Why You Can't Trust Your Health Insurer

Original Link: http://www.slate.com/id/2223680/

By Timothy Noah

Private insurance companies dump very sick claimants based on stupid technicalities. That's reason enough to support health reform.

Blue Dog Democrats are (for reasons Steven Pearlstein of the Washington Post and Paul Krugman of the New York Times correctly label "muddled") obstructing House passage of health care reform. The Congressional Budget Office says the White House's "game-changing" proposal to create a Fed-like body to control Medicare costs will save only $2 billion over 10 years and may not save a dime. The Senate finance committee is still groping for a way to raise taxes to pay for a health reform bill it has yet to introduce. The Washington Post's editorial page is chiding the president for neglecting to tell the elderly and infirm that they have a duty to die, as Colorado Gov. Dick Lamm famously suggested back in 1984. (Lamm—naughty fellow!—turns 74 next week.) In the New York Times, David Leonhardt poses the health-reform question of the hour: What's in it for me?

A comprehensive answer may be found in this excellent New York Times editorial. I'll focus here more narrowly with a three-word answer: No more rescissions.

Rescission (also known as "post-claims underwriting") is the process whereby health insurers avoid paying out benefits to treat cancer and other serious illnesses by seeking and often finding chickenshit errors in the policyholder's paperwork that can justify canceling the policy. In one job evaluation, the health insurer WellPoint actually scored a director of group underwriting on a scale of 1 to 5 based on the dollar amount she had managed to deny through rescission. (The director had saved the company nearly $10 million, earning a score of 3. WellPoint's president, Brian A. Sassi, insists this is not routine company practice.) Rescission's victims tend typically to be less-educated people who are more likely to make an error in filling out their insurance forms and lack the means to challenge a rescission in court—a path in which success is, at any rate, not guaranteed, because under state law the practice is perfectly legal if done within the allowable time frame (typically up to two years after a policy is issued).

The health crisis doesn't get more gothic than this. Robin Beaton, a retired nurse in Texas, was rescinded last year by Blue Cross and Blue Shield after she was diagnosed with an aggressive form of breast cancer. Blue Cross said this was because she had neglected to state on her forms that she had been treated previously … for acne. Beaton eventually persuaded her congressman, Rep. Joe Barton, to twist Blue Cross' arm, but the delay meant it was five months before she could receive her operation. Otto Raddatz, a restaurant owner in Illinois, was rescinded in 2004 by Fortis Insurance Co. after he was diagnosed with non-Hodgkins lymphoma. Fortis said this was because Raddatz had failed to disclose that a CT scan four years earlier had revealed that he had an aneurism and gall stones. Raddatz replied—and his doctor confirmed—that he had never been told about these conditions (the doctor said they were "very minor" and didn't require treatment), but Fortis nonetheless refused a payout until the state attorney general intervened. The delay in treatment eliminated Raddatz's chances of recovery, and he died.

Beaton and Raddatz's sister Peggy told their stories at a June 16 hearing before a subcommittee of the very House committee in which health reform is currently stalled—Energy and Commerce. (To watch it, scroll to the bottom of this column. The subcommittee has posted a partial summary of its investigation, other documents from that hearing, and additional documents from a follow-up field hearing on July 27 in New Albany, Ind. The hearings received little press coverage outside the Los Angeles Times and Public Radio International's This American Life.) In one comic highlight, Don Hamm, the chief executive of Assurant Health, was unable to define lymphadenopathy and other terms that appeared on his company's own enrollment questionnaire. The committee found that during the previous five years, three health insurers—Assurant Health, WellPoint, and Golden Rule—had saved more than $300 million by rescinding nearly 20,000 policies based on omissions policyholders made in filling out enrollment forms. Asked (in this season of reform-minded industry concessions) whether they would pledge to stop rescissions except in cases of intentional fraud, the chief executives of all three companies said that they would not.

My point is not merely that it is necessary to pass health care reform to outlaw this horrifying bait and switch, which both the House and Senate health committee versions would do. It's that an industry willing to play three-card monte with very sick people can be counted on to dream up new and better card tricks. (In testimony last month before the Senate commerce committee, Wendell Potter, a whistle-blowing former executive at Cigna and other health insurance companies, gave a helpful summary of the industry's other ghastly practices.)

That's why I place only limited faith in health reform's (admittedly overdue) prohibitions on "adverse selection" methods such as excluding prospective policyholders based on pre-existing conditions. The true remedy lies in the bill's public option, which would create a government insurance program to compete with and (at least to some extent) displace private insurance. Disappointingly, both the House and Senate health bills restrict access to the public option to an absurd degree; a new Congressional Budget Office report estimates only about 2 million people would participate. That probably wouldn't do much to "keep private insurers honest," to use President Obama's words. And, anyway, private health insurers' rescission policies call into question Obama's assumption that they were ever honest to begin with.