In an excellent recent article in the New York Times,  a claim-handling practice by Anthem Blue Cross Blue Shield was brought into the public light.  Anthem has begun denying its policyholders’ claims for coverage for emergency room visits if Anthem determines after the fact that the policyholder didn’t really need to go to the emergency room in the first place.  Anthem is basing these decisions on what the final diagnosis of the policyholder’s condition turns out to be after being seen in the ER.  For instance, a person with a heart condition who experiences heart attack-like symptoms and goes to the ER might have coverage for the ER charges (often thousands of dollars) denied if it turns out the symptoms were not a heart attack after all.  This leaves the patient stuck to pay the ER bill out of pocket.

Apparently, Anthem’s has concluded that since the cost of an ER visit is much higher than a visit to an urgent care clinic or a primary care doctor, Anthem is going to scrutinize ER visits in this way.  I can see multiple problems with this approach from the policyholder’s perspecitve.

First, as illustrated by the account of one of the Anthem policyholders interviewed in the the Times article, Anthem’s position puts the policyholder in the unenviable spot of having to self-diagnose before visiting the ER.  If a heart patient is having heart attack-like symptoms, they should not have to gauge the nature and severity of the symptoms before deciding whether to seek treatment at the ER.  That’s what ER doctors are for.

Wouldn’t it be tragic if an Anthem policyholder decided not to go the the ER for fear Anthem would later deny coverage if the problem turned out to be less significant than they thought, then died of (for example) a heart attack?  How would Anthem defend itself in a lawsuit then?

Second, who at Anthem is making the decisions as to whether policyholders’ visits to the ER are covered?  As noted in a previous post, in my experience deposing in-house insurance company doctors, it turns out they are often grossly unqualified to render the medical opinions they’re called upon to give.  If my experience in lawsuits the health insurance industry is any guide, it’s likely insurance company doctors making decisions regarding ER visits to treat (for example) heart conditions will likely be (for example) family practitioners or internists not cardiologists.  The gross unfairness of this situation should concern every Anthem insured.  Plus, you can bet as Anthem’s profit increases as a result of this practice, other insurance companies are sure to follow suit.

Predicatably, Anthem apparently attempts to defend this practice by pointing out how much money it costs Anthem to pay for ER visits it thinks in hindsight were unnecessary.  The Times article says Anthem believes “as many as 5 percent” of ER visits are unnecessary.  Of course, Anthem will also say this “unnecessary” expense makes everyone’s premiums go up because Anthem has to pass these costs along to all of its policyholders.  This argument, which insurance companies use at every opportunity, is just a scare tactic to distract the public from the real “money story” here.

Anthem has done extremely well financially, and that financial success is reflected in the amount of money Anthem’s top executives make.   Anthem’s revenue for 2017 was over $90 billion (growing at an annual rate for the last five years of just under 8%).  Anthem’s profit for 2017 was $3.84 billion ($10.5 million per day).  The CEO of Anthem made $16.5 million in 2016 and $13.6 million in 2015.  How much would Mr. Swedish’s bonus have been if Anthem had paid for ER visits without second-guessing them?  Only $16.4 million?

Joseph Swedish, former Anthem CEO

The profit motive is a powerful force, even when people’s lives hang in the balance.  This is the state of our health care system in this country today.  Management people at health insurance companies are squeezing every possible nickel  of profit out of their claim-handling systems while endangering the lives of their policyholders.  All in pursuit of the compensation package that will make them wealthy at the expense of real people’s health and well-being.

Thanks to Reed Abelson (@reedabelson), Margot Sanger-Katz (@sangerkatz), and Julie Creswell (@julie_creswell) who wrote the Times piece on this telling subject.

CNN’s Wayne Drash (@drashmanCNN) has written a series of gut-wrenching, infuriating and telling stories recently regarding the health insurance industry’s treatment of policyholders.  They illustrate how profit is a more powerful motivator to the health insurance industry that policyholders.  Anyone interested in this issue specifically or responsible corporate behavior in general should take a look at Mr. Drash’s work.

