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ealth insurance companies who offer individual health care plans now spend millions of dollars in national ads to convince the rapidly growing individual healthcare market, "We'll take care of you—buy from us" Increasingly, it appears to many of those policyholders that the "taking" the industry does best is to take premiums from the policyholders until they have a catastrophic claim. Those same healthcare insurers who spend millions begging you to buy from them also spend countless hundreds of thousands of dollars each year for lawyers whose job it is to find legal excuses to revoke policies of catastrophic claimants in order to mitigate their liability. Take Tony and Susan Seals for example. The Seals, who have four small children, went online to price-shop and purchase family health coverage from Gold River, California-based Health Net (eHealth, Inc.) on March 15, 2003.

Tony Seals thought they made a good buy with Health Net. He filled out the application online, answered all of the "health"-related questions—including an innocuous one asking when Susan had her last menstrual period. The Seals knew that question was asked because health insurers will not issue policies to someone who is pregnant. Or, if they do, they will waive that pregnancy from coverage even though they will cover the new baby from birth.

Health Net issued the policy effective April 1, 2003. April Fool! About mid-April the Seals learned that Susan was pregnant. Although they apparently did not know it when they applied for coverage, Susan—who gave birth on October 3, 2003—apparently became pregnant in February. Because it appeared the Seals were unaware that Susan was pregnant when they applied for coverage, Health Net covered Susan's prenatal visits and tests, and the costs associated with the delivery of their daughter, Madeline. The delivery was complicated because the Seals' fifth child was in distress when she was born. The baby, who had to be revived after birth, was hospitalized for eight weeks. Susan remained hospitalized for almost three weeks herself. Yet, Health Net paid the bills. As the bills for Madeline began to pile up, Health Net asked Susan Seals OB/Gyn for all of Susan's files.

When they compared the information in the doctor's files with the information on the insurance application they found a slight discrepancy. The date she gave her doctor for her last period was two weeks earlier than the date her husband wrote on the application. Seals told Gannett Newspapers that Health Net told them they "...felt like we had not given them a correct date for my wife's last menstrual period, so [they decided to cancel the coverage." The cancellation left the Seals family with $140 thousand in unpaid medical bills. The Seals filed a malpractice lawsuit over his daughter's birth. A jury awarded Seals and his wife $95 thousand to cover their medical bills and $1 million that was put into a trust fund to provide for Madeline through her life. The Sealses ended up $45 thousand in debt because their coverage was canceled over a "guess" made by Tony Seals when he filled out the application for insurance.

Defending their decision, Health Net spokesman Brad Kieffer said his company was sorry about the situation, but they had to rely on the information on the insurance application. "If we suspect misrepresentations have been made," Kieffer said, "state laws and [insurance] regulations permit us to investigate and get the facts. If we find misrepresentations have occurred, the policy is rescinded. It is the responsibility of the applicant to be sure all information on an application is correct and complete." In the case of the Seals, Health Net was standing on legal grounds. If Tony Seals deliberately skimmed a couple of weeks off the date of Susan's last period, it could be argued that he wanted to make sure the pregnancy was covered. However, the only thing that would have been excluded from coverage would have been the hospital and the OB/Gyn costs associated with the birth of Madeline. The postnatal costs associated with the brain damage of Madeline would still have been covered. Health Net used a legal loophole to escape a long-term obligation that, ethically, it should have paid.

Insurance horror stories are increasing across the United States in direct proportion to the increased number of American families leaving the fringe benefits of the corporate world for work in small companies or family owned businesses without health benefits or 401Ks. The exodus of America's jobs to Mexico and China has created a new underwriting opportunity for America's insurance industry—individual family healthcare plans. Insurance companies insist that they only rarely cancel policies due to omitted or misleading information on the applications for coverage. Blue Cross of California revokes about 1% of their individual policies each year. That's because the underwriting rules in the individual policy market allow insurers to exclude from coverage anyone with preexisting conditions. It also allows the insurer go back for decades to check the applicant's medical history to discover if any condition exist that might become chronic in later years, resulting in potential major claims.

Some insurers save the costly and very intrusive "deep background checks" for when policyholders file expensive claims for benefits. The purpose of the investigation is to determine if the policyholder lied about preexisting and potentially chronic medical conditions, or about prior operations or illnesses—sometimes as minor as chicken pox or scarlet fever—that may have occurred during the policyholder's early childhood. Omissions are used by insurance companies to deny claims or revoke policies that have become financially problematic. It is important to remember that every insurance policy has a contestable period when claims can be denied due to preexisting conditions. Theoretically, once the contestable period is over, claims cannot be contested—or so the policyholder thinks.

