict of interest with their policyholders and are members of the finance industry and not the health care industry, and because they have no incentive to give good customer service to their policyholders and only “lease” their policyholders for a limited time, thus, for-profit companies engage in risk avoidance, churning, denial of legitimate claims and denial of policies to individuals with pre-existing conditions. This unhealthy situation is a primary reason why the United States has millions of uninsured citizens and poor health outcomes.
This was true in2009 and will prove to be true in 2017 as well.
Welcome to the Future under RyanCare or TrumpCare. If you didn’t like ObamaCare, and you don’t think it can get worse under Republicans, you’re wrong. It can and it will. “Those who don’t learn from the past are doomed to repeat it.”
Jim McMeans
Danielsville, GA
Sources:
The Health Insurers Have Already Won. August 6, 2009
http://www.businessweek.com/print/magazine/content/09_33/b4143034820260.htm
Canceled Health Insurance Policies in California: Is it Legal?
Attorney Pages.
http://attorneypages.com/hot/california-cancelled-health-insurance.htm
Get Sick, See Health Insurance Vanish…
Monica Sanchez. Insurance Company Rules. 6/05/09
http://www.insurancecompanyrules.org/blog/entry/get_sick_watch_health_insurance_vanish.htm
Patients with Retroactively Cancelled Health Coverage When They Become Ill Urge Schwarzenegger to Keep His State of the State Promise….
Jerry Flanagan. California Progress Report.
http://www.californiaprogressreport.com/2008/09/patients_with_r.html
Blue Cross Praised Employees who Dropped Sick Policyholders, Lawmaker Says.
Lisa Girion, Los Angeles Times. June 17, 2009.
http://articles.latimes.com/2009/jun/17/business/fi-rescind17.htm
Blue Cross Cancellations Called Illegal
Lisa Girion. Los Angeles Times. March 23, 2007
http://theenvelope.latimes.com/la-fi-insure23mar23,0,7651512,print.story
Anthem Blue Cross Sued Over Rescissions
Lisa Girion. Los Angeles Times. April 17, 2008
http://theenvelope.latimes.com/la-fi-insure17apr17,0,4763005.story?page=1
House Committee to Investigate Health Insurance Policy Rescissions Nationwide.
Kaiser Daily Health Policy Report. Friday, July 18, 2008
http://www.kaisernetwork.org/daily_reports/rep_hpolicy_recent_rep.cfm?dr_cat=3&show=yes&dr_DateTime=07-18-08
Anthem Blue Cross Faces Lawsuit over Illegal Cancellations
April 17, 2008 / Parker Waichman Alonso LLP
http://www.yourlawyer.com/articles/read/14234
http://www.dailykos.com/story/2009/8/10/202715/304?new=true