In the most recent of these stories, Mr. Drash tells the story of Erika Zak, a 38-year-old mother whose stage 4 metastatic colon cancer had spread to her liver.  Without a liver transplant, Erika’s doctors say, she would die.  She is in the end stages of liver failure and her oncologists fear for her life every day.  After Erika was evaluated by numerous highly qualified doctors, it was determined her only chance of survival was a liver transplant.  She and her family rejoiced when she was put on the liver transplant recipient list.

That joy was short-lived.  Soon thereafter, UnitedHealth denied coverage for the liver transplant.  Erika and her family didn’t take no for an answer, however, and fought UnitedHealth at every turn, in every way they knew how.  All they wanted was what they knew Erika deserved, a chance at life with a new liver.  UnitedHealth was persistent in its denials, even in the face of the medicla evidence and Erika’s dire need for treatment.  To their credit, Erika and her family didn’t quit.  They wrote scathing, heartfelt letters to the CEO of UnitedHealth.  These fell on deaf ears.  The suffering they went through was tremendous, and this affected Erika and her family.  Then, incredibly, without explanation (even to CNN when asked) UnitedHealth changed its position and agreed to pay for Erika’s liver transplant.  Now Erika is waiting for a donor liver to come available. Mr. Drash’s storytelling of Erika’s journey is well worth the time to read.  It’s a real morality tale.

Here’s hoping one comes available soon so Erika and her loving family and her little girl can enjoy a long and happy life together.  Everyone should be pulling for Erika.  I certainly am.

This travesty begs the question:  Why should a person in Erika’s shoes have to beg and cajole an insurance company to provide the coverage she is entitled to?  The answer:  she shouldn’t.  If there is coverage for Erika’s transplant under her UnitedHealth insurance policy now, there has been all along.  Why would UnitedHealth cause such pain and sorrow before reluctantly agreeing to pay?  Why was it like pulling teeth for Erika to get the life-saving treatment she has always been owed?

Maybe, just maybe, the profit motive of the insurance company has something to do with it.  I don’t know what Erika’s transplant and the treatment associated with it would cost, but I would imagine the bills would be huge to a normal person.  Not to UnitedHealth, though.  No one health insurance claim will move UnitedHealth’s financial needle, but health insurance companies are good at making money.  So they find every opportunity they can to squeeze the water out of their claim costs.  Every claim is an opportunity to do so, especially the big ones like Erika’s.

David Wichmann, UnitedHealth CEO

Like its competitors in the health insurance industry, UnitedHealth has perfected the art of making money.  Its 2017 financial results tell that story.  UnitedHealth’s revenue for 2017 topped $200 billion for the first time ever.  That’s over $22.8 million in revenue per hour.  UnitedHealth made profit of over $10 billion in 2017.  That’s over $27 million of profit per day and $1.1 million of profit per hour.  The executives at UnitedHealth have done pretty well for themselves too.  The total executive compensation at UnitedHealth for 2017 was up by 34.1%, and the compensation paid to David Wichmann (the CEO) went up by 41% in 2017.  Mr. Wichmann was paid over $17 million in 2017.

What a breathtaking contrast.  A young mother dying because a giant corporation won’t pay for her life-saving health care, while the executives of the company (who are ultimately responsible for the way in which the company treats its policyholders) become obscenely wealthy.  This is the state of health care in America today.

If you follow the money, you find out why insurance companies disregard their duty of good faith.  A sickening morality tale if there ever was one.

 

When you make a health insurance claim, oftentimes your health insurance company will have a doctor employed by the company review the claim to see if it should be paid. The problem I have seen in a number of cases is the doctors reviewing policyholders’ claims are horribly unqualified to make fair decisions on those claims. For instance, if you make a health insurance claim for payment of medical treatment involving your heart, you would expect a cardiologist to make medical decisions for the health insurance company about your claim. A claim involving your heart, in other words, should be reviewed by a heart doctor. Would it seem fair to you if you submitted a claim involving treatment for your heart and it was reviewed by a general practitioner? Or if you made a health insurance claim involving brain cancer and it was reviewed by a pediatrician?