By construing that omitted data or incorrect information on an application for insurance constitutes fraud, and since the "statute of limitations" on fraud begins when the fraud is discovered, insurance companies stand a better chance of beating the policyholder in court by waiting until a catastrophic claim is submitted before they do a deep background check of the insured's medical history.

Today, roughly 16 million people are forced to carry individual health insurance plans in order to have coverage since they [a] work for companies that do not provide health care, [b] are self-employed or operate a small company and do not have enough employees to qualify for group coverage at an affordable rate, or [c] are unemployed.

It appears to regulators in several States that insurers have found the perfect loophole to escape catastrophic claims—belated investigations into medical histories in search of fraud. While acknowledging that insurance carriers certainly have the right—and an obligation to both their policyholders and their shareholders—to protect themselves against fraud from applicants who apply for coverage only after they learn they have developed what is likely to be an expensive, chronic medical condition. However, in many instances insurance companies are attempting to avoid valid claims by claiming applicants failed to disclose irrelevant illnesses or injuries that are two, three, four or more decades old and are completely unrelated to the illnesses for which claims are filed.

Blue Cross of California was fined $200 thousand in September, 2006 for canceling a woman's policy because she failed to disclose a surgery she had 20 years earlier. (The surgery was unrelated to the current medical problem.) Regulators noted that the woman had a clean medical history after that surgery. Blue Cross was ordered to reinstate the policy. Blue Cross appealed the regulator's decision.

In October, 2005 Denise Wheeler and her husband Stephen applied to Nationwide Insurance for an individual health plan for their family. Wheeler had just left a corporate job to form his own company. The policy, with a $700 per month premium price tag, was approved and went into effect on December 1, 2005. Three months before they applied for the coverage Denise Wheeler went to the emergency room of her local Laguana Beach hospital—with a follow-up to her OB/Gyn—because she experienced an extremely heavy menstrual period. The physician noted in her records that the flow was "normal." Because there was nothing wrong, the Wheelers did not mention the visit under the section of the application asking about treatment for medical conditions or problems.

In May, 2006 Denise Wheeler collapsed while attending a son's baseball game. She was rushed to the hospital with perforated ulcer which she did not know she had. The life-threatening surgery to repair the damage took 5 hours. A couple of weeks after the surgery the Wheelers received a letter from Nationwide asking for additional health history information. A few days later Nationwide notified them their coverage was revoked, citing the "fraud" for failing to reveal a condition that would have precluded them from insuring the Wheeler family. Nationwide refused to pay the $30,000 tab for Wheeler's surgery. On January 12, 2007 the Wheelers filed a lawsuit against Nationwide.

In October, 2006 Kaiser Permanente was ordered to reinstate a woman whose policy it canceled for filing a misleading application. She was scheduled to begin what appeared would ultimately be ongoing treatment for a failing kidney. The patient had been a member of a Kaiser group plan for over 20 years. When she left her job, she converted her group coverage to an individual Kaiser plan. In the application she completed to switch from the group to the individual plan, she forgot to list an appointment she had with a Kaiser doctor for a complaint of neck pain shortly before enrolling in the individual plan. Sensing the patient was going to incur serious medical bills for dialysis, Kaiser canceled her coverage arguing the woman failed to reveal all pertinent medical information. In another incident, Kaiser was fined $100 thousand for canceling the policy of a man after a Kaiser doctor diagnosed him with epilepsy within 3 or 4 months of his joining Kaiser. Kaiser claimed that the "hot flashes" the man had experienced were indicative of his epilepsy. None of medical reports from prior examinations for hot flashes suggested epilepsy—or any other medical condition. In fact, every test done on the patient said there was nothing wrong with the man. Kaiser was forced to reinstate the patient's coverage.

The insurance industry argues that they have a detailed process through which people apply for coverage, and they must be constantly vigilant for for fraud and simple misrepresentation of facts that will lead the insurer to issue a policy that they might not have issued if the information was factually presented—even if the illness or injury was viewed by the insured as so inconsequential, that it didn't even merit a doctor's visit. With the marketing of eldercare plans designed to supplement Medicare, many of today's healthcare buyers are of advanced years with somewhat diminished memories. Many of them ignore nuisance body complaints as the normal symptoms of "getting old" and didn't think about them when they were signing up for supplemental insurance because, as noted, they weren't troublesome enough to make them go a doctor.

Such was the case of a 63-year old retired Connecticut woman who purchased a 6-month renewal eldercare plan from Assurant Health. (Assurant Health is affiliated with Union Security Life Insurance Company. Other brands owned by the same company are Time Insurance and John Alden Life Insurance Company.) The woman, who has since moved to St. Petersburg, Florida, purchased the 6-month plan because it was cheaper than a traditional healthcare plan. It was cheaper because the plan limited Assurant's liability. The plan expired every 6-months, forcing the applicant to seek new coverage based on their health at the time of the renewal application—and allowing Assurant to deny coverage to the applicant for "preexisting conditions." The woman purchased her first 6-month policy in 2005, shortly after she retired. She renewed the policy in January, 2006.

