California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy

Here's one for a Harvard Business School case study: A few months before voters in the state are going to decide the future of your industry get into a losing battle about retroactively canceling sick peoples' health insurance policies.

A unanimous California Appeals Court decision has decided that California health insurers have a responsibility to check the accuracy of applications for health insurance coverage before issuing policies at the time coverage is purchased and cannot cancel a policy unless the applicant "willfully misrepresented" their health status.

For the past year, California has had a simmering health policy rescission controversy as many of the state's insurers have argued that they can cancel a health insurance policy if there is any misstatement of fact--even if it is unintentional or immaterial to a claim that is later filed.

The court ruling is a big win for state regulators that have been trying to change insurance company policy and for consumers and their trial lawyers that have been going after them.

As I have commented before, the insurance companies behavior on this issue makes no sense to me and couldn't have been anything other than a big losing issue at a time when health care reform is at the top of the voter's agenda--especially in California.

Certainly, a policy should be voided by fraud. But that was never the issue--it was whether a policy could be voided even if the misstatement was unintentional or immaterial.

The particular case has to do with a Blue Shield policy that was issued for a family who later had a major health claim. Information about the claimants weight and an emergency room visit was allegedly incorrect.

The court went on, "These facts raise the specter that Blue Shield does not immediately rescind health care contracts upon learning of potential grounds for rescission, but waits until after the claims submitted under that contract exceed the monthly premiums being collected."

A health plan, "may not adopt a 'wait and see' attitude after learning of facts justifying rescission." The court said health insurers cannot continue to "collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses."

The issue will now go to trial over whether the family intended to deceive the insurer and whether the insurer acted in bad faith by "blindly" accepting their application and taking their premiums until the claimants medical bills got too high.

Because of this ruling in California, these disputes can go to court on terms more favorable to the claimants.

Nice going California health insurance industry.

LA Times: "Court curbs insurers' ability to rescind medical policies"

Earlier posts:

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

California Policy Cancellation Scandal Heats Up As Republican Candidates Propose Health Reform Based On An Individual Health Insurance System

The First Year For This Blog

This month marks the first anniversary for this blog.

As of today, folks have visited 95,558 times. From less than a thousand visitors that first month, 14,000 a month now visit and that number continues to grow briskly.

As long as you keep reading it, I'll keep writing it.

A November Ballot Initiative Over California Health Reform Would Be The Biggest Thing Ever To Happen In The Debate

With news that California Governor Arnold Schwarzenegger (R) and the Democratic controlled General Assembly have agreed on a health reform proposal we may be on the cusp of a huge referendum on the Democratic version of health care reform.

The next step is for the State Senate to approve the plan. The Assembly approved it earlier this month on a party-line vote with Republicans in opposition. The Democratic-controlled Senate is also likely to approve the bill but that vote will be held at about the time as the state's presidential primary in early February.

Technically, the November ballot initiative would be about approving the new taxes necessary to implement the plan.

All of the Republican presidential candidates oppose this generally Democratic brand of health care reform. You can expect the Republican candidates to be railing against the $14 billion plan that mandates that both individuals and businesses buy health insurance and has lots of tax increases to pay for it.

All of the leading Democratic presidential contenders have proposed a health care reform plan very similar to the already enacted Massachusetts health reform law.

Now, California seems poised to take a very similar health reform program to state voters next November.

If this ballot initiative passes in our largest state next November, it would provide enormous energy for any incoming Democratic president to accomplish the same thing at the federal level.

If a Republican wins the presidency, it would give Democrats in the new Congress a great deal of momentum in their health care dealings with a new Republican president.

If the ballot initiative were to fail in so strong a Democratic state, it would likely scare the Congress far from any similar national program. Just like the failed Clinton health plan of 1993 left Democrats too scared to touch major health care reform for almost fifteen years, a California defeat would have a catastrophic impact. Democratic efforts for their preferred Massachusetts-like style of health care reform would be dead in their tracks and Dems would be forced to take another look at the more incremental market-based proposals offered by Republicans.

A California referendum on health care reform could well be the whole ballgame for Democrats and an enormous opportunity for Republicans to turn the tide in the health care reform battle.

Today, the polls say 65% of the voters support the plan. But in California, these ballot measures often look lopsided in the beginning before opponents spend millions in counter advertising. Given the importance of this vote, every health care stakeholder with something to lose will be pulling out all of the stops and the outcome of the contest, that would fundamentally change how peoples' health care would be paid for and delivered in California, can in no way be predicted this far out.

Plan supporters believe it would cover more than 70% of the state's almost 7 million uninsured.

