Arnold G. York
What’s a promise worth?
We all buy insurance to protect us from all sorts of things. It’s not like we can negotiate the terms of the policy. You can’t cross out a paragraph. The carrier writes the policy and you have to take it “as is,” which means that fundamentally you are relying on a promise from the insurance company that they will treat you fairly and not put their economic interests ahead of your needs in interpreting the policy.
Recent events have given us all cause to wonder how well we are being served by our insurance carriers, particularly our health insurance carriers and whether they are even trying to deal with us, their policyholders, fairly. Over the last year or two, several major health insurance carriers in California-including Blue Cross, Blue Shield and Health Net-have been the subjects of front page newspaper stories about how many carriers have rescinded the health insurance policies insured after they became seriously ill, leaving them with unpaid medical bills and often little access to medical care.
The industry insisted they had to do this to combat fraud and keep premium costs down, but the practice of not investigating before the issuance of the policy but after someone became seriously ill seemed at best opportunistic on the part of the carriers and, at worst, almost amoral.
This wasn’t just an occasional case. This was an industry-wide practice of reviewing the insurance applications of seriously sick or injured insured to see if there was a way to cancel their policies. Although the industry claims this was a normal business practice, and well within their rights under the policies, they did their utmost to keep the details of the practices from going public. Within the last few years, several major carriers in California-including Blue Cross, Health Net and Blue Shield-have been fined by state agencies for failure to disclose information or for procedures related to the rescision practices.
Recently, in a case involving Health Net, a woman who developed breast cancer had her policy rescinded in the middle of her treatment. She sued and the case was heard by a retired Los Angeles Superior Court judge sitting as an arbitrator under the terms of the health insurance policy. Generally, insurance companies prefer arbitration because it protects them from what they perceive as the possibility of runaway juries. Since both the insured and the insurance company have to agree on the arbitrator, typically the arbitrator is an experienced retired judge with a reputation for evenhandedness, and whom both sides will accept. That’s why it is relatively infrequent that you get a large verdict from an arbitrator that includes punitive damages; and when one is rendered it usually means there was some really egregious conduct on the part of the insurance carrier.
The judge handed down a $9 million-plus verdict against Health Net-$8,400,000 was for punitive damages-which was meant to punish the carrier for its conduct. Reading the 21-page decision, which in itself is unusual, made it perfectly clear the judge was outraged and the conduct of Health Net was total beyond the pale.
Suddenly, the issue was again on the front pages and on TV news all over the country, and the carriers were running for cover, promising to institute a system to fix the problem using an independent review of all policy cancellations. Andrew Cuomo, the attorney general of New York, is looking into insurance practices, Los Angeles City Attorney Rocky Delgadillo has moved to get information from the carriers related to rescisions and filed a lawsuit, with probably more to come. There are hearings scheduled in Sacramento, and both the insurance commissioner and the Department of Managed Care, which supervises HMOs, is taking more aggressive action.
Whether anything will come of all this is hard to say. Right now the industry is doing their mea culpa and pretending they want to play nice, but if past history is any example, they’ll just stall until this all blows over and then it’s business as usual.
There is only one way to reform unconscionable insurance conduct and that’s with serious regulation that has teeth, suspending companies from doing business in California where necessary, and hauling some of the industry before a grand jury and making them testify under oath, and filing civil and, where appropriate, criminal charges in the right case.
Despite what many people like to believe, the free market is not self-regulating. It’s been my experience that in a free market, invariably, the big guys (the insurance carriers) end up beating up the little guys (the policyholders), and the only way to keep the field fair and level is if government, via regulation and the courts, via litigation, work hard to be an evenhanded referee. And where the problems are chronic, as they are here, the Legislature steps in and sets standards by statute.
Whether that will happen remains to be seen.