Nobody would think this is fair. Ever. However, incredibly, this is exactly what goes on all day every day in the health insurance industry. Health insurance companies put in place claim processing systems involving claim reviews by completely unqualified doctors. To compound the problem with this practice is that it is not disclosed to the policyholder.  Instead, the policyholder is almost always sent a generic denial letter from the insurance company that doesn’t tell the policyholder the name of the doctor or the doctor’s specialty/qualifications.  Why would the insurance company not want its policyholders to know whose opinions it is relying on to deny claims?

Because the health insurance industry has legal immunity in many situations from bad faith lawsuits, it operates differently in many ways than the remainder of the insurance industry. Health insurance companies do not tend to investigate and evaluate claims in the same manner as auto insurance or homeowners insurance companies.  My experience prosecuting bad faith lawsuits against health insurance companies has taught me the duty of good faith and fair dealing is far from their minds when deciding whether to approve payment for medical treatment of their policyholders.  Some health insurance denials are truly outrageous.

Our health care system in this country has many problems, but few are as troubling as when an insurance company tries to play doctor.

Why does the health insurance industry think they can get away with this?  Because too often, they can.  The health insurance industry enjoys special protections from liability for insurance bad faith claims that other kinds of health insurance companies do not.  In 1974, Congress passed the Employee Retirement Income Security Act or “ERISA.”  One of the effects of ERISA is to preclude insurance bad faith claims against ERISA-governed insurance policies.  If you bought your health insurance through a group sponsored by your employer, ERISA applies to preclude you from bringing a bad faith claim, with some exceptions.  These exceptions can be extremely important.

Generally, if you purchased your health insurance through a group health plan established or maintained by a governmental entity or a church, ERISA does not apply to your health insurance plan. Put another way, if you are a Government employee (local, county, state or federal) or a church employee, it is likely your health insurance plan is not governed by ERISA and therefore you can bring a bad faith claim against your health insurance company.

Likewise, if you did not buy your health insurance through a group but instead bought it individually (for instance because you are self-employed or because you purchased your policy through the Affordable Care Act or “Obamacare” exchanges) ERISA does not apply to your policy.  Therefore, if you bought your insurance policy individually it is likely your policy is not governed by ERISA and therefore you can bring a bad faith claim against your health insurance company.

Very few people know these rules exist, and almost everyone who finds out wonders why.  Let’s just say the health insurance industry has a stronger political lobby in Washington, D.C. than anyone who would seek to oppose ERISA immunity from bad faith claims.

But, for those policyholders whose medical treatment is denied but who work for the government or bought their health coverage individually, there is recourse.  The duty of good faith and fair dealing applies, and the health insurance industry is not set up to defend itself effectively against these claims.  In the hands of the right lawyers, these can be very powerful cases.

 

CNN just ran an incredible story by Wayne Drash (see it here) on a health insurance claim denial by one of the country’s largest insurers, Aetna.  The story involved the case of Gillen Washington, a 23-year-old Californian, who is represented by attorney Scott Glovsky.  Apparently, Aetna denied medical treatment to Gillen based on the opinion of an Aetna-employed doctor who had not even read the medical records on Gillen.  In fact, the Aetna doctor testified in his deposition that as a matter of practice in his job reviewing policyholders’ claims at Aetna, he never reviewed the medical records of the policyholders.  Mr. Glovsky brought a lawsuit on Gillen’s behalf, and it is set to go to trial this week.

Now, the Insurance Commissioner in the State of California has opened an investigation into Aetna’s claim-handling practices.  The commissioner expressed concern over the Aetna doctor’s testimony and apparently intends to look into the matter.  Aetna denies any wrongdoing.