Under the California health reform bill:

• Those with under 250% of the federal poverty level would get state subsidies for coverage while those up to 400% of the poverty level would get tax credits aimed at keeping their health insurance premiums below 5.5% of their incomes.
• While there is an individual mandate to buy coverage, residents are exempt if they are required to spend more than 5% of their income to buy a basic policy.
• There would be an employer mandate to "pay or play" by requiring those who do not cover their employees to pay a tax.
  
• Insurers would be prohibited from denying coverage to residents because of pre-existing medical conditions.
• Insurers would be required to spend at least 85% of their premiums on medical care--the leading for-profit health plans currently spend about 82% on medical care.
• To fund the program new taxes would be created thereby requiring voters to approve the plan in a November referendum. These taxes would include an increase of between $1.50 and $2 over the current $.87 per pack cigarette tax, a 4% tax on hospital revenues, and the employer mandate that would require any employer not providing coverage to pay a tax of between 1% and 6.5% based on the size of the business. The program would also count on $4.5 billion in federal matching funds. Proponents say the program is revenue neutral--it will pay for itself.

This outline is very similar to the health care plans offered by the leading Democrats; Clinton, Edwards, and Obama and the already enacted Massachusetts health plan.

The California health reform plan also looks like everything the Republican candidates say they are against--mandated coverage, more taxes, and bigger government.

But if the California Senate approves this and sends it on to voters next November, we are going to have an unavoidable showdown on health care policy right at the time of the national election.

The outcome of the California vote on health care reform would have enormous life and death policy implications.

Why Couldn't CIGNA Make the Right Decision In the First Place?

The Christmas weekend was full of news stories about a 17 year-old girl who was denied a liver transplant by CIGNA.

The insurer ultimately reversed its decision but the girl died a short time later.

I have no idea if the outcome would have been different had CIGNA made the decision to approve the transplant in the first place.

Health insurance contracts--and government plans like Medicare and Medicaid--rightly contain provisions that can be used to deny payment for unnecessary or inappropriate treatment. If they didn't have these limitations every quack in America would be feeding at the reimbursement trough.

But what these provisions should not do is ever deny a legitimate attempt to save someone's life. The insurer has the burden to act responsibly and, if the family disagrees with the call, provide an independent and fast third-party appeals process for what can be life and death decisions.

This case is a controversial one. A leading liver transplant expert was quoted as saying that a liver transplant is not an option for a leukemia patient like this girl. But her doctors weren't a bunch of money grubbing quacks either--they were part of the very highly respected UCLA Medical Center and lobbied the insurer claiming there was a six-month survival rate of 65% for cases like this if the transplant occurred.

Was this a long-shot and almost certainly doomed to fail? Sounds like it. So, what? If it were your kid you would want even the smallest shot.

CIGNA made matters worse for its public relations situation by reversing its decision at the last minute--what was wrong a week ago suddenly made sense to them as a "unique circumstance." But, the girl died soon after and the family hired famed plaintiff's attorney, Mark Geragos, who wasted no time with headline getting press conferences that played across the cable news channels right up through Christmas eve.

Apparently, as soon as it became clear what a hornet's nest was stirred up, senior management at CIGNA recognized what an indefensible decision this was with the "man on the street" and reversed their policy decision.

Critics of for-profit health care will now be quick to point to a corporate focus on earnings and the almost complete dedication to satisfying shareholders and Wall Street analysts and argue that it has so permeated the company that management has lost the forest for the trees.

Are their critics right that their corporate culture has now evolved to one that has lost track of who the customer is and the ethical imperative that these life and death decisions create for them?

Critics don't have to say CIGNA was wrong here. Senior management at CIGNA said CIGNA was wrong, no matter how they now spin it, when they reversed the company's decision.

The question senior management at CIGNA needs to now be asking is, Why did their organization take on so controversial a potential end of life decision in which they had a financial stake in the first place and then defend it right up until almost the last moment? They apparently used "independent consultants" for advice. But, why didn't they have an on hand, arms length, third-party panel of experts that had no vested interest in making the call on medical appropriateness?

Maybe more importantly, what would you have done?

These are questions everyone in this business might do well to think about. Next time, it could be anyone faced with the same call.

December 25, LA Times: "CIGNA Stands By Decision On Transplant"

"Health Care Quote of the Year"

Brian Klepper joins us again today with his nomination for the "Health Care Quote of the Year."

Health Care Quote of the Year
by Brian Klepper

I was reading through some other peoples’ blog posts yesterday and came across this straightforward statement by Paul Levy, the CEO of Beth Israel Deaconess Medical Center in Boston. Paul made news by establishing a blog called "Running a Hospital."

