Insurance Industry Trends

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.

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.

This story appeared recently in Claims Journal indicating Farmers Insurance is beginning to use drones to inspect homeowners’ roof damage claims.  Other companies are sure to follow (if they haven’t already).  The idea appears to be that adjusters have been trained to fly drones over a policyholder’s house after a storm damage loss to determine whether the house has been damaged and the extent of any such damage.  In theory, this would allow the adjuster to “see” the roof without being required to climb on top of the house to look. Before this new approach (and other aerial photography methods), adjusters would climb ladders and inspect roof damage to a policyholder’s home with their own two eyes.  This same approach has traditionally been taken by roofing contractors who are hired to repair damaged roofs.  Experienced adjusters and roofers can look at a roof and see damage from, for instance, hail stones striking the shingles.  Using drones to do this work will undoubtedly change the game.

Certainly, insurance companies are like other businesses in that they are looking for ways to apply new technologies in an effort to operate more efficiently and cost-effectively.   The insurance industry has likely concluded that inspecting roofs with drones can be done more quickly and cheaply than the old way.  In this context, using drones may also protect adjusters from climbing up ladders onto sometimes steep or slippery roofs.  This may turn out to be especially useful in “catastrophe” situations where dozens or even hundreds of houses are damaged in the same storm event (like the tornadoes and major hail storms we have become all too familiar with here in Oklahoma).

Innovation in the insurance industry can be a good thing, as long as the insurance companies keep in mind their basic mission is to handle claims in good faith.  Insurance companies must resist the temptation to implement technological “solutions” in a way to trim or cut fair claim payments to insureds.  It will be interesting to see whether drones as the “eyes” of the adjuster lead to quicker, more accurate claim payments or whether the drone program leads to increased disputes between insurance companies, their policyholders and the roofing contractors hired to repair storm-damaged roofs.  Ultimately, the duty of good faith applies to claim handling practices, whether the insurance company has decided to use technology to assist in adjusting the claim or not.

A trend is developing in the insurance industry with regard to the use of “artificial intelligence” throughout an insurance company’s business operation, including handling claims submitted by policyholders.  A recent survey of insurance executives revealed that many of them believe artificial intelligence will revolutionize their companies and the insurance industry at large in the next handful of years.

I suppose I could buy the idea that an insurance company could improve its efficiencies in various areas like underwriting risk or streamlining the process for soliciting, selling and issuing policies and the like.  On the other hand, the idea of artificial intelligence (basically a computer program developed by the insurance company or one of its vendors) investigating, evaluating and deciding on claims submitted by policyholders is deeply concerning.

In Oklahoma, an insurance company owes a duty of good faith and fair dealing to its policyholder. That means when a policyholder makes a claim, the insurance company has to act reasonably, fairly and in good faith with regard to the specific facts and circumstances surrounding that policyholder’s claim. If the policyholder’s claim involves, for example, a personal injury suffered in an accident, how can a computer possibly take into account the human elements involved with such an injury and place a fair value on it? What about a claim that requires an evaluation of the truthfulness/credibity of an eyewitness account of an incident?  Only a properly trained, experienced, unbiased human being can do these things in good faith.

Why would an insurance company replace the judgment of its adjusters with a computer program’s judgment? Because insurance executives believe doing so saves their companies money.  Where does this savings come from? From lower claim payments. Who pays the price for lower claim payments?  Policyholders.  Is this good faith? The lawsuits that are sure to follow such a move by the insurance industry will tell the tale.