The CNN story quoted Dr. Arthur Caplan, founding director of the division of medical ethics at New York University Langone Medical Center, as describing Aetna doctor’s testimony as “a huge admission of fundamental immorality.  People desperate for care expect at least a fair review by the payer. This reeks of indifference to patients.”  CNN also quoted Dr. Caplan saying the  the testimony shows there “needs to be more transparency and accountability” from private, for-profit insurers in making these decisions.

 

“Quality Assurance” or “QA” is a familiar concept in lots of industries (like manufacturing for example), and the insurance industry has widely implemented QA operations in their business as well.  Insurance companies say they want their adjusters to handle policyholders’ claims in a “quality” fashion.  To be sure adjusters are doing so, insurance companies use their QA departments to “audit” claim files handled by adjusters.  In theory, these audits compare the way actual claims have been handled to the “best practices” the insurance companies have implemented for quality claim handling.  In other words, the company sets forth “quality” guidelines for claim handling and then comes in behind adjusters after claims have been handled, audits the claim files and gives the adjusters quality “scores” or “grades.”

All of this sounds good.  The whole “QA” concept is something the management of an insurance company can easily get behind.  I mean, who’s against “quality,” right?  Unfortunately, in my experience, this is not exactly how things go in the real world.

In practical terms, all too often, insurance companies use the “QA” system as the “stick” in the carrot-and-stick equation mentioned in my earlier post.  While bonus compensation based on company profitability is the carrot, the results of a QA audit are often used to smack the adjuster who is paying too much on claims.

Put yourself in an adjuster’s shoes.  You handle and settle tons of claims, then a QA “auditor” comes along to second-guess your work.  Whether you score well on your QA audit or not will have an impact on your employee performance evaluation, including whether you get a raise or a promotion.  So, it’s only natural that you want to score highly on the audit.  If you want to score highly, you obviously want to know how the audit is being graded so you can handle claims in the way that scores the best.

My experience is that insurance companies often aggressively use their QA audits to discourage what auditors describe as “overpayments.”  In other words, one of the things a QA auditor looks at is the amount of money paid out by an adjuster on a claim and judges whether that amount was too low, just right or too high.  If the auditor concludes there have been “overpayments” that reflects poorly on the adjuster’s QA report and ultimately on the adjuster’s employee performance evaluation.  Companies often track, tabulate, categorize and analyze “overpayments” and the reasons they believe such payments occur.

On the other hand, oftentimes, companies do not track, tabulate, categorize and analyze “underpayments” to policyholders and the reasons they occur.  Instead, often, these “underpaid” claims are sent back to the adjuster to re-examine and pay if the adjuster deems it appropriate.  In my experience, “underpayments” do not work against an adjuster in her employee performance evaluation nearly as much as “overpayments” do.

Insurance companies say their QA departments are simply a way to ensure claims are handled correctly.  This is a worthy goal in theory.  But, when insurance companies use QA audits as a “stick” to enforce a culture of trimming claim payments in a chase for profits, it’s not really a quality assurance system at all.

As discussed in previous posts, an insurance company violates the duty of good faith and fair dealing when it attempts to alter the terms of its policy bargain with the policyholder by attempting to use its claim department as a profit center.

How does an insurance company get its claim personnel to buy in to the idea they should do everything they can to pay as little as possible on every claim, even where it means underpaying if necessary?  In my experience, the answer is:  by using both the “carrot” and the “stick.”

The delivery system for both the carrot and the stick is the employee performance review systems most every insurance company has in place.  I have reviewed hundreds of claim handlers’ personnel files over the years in bad faith cases I’ve handled.  The various insurance companies give their employee performance review systems different names, but clear patterns emerge.  Typically, every employee has a regular evaluation by their supervisor.  During these evaluations, the supervisor rates the performance of the employee as compared to goals that were set for the employee in the previous period.  The ratings are usually expressed on scale of “1” to “5”.  Goals for the coming period are also set.