I think he's probably taken some good-natured ribbing by his more straight-laced colleagues. But I admire that fact that he's broken the bounds of decorum and speaks openly about the many tremendously difficult issues that face hospital executives.

While many many hospitals (and doctors and health plans and...) are still doing everything possible to hold back the transparency tide, here's his take, published recently on Matthew Holt's Health Care Blog:

"The main value of transparency is not necessarily to enable easier consumer choice or to give a hospital a competitive edge. It is to provide creative tension within hospitals so that they hold themselves accountable. This accountability is what will drive doctors, nurses, and administrators to seek constant improvements in the quality and safety of patient care. So, even if we can't compare hospital to hospital on several types of surgical procedures, we can still commend hospitals that publish their results as a sign that they are serious about self-improvement."

Nothing could be truer, or more central to the mission of fixing American health care.

Thank you, Mr. Levy.

Washington Post: McCain "Has Some Good Ideas on Health Care"

The Washington Post is not known for favoring Republican prescriptions for health care reform. That is why their editorial today calling the McCain health care reform proposal, "the most detailed and thoughtful of the Republican proposals," caught my eye.

McCain has gone further in some respects than his Republican opponents on health care. Instead of providing people with a tax deduction, McCain converts the same tax savings into tax credits which will do more good for people in the lowest tax brackets--lower earners who need the most help.

McCain also puts more emphasis on cost containment--albeit with a focus on "coordinated care" that the provider community has tended to resist. "Coordinated care" may have a logic to it but McCain needs to also tell us why the providers will be willing to play ball with him when they have generally rejected the market's attempts to do the same thing.

The Post also rightly points out that the McCain health plan is weak on how he would use a more vibrant market to offer coverage to everyone just as his plan grants more flexibility to a market known for "cherry picking" when the rules aren't there to prohibit it.

McCain has always struck me as a Senator who is willing to work with all sides to find a common sense solution to problems even when that means moving off his party's ideological base and creating political problems for himself.

McCain worked with Ted Kennedy on the failed "patient rights" bill of the late 90s--which largely failed to pass only because the market adopted many of its requirements and undercut the need to do it. McCain's efforts on the tobacco settlement also crossed party lines to get a deal done. And, his efforts on campaign finance reform and the failed immigration reform (in tandem with his President) all point to someone who is going to find a solution even if it means doing business with political opponents--and at great cost to his own political support.

If we get a Republican President, health care reform is only going to be possible if that Republican is able to work with Democrats. If, as we now expect, Democrats control the Congress that will be essential if we are to avoid more gridlock. Even if the Republicans capture one or both of the House or Senate, it will still take plenty of Democrats to get anything as big as health care done.

One can also argue that Governor Romney shares the ability to work across the aisle since he did the deal with his Democratic legislature to do Massachusetts health care reform. However, the fact that Romney seems to deny that role on alternate days when it suits his audience doesn't give me a lot of comfort.

McCain has certainly shown that pragmatism and may be the real reason he got somewhat of an endorsement today by The Washington Post.

You can access my review of each of the major candidates' health care reform plans in the column to the right.

The State of Primary Care--How Much Responsibility Do Specialty Physicians Bear?

Our good friend Brian Klepper, posting over at "The Health Care Blog," has some provocative things to say about the state of primary care and the role the specialties, and even the American Medical Association, have had in getting us to where we are.

Among Brian's points:

• "American primary care is a shambles, and it is now clear that it will not be viable in the future unless significant changes occur in our national attitude about its value and in the way we pay for it."
• "In other words – and it is important to be clear about this – the premeditated actions of the specialist-dominated RUC, operating under the auspices of the AMA and in alliance with CMS, appear to have played a direct role in the current primary care crisis by driving policy that financially favored specialty care at the expense of primary care."
• "But our Congressional representatives and the American people almost certainly don’t know these details. Most Americans and, for that matter, most health care professionals, are utterly unaware of the roles of the AMA and CMS in shaping the primary care crisis and our larger health system problems. Most believe the AMA speaks for all physicians."
• "Recognizing the primary care physician’s value by imbuing him/her with the authority to serve as the patient’s advocate throughout the continuum of care, and then paying him/her to do that would accomplish several important objectives."

That little sample should have you ready to read the whole post here.

The Shadegg Bill––A “Health-Insurance Solution” That Is a Waste of Time

Merrill Mathews, writing on yesterday’s Wall Street Journal op-ed page, asks why Representative John Shadegg’s (R-AZ) “Health Care Choice Act” isn’t a “no-brainer” for the Congress to pass.

