Yes, I Defended Insurance Companies

Ken AshfordHealth CareLeave a Comment

The Washington Post has a front-page article up about rescission in the health insurance industry:

Rescission — the technical term for canceling coverage on grounds that the company was misled — is often considered among the most offensive practices in an insurance industry that already suffers from a distinct lack of popularity among the American public. Tales of cancellations have fueled outrage among regulators, analysts, doctors and, not least, plaintiffs' lawyers, who describe insurers as too eager to shed patients to widen profits.

What typically happens is that someone gets sick, and not only does the insurer deny the coverage, but they cancel the policy on that person because (the insurer says) that person failed to disclose a pre-existing condition.

Now, let me weigh in on my experience, because, yes, for a year or two, I was a lawyer representing a major insurance company.  I handled cases where people were denied disability coverage and sometimes their policies were rescinded for failing to disclose a pre-existing condition.

Okay.  Here's how insurance companies defend their practice of rescission:

Insurance company officials say they need to be able to cancel policies to control fraud, which by some estimates reaches $100 billion annually.

Trust me.  I'm no shill for insurance companies and I can't speak to the big-picture estimates of $100 billion annually, but yes, Virginia, many people do try to defraud the insurance company.  I've seen it.  There are people who claim to be unable to work because they can't move their back and lo and behold, there's videotape of them doing brickwork on their patio or gardening or something, all while collecting disability benefits.  (You don't think insurance compannies check these things out?)

And who pays for this?  We do.  Our premiums are higher because some people are playing the system.

But what about the other side of the coin?  Are insurance companies engaging in rescission of policies on the slightest pretext?  The Washington Post story provides this anecdotal evidence:

The untimely disappearance of Sally Marrari's medical coverage goes a long way toward explaining why insurance companies are cast as the villain in the health-care reform drama.

"They said I never mentioned I had a back problem," said Marrari, 52, whose coverage with Blue Cross was abruptly canceled in 2006 after a thyroid disorder, fluid in the heart and lupus were diagnosed. That left the Los Angeles woman with $25,000 in medical bills and the stigma of the company's claim that she had committed fraud by not listing on a health questionnaire "preexisting conditions" Marrari said she did not know she had.

By the time she filed a lawsuit in 2008, she also got a diagnosis of pancreatic cancer and her debts had swelled beyond $200,000.

And this:

In a pending case, Blue Shield searched in vain for an inconsistency in the health records of the wife of a dairy farmer after she filed a claim for emergency gallbladder surgery, according to attorneys for the family. Turning to her husband's questionnaire, the company discovered he had not mentioned his high cholesterol and dropped them both. Blue Shield officials said they would not comment on a pending case.

In other words, failure to mention some medical condition on your application form – any medical condition — serves as grounds for insurance companies to deny you coverage and take away your policy altogether.  An egregious example often told includes a woman in Texas was diagnosed with aggressive breast cancer. Soon after, her insurer dropped her — the company found an instance in which she visited a dermatologist for acne, and didn't tell the insurer about it.

It happens, and yes, it's rather unsavory.  It's one thing when people fail to disclose major illnesses on their insurance application; that certainly indicates fraud on the insurance company.  But if I had a stiff back for a few days four years ago, and I forgot to mention it to the insurance company (because I had forgotten about it myself), should I get dinged with denial-of-coverage and rescission if, ten years later, I develop some back problem?

The problem is that when people apply for insurance, they don't want to disclose every tiny illness, even assuming they do remember.  And why?  Because they know that they risk being denied coverage for a pre-existing condition.

I don't have any personal insight into the zealousness that insurers employ to deny coverage.  There certainly seem to be indications that insurance companies use the "fighting fraud" excuse to, let's be blunt, raise their profit margin. Three months ago, the House Subcommittee on Oversight and Investigation held a hearing on this with executives from three of the nation's largest health insurers, WellPoint Inc., UnitedHealth Group, and Assurant Inc. At one point, late in the discussion, Rep. Bart Stupak (D-Mich.) asked each of the execs whether they would at least commit to stopping rescissions except where they could show "intentional fraud." All three responded with the same answer: "No." They liked the money-saving tactic and planned to keep using it.

As the article points out, the rescission issue is getting better if only because the government (usually at the state level) is cracking down on overt practices by the insurance companies to deny coverage or rescind policies.

My only point here is that we need to crack down not only on overt insurance practices, but also on the actual fraud committed against insurance consumers.  Any reform which makes it easier for people to play the insurance racket isn't going to help us in the long run, since that leads to an increase in health care coverage costs for all.