Wednesday, March 26, 2008

The Health Insurance Racket

There's more news on the ugly practice of policy cancellations ("rescissions") here in California. For a general background on how the insurance companies avoid paying out on policies they've collected premiums on, see here and here.

According to this article in the Los Angeles Times, the state is investigating the practice and will hold a meeting today with insurers. Unfortunately, it will be a closed door meeting, which means that neither the press nor consumer advocates will be allowed in.

California's largest health insurers, facing possible fines and other penalties for the way they sometimes cancel policies after patients pile up medical bills, meet today with regulators to discuss ongoing state enforcement efforts.

The meeting was called by the Department of Managed Health Care, which oversees health maintenance organizations and other types of health plans, because it was nearing completion of investigations into the cancellation practices of Health Net Inc., Kaiser Permanente and Blue Shield of California, said spokeswoman Lynne Randolph.

The department plans to discuss the standards to which it is holding the insurers' practices, she said, as well as remedies for problems identified in the probes of policy cancellations, known as rescissions. ...

Randolph said the results of the remaining three investigations would be announced soon but that the process -- including today's meeting with the health plans -- was confidential until then to protect the insurers' due-process rights.

The closed meeting has alarmed consumer advocates because it comes as the insurance industry is pushing a plan that critics believe could make it easier for sick patients to lose coverage through no fault of their own. But the department said the industry's proposal was not on the agenda.
[Emphasis added]

It's nice that the Department of Managed Health Care is concerned with due process, but it would have been nicer if it were as concerned with the due process of the policy holders as well, especially since the insurance industry is busy coming up with a plan to keep the process of rescissions out of the court system which has already busted some chops over the issue.

Several insurance companies and America's Health Insurance Plans, a Washington-based trade group, are promoting versions of a plan to create an independent review process for rescissions in efforts to restore confidence in the affected individual insurance market.

Consumer advocates said the industry proposal actually would eliminate existing consumer protections. The proposal would require patients to submit to an insurer's internal grievance procedures and then to a third-party review before resorting to the public courts.

If the third-party reviewer found in favor of the insurer, the patient would have the burden of proving in court that the decision was wrong. The proposal, aimed at avoiding litigation, would not allow patients in such cases to pursue punitive damages.
[Emphasis added]

It's pretty clear why such a proposal is important to the health insurance industry: the courts have already found the rescission practice as implemented by the main insurers unfair and unlawful and worthy of punitive damages. The article gave an example of how it was used in one case.

In the first reported verdict in a rescission lawsuit in California, a judge awarded more than $9 million last month to Patsy Bates, a Gardena hair salon owner dropped by Health Net while undergoing chemotherapy for breast cancer.

The largest portion of Bates' award was punitive damages. Evidence showed that the company paid bonuses to an employee based in part on the number and value of rescissions she carried out.


And that kind of behavior needs to be examined in the sunlight, not behind closed doors. The department should be ashamed.

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