Are Medical Insurers Sacred Cows?
Health insurance companies are a powerful industry not easily provoked, pushed or intimidated into doing anything. This arrogance persists even after they’ve been fined millions for having failed their members and providers time and again.
In a June 2009 report, Health Care for America Now outlined the habitual abuses perpetrated by health insurance companies. The abuses run the gamut of denying coverage, preventing doctors from delivering medically necessary care, unduly delaying reimbursements to providers and patients as well as leaving patients with high out-of-pockets costs.
These are but a smattering of the lengthy listings of complaints filed against health insurers. A quick internet search reveals a multitude of settled and pending lawsuits against various U.S. health insurers for the same types of abuses they committed in prior years.
These insurers see the fines and settlement fees as a cost of doing business that is either passed on to members by hiking policy premiums or are paid out of business insurance proceeds.
They’ve spent tens of millions of dollars lobbying Congress against adopting a public option for fear that competition would cut into their market share. And while they talk of cooperating to lower health care costs, doing anything that would intentionally decrease shareholder profits is a breach of their fiduciary duty as a for-profit company. As a result, they have yet to commit a dime towards doing anything to lower health care costs.
Personally, I’m a proponent of capitalism and every American’s right to pursue his dream. But there is a means to an end, and in America, there are supposed to be laws that are enforced by government agencies to protect its citizenry from fraudulent and harmful practices.
The current state of our economy is proof plenty of the tremendous influence the moneyed had in convincing our political leaders to tie the hands of U.S. enforcers in many fields, including health care. Yet evidence of such abuse continues unabated. Let me provide you with a few examples to demonstrate the extent of the problem.
In testimony before the U.S. Senate Committee on Commerce, Science and Transportation on June 24, 2009, former health insurance executive Wendell Potter revealed ways for-profit insurance companies intentionally make U.S. health care both the most expensive and most dysfunctional in the world.
Potter, who recently left his post as head of corporate communications for CIGNA Corp. after 16 years, told committee members, “Insurers make promises they have no intention of keeping, they flout regulations designed to protect consumers…” He called the insurance industry’s effort to derail health care reform “duplicitous” and a well financed PR and lobbying campaign that may well shape reform in a way that benefits Wall Street far more than average Americans.
He described how Wall Street investors view what’s called “the medical loss ratio” as a crucial indicator for determining the value of stock. The medical loss ratio is a measure used to determine how much the company pays out in claims as opposed to what is left over to cover sales, marketing, underwriting and other administrative expenses, including profits. He said that ratio has been shrinking since the industry has become dominated by for-profit insurance companies.
He said insurers keep medical loss ratios in check by culling the sick from their rolls. He cited a 2004 Wall Street Journal report describing how Aetna spent $20 million to revamp its computer systems so that it could shed some 8 million subscribers with the highest number of claims. One way insurers purge accounts, he said, is by raising the cost of premiums and deductibles to levels so unreasonable, the employers stop offering the plans to their employees.
According to the National Small Business Association, the purging of less profitable accounts through intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees fell from 61 percent to 38 percent since 1993.
Another method insurers use to purge costly accounts, he said, is through policy rescission. Here, the insurer looks to find if the policyholder omitted a minor illness, a pre-existing condition, when applying for coverage, and then uses that as a justification for canceling the policy.
In an interview with Bill Moyers, Potter said, “At the executive level, you think about the numbers and whether you’re going to meet Wall Street’s expectations. You don’t think about the people. I didn’t put faces with the numbers.”
A study by PricewaterhouseCoopers last year revealed just how successful insurers’ purging actions were over the last decade. The accounting firm found that the collective medical loss ratios of the seven largest for-profit insurers fell from an average of 85.3 percent in 1998 to 81.6 percent in 2008. That translates into an additional several billion dollars for insurance company shareholders and executives at the expense of health care providers and their patients.
Potter blames these practices on the industry’s consolidation over the last 15 years into one dominated by what he called “a cartel” of large for-profit insurers, who don’t want any competitors, particularly from a public plan.
Such thinking flies in the face of belief in an economic system in which prices and the availability of goods and services is determined primarily by the free market. In fact, the Sherman Antitrust Act requires the U.S. federal government to investigate and pursue companies and organizations suspected of forming cartels and monopolies.
In the Golden Age of Motion Pictures, for example, the Sherman Antitrust Act was used to break up the lock the motion picture industry had on not only producing movies but also showing movies in studio-owned theatres.
The Act attempts to prevent a monopolist from artificially preserving his status and from nefarious dealings to create a monopoly. As explained by the U.S. Supreme Court in Spectrum Sports, Inc. v. McQuillan: “The purpose of the Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.”
Curiously, health care insurers were exempted from anti-trust laws because of the McCarran-Ferguson Act of 1945, which allows for state but not federal anti-trust regulation.