Shadegg’s proposal would enable consumers to buy a health insurance policy in any state thereby bypassing the states with the most costly benefit mandates. At the top of his costly mandate list are state “guarantee issue” laws that have forced premiums to skyrocket where insurers are required to take all comers.

So why isn’t it a “no-brainer” to pass Shadegg’s proposal and give everyone access to the least mandated state health insurance policies?

It is notable that Shadegg has been pushing this for years—including the six years he had both a Republican Congress and a Republican president and couldn’t get the bill to go anywhere.

The reason the Shadegg bill never went anywhere is that it is a waste of time.

The Shadegg bill is as close to “rearranging the deck chairs on the Titanic” as one can get in health policy.

If the Shadegg bill became law tomorrow individual health insurance might be a lot cheaper in heavily mandated places like New Jersey—a state Mathews points out now has an individual health insurance cost of between $1,726 to $14,062 per month.

But how much cheaper and at what cost to lots of other people?

Mathews points out that the Shadegg bill would effectively come closer to delivering the kind of mandate-free insurance prices that ERISA employer plans deliver.

OK, but the average cost of an employer-provided, ERISA mandate free, health insurance plan is over $12,000 a family.

That $12,000 average employer family cost is just that--an average. A young and healthy twenty-something can probably buy it for much less—maybe as low as $100 a month. But a 60-year-old, if they are healthy, is going to pay a correspondingly larger amount because of age-rating in Shadegg’s market.

If that older person, or even a younger person for that matter, has a medical condition, forget it. They won’t find coverage.

Sure, we could add a big deductible—maybe $5,000—and get costs down another 20%.

But when the day is done what have we achieved?

In the end, the young and healthy would get much more affordable policies and the old and/or sick would be worse off.

So what exactly does the Shadegg bill get us?

Well it would get Mr. Mathews' insurance company trade association, the “Council for Affordable Care” a wild-west market environment to go find all of those young healthy people and sign them up for really cheap coverage.

Young and healthy people would pay a lot less and older and/or sicker people would pay a lot more if coverage were even available to them.

New Jersey is a dysfunctional health insurance market. But fixing that state, and others like it, is a lot more complicated than putting the “cherry pickers” back in charge.

In the presidential debate, some are suggesting individual-based consumer-driven plans while others are offering more traditional group oriented solutions. Both can work. Whichever, many of the candidates are calling for a comprehensive solution to our health care challenges––that includes reforming how health insurance is purchased.

The Shadegg bill is not a serious attempt at reinvigorating the individual health insurance market around consumer-driven principles that would give everyone a fair shot at better coverage.

The Shadegg bill is nothing more than a crass special interest play to carve-out the youngest and the healthiest and leave the older and sicker in the ditch—to dysfunctional state regulated systems like New Jersey whose pools of insured would deteriorate even further and cost even more.

Let’s stay with the debate we have—one that has the potential to make some meaningful change in 2009.

Health Wonk Review Is Up!

David Harlow over at the "HealthBlawg" has a particularly entertaining holiday edition of Health Wonk Review up. It covers some of the best posts in recent weeks from the world of health blogs.

Republican Candidates Wouldn't Have Been Able To Get Coverage Under Their Own Health Reform Plans

Republican presidential candidates have called for a greater reliance upon the individual health insurance market. But many of these same candidates have had cancer and wouldn't have been able to get individual coverage under their own health reform plans at the time of their treatment.

Ricardo Alonso-Zaldivar had a great story in the Los Angeles Times recently.

Ricardo points out that Rudy Giuliani has had prostate cancer, John McCain melanoma, and Fred Thompson has had lymphoma.

All have called for a more robust individual health insurance market. But that market today relies upon medical underwriting--people who have had cancer will have great difficulty finding an insurance company to underwrite them. As the Times reports, "Cancer survivors -- even if they have been free of disease for several years -- are routinely denied health insurance when they try to purchase it as individuals."

If coverage is offered, it often comes with restrictions on the disease the person suffered with or high premiums.

Even after being treatment free for five years it's hard to get coverage. Ricardo cited a survey of 22 insurance companies Karen Pollitz did at Georgetown University about a hypothetical breast cancer survivor who was five years out from a successful treatment. "Eleven companies said they would deny coverage, and six said they would issue a policy at standard rates. One company said it would charge double the usual premium. Another said it would issue a policy but exclude future cancer treatment. Three insurers did not respond."

Romney goes even further than the other Republicans by calling for less regulation in the state-based individual health insurance market then we have today.

Employer plans generally cover all new employees--albeit with as much as a one-year pre-existing condition provision if the new employee did not have prior coverage. However, all of the Republicans provide tax incentives that would move coverage away from the employer model and onto the individual model.

