Health insurance companies over the years have claimed to be able to balance the needs of their policyholders with those of their stockholders. These needs are in direct conflict of each other and because of this health insurance companies have ended up providing inferior health care while misrepresenting their bottom line to stockholders.
The courts determined that health insurance companies have a fiduciary duty to their clients. Health insurance companies are not like other corporations because they are not merely providing goods or services but are representatives entrusted to act in their clients’ best possible interests. Insurance companies cannot make the best unbiased recommendations in the interest of their clients when higher profits are demanded by their stockholders.
In order to improve their bottom lines, health insurance companies have enacted policies in the past that were not based on their clients’ best medical interests. Such policies include the offering of financial incentives to physicians for not recommending specialists to patients. To make matters worse, cases of the patient’s health suffering because of poor policies were typically won by the insurance companies because of an act called ERISA. ERISA outlined measures to help insurance companies keep health care costs down. Under ERISA a health insurance company was not required to disclose any incentive policies even those that affected a patient’s health.
Another way that health insurance companies have protected their financial profits at the expense of the health of their clients is by suddenly dropping their coverage. This is called rescission. Rescission is when the insurance company will no longer cover a client. The clients who lose their coverage due to rescission are usually those diagnosed with prolonged illness and who require expensive health care coverage.
A ruling, however, in 2002 by the Supreme Court determined that an insurance company could only drop a client for reasons listed explicitly on the insurance plan. As a result of this ruling, rescinded patients have more leverage to win lawsuits against insurance companies.
Another law passed in 2002 outlines stricter rules for financial disclosure from corporations. Companies must now report to the SEC any possible future financial losses. Health insurance companies should be reporting the possible losses they may have due to lawsuits and also the greater expenses on medical treatments they are now forced to provide in order to prevent lawsuits. Health insurance companies who fail to disclose any factors that affect potential earnings are misrepresenting their financial health and may be sued by the stockholders for fraud.