The "White Elephant" in the Healthcare Debate

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  We treat insurance companies as businesses like other businesses: they have shareholders. In a perfect world, they compete. They want to make a profit.

The trouble is, insurance companies sell promises, and their profits depend not on keeping those promises but on breaking them. When an insurance company makes a promise–sells a policy–its shareholders win. When an insurance company keeps a promise–pays a claim–its shareholders lose.

But since you, the policyholder, are the customer, the insurance company is like a man choosing between a wife and a mistress. He makes promises to both, but in the end, continually must decide for the benefit of one and to the detriment of the other. So which are you?


Chris Ryan and Charles St. Onge expose this undisclosed conflict of interest, in their investigative report titled “Dying to Make  a Profit”

You’re the long-suffering wife. An insurance company is a fiduciary, a person (or company) entrusted with something by the customer. The insured event–for instance a serious health condition–might ruin the individual financially. If an individual could easily absorb the event, he would not buy insurance in the first place.

The law recognizes a fiduciary relationship as one with special obligations. As the court ruled in Hartford Accident & Indemnity Co. vs. Michigan Mutual Insurance Co., “In defending a claim, an insurer is obligated to act with undivided loyalty; it cannot place its interests over those if its assured.”

So if an insurance company is legally “married” to you, how do they have anything left to promise the “mistress”–in this case, the shareholder?

State laws generally govern insurance plans, but health insurance plans are different. Many fall under the federal Employee Retirement Income Security Act of 1974, or ERISA, which governs both retirement plans and health plans. And ERISA in many cases preempts state regulation.

One HMO treated a child for headaches for five years without ever ordering a diagnostic test, because of financial penalties for referring patients to specialists. She had an undiagnosed tumor. When her parents sued, the court stated, “there is no remedy against an ERISA plan using an improper incentive plan or even hiding the incentive plan from its patients.”

More recently, the Sarbanes-Oxley Act of 2002 required stricter financial reporting, but has been largely ignored by health insurance companies’ SEC filings. After all, full disclosure would be “admitting to the affair.” Non-disclosure might be illegal, but so is bigamy.

Strict Sarbanes-Oxley enforcement could help clarify the conflict–to the detriment insurance company profits.

Or, we could end the marriage entirely.