No one should be able to wait to approach an insurance company until they are sick and expect to get coverage--they should have bought it in the first place. But when individual coverage costs thousands of dollars a year, many can't afford to get it. Some people lose their jobs and their coverage.

Lots of people are out there without health insurance coverage and it has nothing to do with personal irresponsibility.

Today's COBRA might help--an 18 month extension for a worker who has left their employer so long as they can afford the full cost of their employer's plan--which averaged $12,000 a year for family coverage in 2007.

A reformed health insurance system based upon an individual insurance model can work. However, the Republican candidates have not closed the loop on how they would make it affordable for people to buy coverage in the first place or how they would overcome medical underwriting and age-rating that are now at the core of this business model.

Good thing these guys didn't get laid off, lose their coverage, and have to go find individual coverage under their own health reform plans!

You can access my review of each of the candidates' health plans in the column to the right.

Mike Huckabee's Health Care Plan

Mike Huckabee is now among the front runners for the Republican nomination. So, what is his health care plan?

First, he doesn't have a plan so much as a set of principles that would have to be detailed. On the surface he seems to want a lot of it both ways--no more government but lots of new program ideas. For example, he calls for tax credits to help low-income people purchase health insurance but says universal health care can't be "funded through ever higher taxes." Giving low income people meaningful assistance to buy health insurance is what makes the Democrats' plans so costly.

Much of what he talks about in these principles is similar to the other leading Republican candidates. Like other Republicans, he would begin to shift the health insurance system away from the employer and toward a consumer-driven model putting a more vibrant health care market at the center of his strategy.

Like other Republicans, he does not call for individual or employer mandates and the more than $100 billion of annual spending that Democrats call for, in great part, to implement them.

Like all candidates, Republican and Democratic, he calls for more focus on prevention and health information technology to improve the cost and quality of the system.

Here are his key points in his own words:

• "The health care system in this country is irrevocably broken, in part because it is only a "health care" system, not a "health" system.
• "We don't need universal health care mandated by federal edict or funded through ever-higher taxes. We do need to get serious about preventive health care instead of chasing more and more dollars to treat chronic disease, which currently gobbles up 80% of our health care costs, and yet is often avoidable.
• "I advocate policies that will encourage the private sector to seek innovative ways to bring down costs and improve the free market for health care services.
• "We can make health care more affordable by reforming medical liability; adopting electronic record keeping; making health insurance more portable from one job to another; expanding health savings accounts to everyone, not just those with high deductibles; and making health insurance tax deductible for individuals and families as it now is for businesses. Low income families would get tax credits instead of deductions. We don't need all the government controls that would inevitably come with universal health care.
• "I also value the states' role as laboratories for new market-based approaches, and I will encourage those efforts. As President I will work with the private sector, Congress, health care providers, and other concerned parties to lead a complete overhaul of our health care system, not more of the same, paid for by Uncle Sam at the expense of hard-working families.
• "Our employer-based system has outlived its usefulness, but the answer is a consumer-based system, not socialized medicine."

You can access Huckabee's health care policy web page here.

Earlier post: When it Comes To Health Care Policy It Really Doesn't Matter Which Democrat Or Which Republican Wins Their Nomination

You can access my review of all of the candidates' plans in the column to right.

More People Think Health Care Is An Urgent Issue Than Think The Iraq War Is

A recent Wall Street Journal poll caught my eye.

The poll found that 52% said the economy and health care are most important to them in choosing a new president compared to 34% that said terrorism and social and moral issues were most important.

That is the opposite of what people thought at the time of the 2004 election.

Here's the surprise for me. The poll also showed, "health care eclipsing the Iraq war for the first time as the issue most urgently requiring a new approach."

I said to someone yesterday, who has also been through the health car wars for many years, we health policy folks ought to be ecstatic about all the attention health care is getting. But I also said all of the scars from health care efforts started and stalled don't make me overly confident.

It is important voters demand the health care problem be solved by the next president and Congress. If the new guys just come to Washington with more of all of the partisan bickering we are seeing on the budget and SCHIP today, we will go nowhere.

There continue to be more reasons health care reform can fail than succeed. Voters need to send an unambiguous message.

Pete Stark Regrets the Stark "Self-Referral" Laws!

David Whelan was kind to point out a great story he just did at Forbes.com on the Stark anti-kickback laws and the bans on provider "self-referral."

David writes, "Yet in an interview today the Congressman lamented that he ever made this legislative intrusion into medical practices."

Congressman Pete Stark (D-CA) went on to say the laws, "gave every shyster and promoter a loophole" and that he would now simplify things by relying on just the anti-kickback laws.

This article is a must read!

Great scoop, David!