There are many people working as claims professionals in the insurance business who strive to do the right thing by the company’s policyholders. When I run into one of them, it is like a breath of fresh air. These folks seem to genuinely care about policyholders and work hard to try to find ways to pay claims. They do not relish denying a policyholder’s claim and do not feel as though they have “won” somehow by denying a claim.

Unfortunately, there are too many claims professionals who seem to fall in the opposite camp.  Some claim professionals appear to take some sort of perverse joy from saying “no” to their policyholders. I don’t know what motivates these folks. Perhaps they have been indoctrinated by a culture that promotes this kind of behavior in their company’s claim department. If being overly tough on claimants is rewarded with praise from supervisors, advancement in the company, or increased pay/bonuses, then a certain segment of a company’s employees will act this way. I have certainly seen this dynamic play out in my experience suing insurance companies.

Sometimes I think the insurance claim business draws people to it whose personalities are geared toward saying “no” instead of “yes.”  Too many of the adjusters, supervisors and managers in insurance company claim departments I have met in depositions and trials over the last 25 years just seem to be constitutionally incapable of open-minded, evenhanded, caring attitudes toward policyholders who make claims. Too many of these folks fall too easily into a mindset in which they assume a policyholder making a claim is being dishonest and trying to get “something for nothing” by seeking compensation for their loss.

Either way, whether by company culture, personality type or a combination of the two, when claim handlers approach claims with a “say no first, ask questions later” attitude it often leads to a policyholder who feels aggrieved and ends up seeking legal advice. When a skilled lawyer reviews a claim handled by an adjuster looking to “beat down” a policyholder (oftentimes by delay, needless obstacles placed in the way of a claim settlement or just plain indifference) the bad faith litigation that results ends up costing the company way more money than a fair settlement would have in the first place.

Insurance companies often hire an “expert”  as part of their investigation of a policyholder’s claim.  The expert can be a doctor, an engineer, an accident reconstructionist, an accountant, etc. , depending on the type of claim and the issue being investigated.  Insurance companies and their lawyers love nothing better than to claim that because they hired and relied on an expert before denying the claim, they cannot be in bad faith.  They use the old “legitimate dispute” defense discussed in earlier posts on this blog.  In effect they argue:  “How can we have been in bad faith when we solicited the opinion of an expert in the field, and relied on that opinion?”

Most folks’ common sense tells them there are real experts in a field and then there are “experts” willing to sell dishonest “opinions” for money.  This is a sad commentary on the state of play in litigation, but it’s as true as anything can be about our court system.  Ask any lawyer and they’ll tell you this is true.  So how does this play out in bad faith cases?

Here’s an example:  Mrs. Jones, a policyholder of ABC Insurance Co., is involved in a car wreck with an uninsured driver.  Mrs. Jones makes an uninsured motorist (“UM”) insurance claim under the ABC policy, and submits a report from her treating neurosurgeon showing the policyholder needs a neck surgery as a result of her injuries in the accident.  Of course, the cost of such a surgery is high and if the need for surgery was caused by the accident, then ABC will have to pay a lot more to resolve the claim than if it isn’t.  The ABC insurance adjuster knows this very well, so he decides to try to disprove Mrs. Jones needs a surgery at all, or if she does need a surgery, it wasn’t caused by the car wreck.

ABC has trained its adjusters to demand policyholders undergo an “Independent Medical Examination” or IME when appropriate.  Most auto insurance policies require the policyholder to submit to an exam by a doctor of the insurance company’s choosing if the company asks, so the policyholder is obligated to do so or risk being paid nothing for her claim.  The idea is that the company should be able to verify whether the alleged injuries are real, whether they were caused by the accident, and what the proper treatment for them would be.  This is not a crazy idea, of course, because an insurance company ought to be able to conduct a thorough investigation of a claim before deciding to pay it or not.

The problem comes in the execution.  Many insurance companies have conveniently created a list of “approved” doctors to perform IME’s on their policyholders and given that “approved doctor list” to their policyholders.  So, in our example above, ABC’s adjuster refers to that list and demands that Mrs. Jones submit to an examination by a Dr. Payne, whose name was on the list.  Of course, the adjuster is very familiar with Dr. Payne’s work because the adjuster has sent dozens of policyholders to be examined by him.  The adjuster would also be highly surprised if Dr. Payne said Mrs. Jones needed a surgery at all, and if so that the need for surgery was caused by the accident.  Instead, the adjuster has a real good idea that Dr. Payne is going to say Mrs. Jones had a pre-existing neck problem (don’t we all, by the way) and the need for surgery (if any) is related to that problem, not the car wreck.

Once Dr. Payne has written his report saying just that (oddly, it looks almost identical to all the other reports he has written for ABC with only the names changed), ABC’s adjuster tells Mrs. Jones he’s sorry, but the evidence indicates she doesn’t need a surgery at all and if so it was because of her prior neck problem.  Mrs. Jones tries to tell the ABC adjuster that she trusts her treating doctor more than an insurance-hired doctor, and tells the adjuster she’s never had any symptoms of neck problems before.  ABC says they’re very sorry, but they are relying on Dr. Payne’s report and won’t consider the surgery when evaluating the claim.

Is this a legitimate dispute barring a claim for bad faith?  What if in our example the evidence is that Dr. Payne has done over a hundred IME’s for ABC, and several hundred for other insurance  companies?  And he’s been paid tons of money for his work?  And the percentage of the time he opines the policyholder is actually injured is less than 10%?  And the majority of his income comes from IME’s?

Believe it or not, this very kind of thing goes on regularly in the insurance industry.  Is it a legitimate dispute for the insurance company to use a doctor to perform an IME doctor it knows good and well will always say exactly what the insurance company wants?  Is it good faith to knowingly rely on a biased expert?

I say the answer is no.  Other examples of this kind of conduct by insurance companies will be the subject of later posts.

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.