Monday, November 12, 2007

Report: "Health Insurer Tied Bonuses to Dropping Sick Policyholders"

It's hard to imagine a worse headline for the health insurance industry just as we are heading into what will be a fundamental debate over who should run our health care system.

It is even harder to imagine a dumber thing for the insurance industry to do than continue to argue and litigate the notion that an insurer can cancel--or rescind--an insurance policy for a misstatement of fact on an application for coverage no matter whether that statement was intentional or material.

Lisa Girion, of the Los Angeles Times had another story about insurance company health policy rescision last week and reported that:
  • "Woodland Hills-based Health Net Inc. avoided paying $35.5 million in medical expenses by rescinding about 1,600 policies between 2000 and 2006. During that period, it paid its senior analyst in charge of cancellations more than $20,000 in bonuses based in part on her meeting or exceeding annual targets for revoking policies, documents disclosed Thursday showed."
  • The Times reported that in 2002, the company's goal for its senior analyst in charge of rescission reviews, was 15 cancellations a month. She did better than that, rescinding 275 policies that year for a monthly average of 22.9.
  • Health Net's lawyer told an arbitrator that prohibitions against performance bonuses for rescision didn't apply because the bonuses were based on the overall performance of the analyst and the company. He also said that meeting the cancellation target was only a small part of her bonus payment.
  • Health Net is also reportedly arguing that a prohibition against incentive compensation for rescisions does not apply to the insurer in the case because the senior analyst was an underwriter -- not a claims payer.
Fraud is wrong and an insurer has every right to go looking for it.

The problem is that some California health insurance companies have been looking for any "misrepresentation" on a policy no matter how unintentional or immaterial and then using it to cancel coverage.

In this case, a women who later contracted breast cancer was canceled because the insurer argued she had misstated her weight on the application and had not disclosed a heart condition. The women argued she provided all details to the agent who took down her medical history on her application.

Why the industry continues to push this issue is unfathomable to me.

November 16 Post: HealthNet fined $1 million for "failure to be truthful" to state investigators. California Policy Cancellation Scandal Heats Up as Republican Candidates Propose Health Reform Based On An Individual Health Insurance System
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