Let’s start with the “stick” part of the equation.  Insurance companies often rate the performance of their adjusters who pay more on claims lower than those who pay less.  Performance ratings lead to pay raises, bonuses and advancement up the food chain of management in the company.  So, adjusters who pay more on claims are often shown the “stick” by not receiving the same positive treatment in their employment than stingier claim people.  As I’ll address in a later post, insurance companies often keep close track of an adjuster’s claim payment history, sometimes by way of a “quality assurance” file-auditing program.  Then, if that history is inconsistent with the company’s profit-making goals, it is used against the claim handler.

Now for the “carrot” aspect of the equation.

Insurance companies are sometimes quite creative in the way they reward their claim personnel for restrictive claim payment practices.  I’ve seen many manifestations of the same basic idea, in which the insurance company pays claim people more money based on the claim people helping the company make profits.

Some have “profit-sharing” plans for claim handlers, while others pay bonuses based on the results of contests in which adjusters compete to see who can save the company the most money on claims.  I will address some of these “carrots” in more detail in a later post.

Suffice to say, if the upper management of an insurance company encourages claim delays, denials or underpayments by the use of policies and procedures (like employee evaluation systems, illicit bonus programs or contests, etc.), the duty of good faith and fair dealing has gotten lost in the pursuit of the almighty profit.

As discussed in my last post, insurance companies (not policyholders) gamble when an insurance policy is issued.  The insurance company takes on the risk of paying claims under the policy in exchange for the policyholder’s premium.  The policyholder does the opposite of gambling.  She does away with (or at least protects against) the risk of an insurable loss.  The risks and rewards of the policy contract are put in place up front, at the beginning of the policy period.

Insurance company claim departments often profess a pro-policyholder claim handling philosophy.  I have heard this “philosophy” expressed many times, by many companies, for many years in many, many bad faith depositions as something like:  “We pay what we owe on claims.  Nothing more, nothing less.”  Obviously, this saying sounds fair and looks good written on the front page of an insurance company’s claim handling manual.  It also sounds pretty reasonable when an adjuster or supervisor says it in their deposition testimony in a bad faith case.

Unfortunately, as policyholders can learn when they make a claim, the old “we pay what we owe” mantra is too often little more than lip service.  Some claim departments generally and some claim offices specifically seem to conduct themselves contrary to the old slogan.

Some adjusters and their management people seem to take a great deal of pride or satisfaction from saving the insurance company every nickel they can squeeze out of a claim settlement, even when it means the policyholder suffers in the process and ends up underpaid.  Some claim personnel seem to believe there is no such thing as an underpayment of a claim, no matter what.

I am not of the belief that all claim people are evil or act with improper motives.  To the contrary, many are real professionals who take their duty of good faith owed to the policyholder seriously.  So how do certain insurance company claim departments earn their reputations as being prone to push the limits of good faith by consistently playing hardball with their policyholders?  How do companies get their claim personnel (some of whom really want to do right by their customers) to take such unyielding, hardline positions on claims?

The big picture answer is insurance companies often create the culture in their claim departments that those claim personnel who are the toughest, who take the most extreme positions, who pay the absolute least amount of money possible on every claim regardless of what’s fair, are treated more favorably than those who don’t do these things.  The insurance companies who do this are attempting to use their claim operation as a profit-making oufit or “profit center.”  In other words, they are attempting to alter the risk they took when they issued the policy or “rig the game” in their own favor.

No one can argue doing so is consistent with the duty of good faith and fair dealing.  The questions often in play in an insurance bad faith case are:  “Specifically how does an insurance company create a ‘denials are better than payments’ culture?”  My next post will give some answers.

As discussed in earlier posts, insurance is not a gamble taken by a policyholder.  Instead, the policyholder buys insurance to protect himself from the risk of a loss, whether it be a medical bill, damage to the policyholder’s property, an untimely death or a liability claim made against the policyholder by a third party.  The insurance company sells the policyholder a set of promises to pay covered claims.  Those promises are set forth in the insurance policy itself.  Once the policy is in place, the insurance company’s obligations to the policyholder and the policyholder’s rights and coverages are set, and cannot be changed until the policy is later renewed or is canceled for some reason.