As part of his PR job at CIGNA, Potter said he developed rapid-response mechanisms for handling media inquiries pertaining to member and provider complaints. He also had a hand in developing the strategy insurers used to defeat the last national health care reform effort under President Bill Clinton that is still being used this go round.
That strategy entailed issuing “talking point” crib sheets that instructed members of Congress and others to first pretend to support health care reform, and then use phrases such as “delayed care is denied care,” “government takeover,” “consequences of rationing,” “bureaucrats not doctors will decide your care…” Potter said “Politicians mouthed the taking points CIGNA perpetrated.”
In his June testimony, Potter described how during the last national health care reform debate, the president of CIGNA’s health care division was one of three industry executives who assured members of Congress they enthusiastically supported specific goals to cover all Americans; eliminate underwriting practices like pre-existing condition exclusions and cherry-picking. Potter said industry executives are making these same assurances today — only this time, the industry is bigger, richer and stronger. He said it has the money to buy access to have its arguments heard when the average U.S. citizen does not.
On July 21, 2009, The Washington Post reported on the extent to which industry cash flowed to drafters of reform. The article talked about how Senate Finance Committee Chair Sen. Max Baucus (D-Mont.) emerged as a leading recipient of Senate campaign contributions from the hospitals, insurers and other medical interest groups hoping to shape reform legislation to their advantage. According to the Post article, Baucus political committees received nearly $1.5 million in 2007 and 2008, when he began holding hearings and making preparations for this year’s reform debate.
Overall, the health care sector gave nearly $170 million to federal lawmakers in 2007 and 2008, according to data compiled by the Center for Responsive Politics, which tracks money in politics. But, according to Potter, this money did not come without strings attached.
In his Bill Moyers interview, Potter described how health care lobbyists got their message, “Do as we say, or we can make things tough for you,” through to elected officials. He said that if politicians didn’t cooperate, health insurers would run uncomplimentary ads in their districts during re-election campaigns or contribute money to their opponents.
Further evidence of health insurers’ raw dealings is easy to come by with a simple internet search.
Among them are numerous incidents in which state insurance commissions imposed fines on insurers for neglecting consumer complaints for prolonged periods. In some instances, the cited insurer also pledged to take steps to prevent the recurrence of the customer service violations as CIGNA did in January 2006 before the New York State Insurance Department. In this instance, CIGNA Healthcare of New York, Inc. was fined $150,000 for failing to respond to consumer complaints within 15 business days, a statutory deadline the state said CIGNA repeatedly failed to meet.
In July 2007, a federal judge granted final approval of a $93 million settlement in a securities fraud suit against CIGNA Corp. that accused the company of hiding the fact that it was experiencing significant problems in an overhaul of its computer systems and that its stock price had plummeted by 45 percent when news of the problem was disclosed. According to a press release dated August 15, 2007, on July 13, 2007, the U.S. District Court for the Eastern District of Pennsylvania granted final approval of an attorneys’ fees award in the amount of $21,390,000, representing 23% of a $93 million securities fraud class settlement.
In February 2009, the Medical Society of New Jersey and the American Medical Association (AMA) filed complaints in the U.S. District Court of New Jersey against Aetna Health Inc. and CIGNA Corp. for allegedly underpaying physicians that do not participate in their networks. The legal action was joined by the Connecticut State Medical Society, the Medical Society of the State of New York, the North Carolina Medical Society, and the Texas Medical Association.
The separate proposed class-action lawsuits allege violations of the federal Racketeer Influenced and Corrupt Organizations Act, the Employee Retirement Income Security Act and the Sherman Antitrust Act.
At the center of these complaints is the use of the Ingenix database, owned by United Health Group, a national health insurance company. United sold access to the Ingenix data to both CIGNA and Aetna, which used the data to set fees for out-of-network providers. The Ingenix databases and United were investigated by New York Attorney General Andrew Cuomo, who alleged the database was rigged and ripped off consumers of hundreds of millions of dollars.
In January 2009, UnitedHealth reached a $50 million settlement with Cuomo. In a separate class action lawsuit brought by the AMA, state medical societies, health care providers and health plan members, UnitedHealth agreed to pay $350 million.
Subsequently, on March 25, 2009, a class action lawsuit was filed in federal court in California alleging that Wellpoint engaged in a conspiracy with other health plans to fix prices and underpay physicians for out-of-network services. The AMA, California Medical Association, Connecticut State Medical Society and the Medical Association of Georgia have also joined the Wellpoint lawsuit.
These are but a few of the examples I found. The list of suits and complaints against health insurers for repeat violations continues to mount.
In light of this, I have to ask, where are the government enforcers? Is our government powerless to curtail such rampant and blatant abuse within the health care industry? What about the untruthful marketing representations that seem to violate Regulation Z? What has the SEC done to investigate the Sarbanes Oxley violations alleged in the 2007 U.S. District Court securities fraud suit? What happens if and when corporate liability insurers stop paying suit settlements?
I never knew our health insurers were such sacred cows.
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