One Hell of an Exit Strategy

Posted on November 13, 2007
Filed Under General Rationing Issues |

How else to explain the strange behavior of insurance companies?

Item 1: Bob Laszewski at Health Care Policy and Marketplace Renewal points us to a Los Angeles Times article describing how one health insurance company (Health Net Inc.) has systematized its practice of rescinding health insurance policies of patients who become sick. The article describes 51-year-old Patsy Bates, whose coverage was rescinded in the midst of her therapy for breast cancer, allegedly for failing to disclose her accurate weight and the possibility of a prior heart problem at the time she had applied for insurance. See the article for details, but the point is that the alleged (and disputed) failures to disclose have nothing whatever to do with her breast cancer. They amount to mere excuses to cancel her insurance (but not until she needed it - they were delighted to collect the premiums up to that point).

This story is entirely consistent with the tale told by Lee Einer, the notorious insurance company “hitman” featured in Michael Moore’s film, Sicko. Einer has subsequently expanded on his former activities in gaining rescission for insurance companies on the Honest Medicine blog:

(When you get sick). . .the insurer will go after you “like it’s a murder case.” They will contact every medical provider they believe treated you, and will request medical records. They will contact every pharmacy which you are believed to have used, and request their records. They will go into your health history as far back as five years before you applied for coverage. If they find anything — ANYTHING — which they determine that you did not fully disclose, and which could conceivably have been captured by the questions on your application, they have you.

Laszewski expresses the puzzlement that any thinking American would express in regard to this kind of activity:

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.

Indeed, for the relatively small amounts of money it can save (relative to the massively expensive PR campaigns these companies run to convince us of how innately caring they are, and which they completely negate with such antics), it is hard to imagine why they take this kind of chance.

Item 2: Health insurance companies are big contributors to Hillary Clinton’s campaign. This might seem counterproductive considering the widespread notion that, if her reform plans are fully implemented, ultimately the role of private insurers in the healthcare industry will shrink or even disappear.

Why would insurance companies engage in high-profile, counterproductive activities, and contribute to political candidates who may want to put them out of business?

DrRich has a theory.

Insurance companies have recognized that the end-times are nigh.

In the early days, their chief mode of growth was in acquiring public assets (such as non-profit hospitals and HMOs) for a tiny fraction of their actual value, then after absorbing them, realizing the true value of these assets in their stock prices. The insurance industry has also nearly finished the exhilarating, immensely profitable consolidation phase of its business cycle, such that a very few large outfits now tower over the health insurance industry. So now, for the first time in their history, health insurance companies are going to have to try to make a profit - or even more difficult, to demonstrate continued growth - by actually managing the healthcare of their subscribers.

Faced with this impossible, panic-inducing task, the risk of running illegal, high-profile rescission operations begins to seem worth it. The risk of getting caught is now measured quarter to quarter - not long term. “Our risk of getting caught in the next 3 months seems relatively small,” they must be telling themselves. “As for the long-term risk of getting caught, who cares?”

Ditto with the contributions they are making to Democrats, especially the Democrats who seem most likely to win, and to push their healthcare reform plans. Republicans, who invariably promote the notion of private-insurance-based solutions, must seem really scary to the insurers. If Republicans win, there will follow completely untenable expectations on the part of insurance companies. They’re the ones who will have to figure out how to control costs!

Democrats will also put the industry in an untenable position, of course, and will at least arguably aim to drive them out of business (though without actually telling us so). But Democrats actually have no expectations for the insurance industry, other than that they fail in due time. This, DrRich submits, is the insurance industy’s plan, too.

But before they drive them into oblivion, the Democrats promise to create for them one last, massive windfall - namely, the government-paid insurance premiums for many of the 47 million uninsured Americans. (Joseph Paduda at Managed Care Matters thoughtfully estimates for us that windfall as $150 billion per annum - not exactly chicken feed.)

So, for at least a while, under Hillary’s plan the insurance industry profits will rise, stock prices will rise, and executive bonuses will rise. This is as good as it’s going to get.

In 1994 the insurance industry (then early supporters as well) took a look at Hillary’s massive plan for healthcare reform, and said, “My God! We’ll be out of business in 5 years!” And they became intractable enemies of her reform plan.

Today, they look at their situation and say, “My God! We’ll be out of business in 5 years!” And they see in Hillary a means to engineer those 5 years into one hell of an exit strategy.

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