Before the insurance company ever actually sells and issues the policy to the policyholder, it has gone through a process of determining how it intends to make a profit on the policy.  Insurance companies employ actuaries and underwriters who study the company’s risk associated with selling insurance policies.  Based on its analysis of its risk, the insurance company either agrees to sell the policy to the policyholder or decides not to do so because it does not believe the risk is a good one.  If an insurance company decides to sell a policy, it then decides (with some oversight by the Department of Insurance) how much money it will charge the policyholder in premiums.

When an insurance company decides to write a policy and sets the premium for that policy, the company has decided to take a risk that the losses the insured suffers under the policy will not cost more money than the premiums the policyholder pays.

In effect, the gamble the insurance company takes is taken at the time the policy is underwritten, priced, sold and issued to the policyholder.  If you think about it, an insurance company’s business model is based on taking risks.  And, judging by their bottom lines, they are very good at it.

Once the insurance company has done this, it must live with the consequences.  If it turns out the policyholder’s claims exceed the premium collected by the insurance company, so be it.  The insurance company doesn’t have a right to make a profit.  Instead, the insurance company in such a situation has lost its gamble.  The policyholder is entitled to the coverage he purchased for the price he paid.  If the insurance company no longer wants to take the risk of insuring a given policyholder, they can choose to change the bargain with the insured at the end of the policy period for renewal of the policy.  They can either refuse to renew or charge a higher premium.  Likewise, the policyholder can choose to go elsewhere for insurance.

However, regardless, the insurance company’s obligations and the policyholder’s rights are established up front.  As will be discussed in my next post, the insurance company cannot try to lessen the impact of paying claims on its bottom line at the time a claim is made under the policy by attempting to pay less than what is owed on claims.  To do so violates the duty of good faith and fair dealing.

Most of us define insurance by what it does for us under the policies we have purchased.  If asked “what is insurance?,” most people would say “it pays for damage to my car” or “it pays my medical bills if I get sick” or something to that effect.  These are good working definitions, but a closer look at what the nature of the insurance policy really is can be instructive.  One relatively simple definition states:

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.  Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

It’s easy to see from this definition that an insurance company’s business model involves it taking (and managing) risks.  It agrees to pay losses under the contract in return for a premium from the insured, with the hopes that it will take in more premium dollars from its pool of policyholders than it will have to pay out on clams.  Another key aspect of an insurance company’s business model is to make money investing the premium money it takes in before it has to pay that money out on claims.  This will be the subject of a later post.

The insurance company is not guaranteed (nor does it have a right) to make a profit in its business.  If the company is smart and takes good risks, it can most definitely make a profit.  Many companies make huge profits (it’s easy to see this is true by checking their stock prices or imagining how much money they spend on all those TV ads).  But, if the company takes bad risks or is unfortunate enough to suffer big losses from a natural catastrophe (like the hurricanes we’ve seen so often recently), it might not make a profit in a given year.

Whether the insurance company makes a profit in a given year or not is not the policyholder’s problem.  The policyholder has bought with her premium money the promises of coverage the insurance company is selling.  Those promises include peace of mind, security and protection from financial harm if the policyholder is unfortunate to suffer a loss.  The insurance company has promised in the insurance contract (the policy) to pay covered claims, and they must live up to that promise regardless of whether doing so will adversely affect the company’s profitability.

One of the fundamentals of good faith claim handling is that an insurance company must never place its own financial interests ahead of its insured’s financial interests.  When an insurance company attempts to use its claims department as a profit center (by delaying, denying or underpaying valid claims to try to improve the company’s profitability),  it is in bad faith.

Unfortunately, all too often insurance adjusters, supervisors, managers and claim department executives lose sight of this bedrock principle.  When they do, and the policyholder suffers as a result, a bad faith lawsuit it likely to follow.