In March, 2006 she went to her doctor for a lump under her ear. She'd had the lump for a while, but it didn't hurt and it didn't appear to growing. In March she realized the lump was noticeably larger. During his examination, the doctor asked her how long she'd had the lump. She told him she first noticed it about a year earlier, and explained because it didn't hurt, she dismissed it as nothing.

It was cancer. When Assurant was presented with a $30 thousand surgical bill, the company revoked her policy, claiming the cancer was a preexisting condition. As Assurant contested paying the claim with the Insurance Commissioner of Connecticut, they argued that a "...prudent person would seek diagnosis or treatment when a lump initially presents itself."

Another Connecticut Assurant Health policyholder, a 61-year old female school teacher, also opted to buy the 6-month health policy—again, because it was cheaper. And, like the 63-year old mentioned above, saving a few dollars was a mistake. She renewed the policy each time it expired. Days before her current 6-month policy expired, she developed a skin rash. The test results came back after a new 6-month Assurant policy went into effect. The news was bad—it was cancer. The bill for the chemotherapy reached $100 thousand—and Assurant canceled her coverage, declaring the cancer to be a "preexisting condition" that predated her current coverage. Assurant refused to pay for any of the chemotherapy.

The reason Assurant and other health insurance carriers sell a 6-month policy—and sell it for much less than their traditional healthcare plans is because if catastrophic illnesses occur, the carrier is only "on the hook" for the duration of the coverage. When the policy is renewed, the catastrophic illness becomes a preexisting condition and is no longer covered even if the applicant is reinsured.

With an outrcy from patients-rights advocacy groups to protect policyholders with catastrophic illnesses from having their policies canceled at the time they need coverage most, the insurance industry—which is once again being taken over by the nation's largest banks—insists there is no need for increased regulation to protect policyholders since complaints of policy revocations are less than one-hundredths of one percent. The insurance industry insists that policing claims and investigating the statements of applicants and policyholders is good business—it protects all of the policyholders and, of course, it protects the company's shareholders. Patients' rights groups are insist that insurance companies are manipulating the system by using it to get out from under costly claims. Many of these groups are lobbying both State and federal legislators to enact laws that would force insurance carriers to prove that the policyholder lied or deliberately attempted to withhold derogatory medical history before they could renounce claims and revoke policies. Conversely, policyholders should have complete access to the data retrieved by the insurer about their medical history before the policy was issued to determine if the insurance company received exculpatory information and still issued the policy, believing they could use the information somewhere down the road if the need arose to find an escape clause that would allow them to legally cancel the policy.

Individual healthcare applications generally ask for medical histories dating back ten years—unless the applicant faced a life-threatening illness earlier in life. This information is needed to determine the underwriting risks. When faced with catastrophic claims, some insurers don't hesitate to dig into the policyholder's medical past looking for histories that will allow them to revoke the coverage and deny the catastrophic claims. Advocates for reform argue that insurers go beyond what they ask on their applications and buy information collected by national databanks that previously collected only credit information. The insurance industry counters that good underwriting mandates that they check to make sure the applicant has not been treated for any illnesses not disclosed on the application.

The problem, however, is not in the insurer verifying the medical history of the applicant prior to issuing the policy since that's simply sound underwriting. A question of ethics arises from investigating the policyholder's history—or using data found in the investigation that took place prior to issuing the policyafter a catastrophic claim is presented since it is clear, at that time, the insurer is trying to find something that can be used to revoke the policy and/or deny the claim.

In California, which is now contemplating a law that will force insurance carriers to cover everyone—and force everyone to purchase health coverag—just as States now have mandatory auto insurance laws. Insurance companies are scrambling to rewrite their own underwriting rules before the legislatures do it for them. Patients rights groups are demanding that the States preclude post-policy "fishing expeditions" by insurance companies when catastrophic claims happen. Some healthcare insurers are setting up policy review committees—which will include a consumer ombudsman—to review all revocations and give the policyholder an opportunity to appeal a policy revocation before claims are denied.

New York and New Jersey already require insurance carriers that offer individual policies to issue coverage to every applicant—regardless of their medical history. Health care premiums are traditionally much higher in those States. Gov. Arnold Schwarzenegger believes by mandating that all citizens be required to purchase health insurance in California, it will lower the cost for all policyholders, making it affordable for all. It could be that the Schwarzenegger approach may provide an answer to the healthcare crisis in America by forcing everyone to carry health insurance and simply subsidizing it for the poor. It will remove government from the equation and keep healthcare in the private sector where it belongs.



Just Say No
Copyright © 2009 Jon Christian Ryter.
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