Health Insurance – The Dirty Secret Part 5 "What’s Good for the Mistress"

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Health insurance companies still want to convince the public that they can manage their duty to their shareholders without effecting patient care, and that they are in fact a force for good when it comes to quality of treatment and increasing health outcomes.  If they manage patient care properly and reduce costs, will that not help bring down health insurance costs for everyone?  Is not some amount of “rationing of care” necessary to keep costs under control? [4]

This may be true, if the motive for the rationing was purely to benefit the policyholder.  The rationing could then even be construed as the insurance company upholding its fiduciary duty to the insured.  In fact most health insurance companies, when explaining the rationale behind rationing care, usually couch it in terms of “reducing unnecessary care” and “improving quality of care.” [xxiv] 

If that is the case, then why has there been such subterfuge when it comes to the insured pressing health insurance companies with claims that they have breached their fiduciary duty?  In other words, why have so many health insurance companies hidden behind one federal statute in particular to protect themselves from claims they have breached their duties? 

That particular law is the 1974 Employee Retirement Income Security Act, also known as ERISA.  The law was passed to set “minimum standards for most voluntarily established pension and health plans in private industry [and] to provide protection for individuals in these plans.” [xxv]  It was a successor to the 1973 Health Maintenance Organization Act.  One of the key features of that act was to recognize cost containment measures as an acceptable and appropriate part of health insurance. [xxvi]  Like many laws, both the MCO Act and ERISA were enacted to serve a laudable purpose: to provide for uniform standards for health insurance plans across the nation.  But in so doing, ERISA also made it impossible for states to accomplish one of their primary purposes, the regulation of the insurance industry, including health insurance.  Because of ERISA, health insurance companies were able to claim they were exempt from state insurance regulations. [5]

Even worse, courts interpreted ERISA as making many health insurance plans exempt from litigation.  In other words, the insured now found they had few, if any, means of addressing grievances against their health insurance companies.  The end result was an increasing shift in duty within insurance companies away from care of the policyholder to the considerations of the stockholder.  One legal writer has pointed out that:

…as the courts recognized ERISA preemption of both state tort lawsuits and state regulation dealing with MCO control of medical decisionmaking, ERISA MCOs became more ruthless in their cost cutting and less concerned about the quality of care. [xxvii]

One example involved a case in Lancaster involving an 11 year old child suffering from headaches.  The child’s parents had health insurance with the Kaiser Foundation Health Plan, a plan operated under ERISA.  This particular plan provided a financial incentive to primary care physicians to not refer patients to a specialist.  Over the course of five years the child was treated for headaches but without any diagnostic tests actually performed.  No neurologist ever evaluated the symptoms.  Finally, after five years, the parents insisted on a neurological exam, at which it was revealed that 40% of the child’s brain had been replaced by a tumor.  When the parents attempts to sue the HMO, the court claimed there was no breach of fiduciary duty on the part of the insurance company.  They rejected the parents claim, stating that:  “there is no remedy against an ERISA plan using an improper incentive plan or even hiding the incentive plan from its patients.” [xxviii]

If health insurance companies are simply trying to improve service to their customers, and the constant evasion of regulation by hiding behind ERISA is simply a misunderstanding, how do the insurance companies explain their rescission of policies?  Rescission is a process whereby insurance companies purposefully seek out policy holders whose policies can be “dropped.”  These policyholders are, of course, those whose medical expenses are usually growing and who have become a liability to the profit of the company.  The justification for the rescission is usually found in a patient’s having neglected to disclose some previous illness, but could also be something as trivial as a form that went unsigned, or even a misreported weight or height.  In June of 2009 executives of three major health insurance companies were asked by a congressman whether they would “commit…that your company will never rescind another policy unless there was intentional fraudulent misrepresentation in their application.”  All three answered with an emphatic, “no.” 

If health insurance companies are only trying to improve service to their policyholders when they engage in cost cutting measures, how can it be that the quality of service provided by these insurers continues to drop?  Already a decade ago, a study published in the Journal of the American Medical Association reported on the quality of care provided in investor-owned health maintenance organizations vs. not-for-profit HMOs.  Their conclusion was that:

Investor-owned HMOs…are associated with reduced quality of care.  Although total costs are similar in investor-owned and not-for-profit plans, the latter spend more on patient care. [xxix]

They were not alone in their assessment that the stockholder tends to win out over the policyholder in for-profit health insurance plans.  Two other studies showed that for-profit hospitals, for example, end up charging more for treatment, and have higher mortality rates among their patients.  One possible reason given for the higher mortality rates at the for-profit hospitals was “limitations of care that adversely affect patient outcomes.”[xxx] In explaining possible reasons for the higher costs, the researchers said that:

The likely explanation is the necessity to generate revenues to satisfy investors, a requirement absent in private not-for-profit hospitals. Private for-profit hospitals are also burdened with a 6% absolute increase in the proportion of hospital spending devoted to administration as compared with private not-for-profit hospitals.  Further, executive bonus incentives are over 20% higher at private for-profit than at private not-for-profit hospitals. [xxxi]

By Chris Ryan and Charles St. Onge