The overwhelming majority of American adults buy insurance, and most insurance customers are aware of the potential pitfall of insurance bad faith. Bad-faith actions by insurers can include refusing to settle or delaying settlement, failing to process claims or denying claims unjustly, denying coverage unreasonably, failing to respond to inquiries or requiring repeated submissions, etc.
Now that the destruction left by Hurricane Ike will spawn thousands of insurance claims, policyholders may again be shortchanged by bad-faith practices—the “three Ds” identified by lawyers as Delay, Deny, Defend. When health insurers and property insurers balk at paying just claims, policyholders need the firm hand of government to protect them.
To date, however, any firm hand has been provided only by state agencies: Federal help for policyholders dealing with insurance giants is lacking. After all, GOP and Bush-Cheney opposition to “regulation” has always been most effective in relieving the insurance industry from any obligation to pay off claims. Indeed, even widespread disaster has not put a dent in industry profits. After Hurricane Katrina, insurance company stocks soared—following analysts’ belief that the perception of big insurance pay-offs would result in further relaxing of restraints on insurance corporations.
Stock market or no stock market, it behooves the American justice system not to let the same thing happen this time around.
This concern is not voiced at random. “Insurance fraud” is big in our justice system, but in the current system it signifies individual perps or small groups trying to cheat the insurance companies, one of your bread-and-butter kinds of prosecutorial charges, frequently pursued in federal courts—as opposed to actions by the insurance companies, designated “bad faith insurance” or insurance bad faith, directed against policyholders.
In spite of the fact that every major insurance carrier is a multi-state corporation with offices and millions of customers nationwide or in several states at the very least, regulation of the insurance companies and legislation to protect the consumer are still left almost entirely to the individual states.
For a thumbnail image of the bigger picture, the current Justice Department Web site turns up 1,250 documents involving “insurance fraud,” meaning complaints made by insurance carriers, often prosecutions. “Insurance bad faith” and “bad faith insurance” turn up no results. The LexisNexis database of published rulings in court cases turns up uncountable thousands of cases of “insurance fraud” in federal and state courts. For bad faith in health insurance, it turns up fewer than 69 cases.
Certainly, information is floating around in the federal system. On Oct. 7, 2007, the New York Times reported that 91 federal audits showed that tens of thousands of Medicare beneficiaries have systematically seen their claims improperly denied by private insurers. Audits revealed improper terminations of people with HIV/AIDS; huge backlogs of unprocessed claims and complaints; and failure to answer phone calls from consumers, physicians and pharmacists. Companies audited include UnitedHealth, which services six million Medicare recipients; Humana, with more than 4.5 million; and WellPoint, which operates Blue Cross of California. Problems included UnitedHealth’s improperly denying claims without explanation to beneficiaries; Humana’s not explaining claim denials or not informing beneficiaries that they could appeal; and a backlog of 354,000 claims in a WellPoint subsidiary, UniCare.
Blue Cross, the biggest health insurer in California, has been sued by thousands of policyholders whose individual health insurance was cancelled. Plaintiffs alleged that up to thousands of policies were cancelled for reasons including inadvertent errors by the insured, or worse, simply because claimants became ill. (Blue Cross settled and is reportedly clarifying its application forms.)
Kaiser Health Foundation, part of Kaiser Permanente, the nation’s largest HMO, is under investigation by California’s Department of Managed Health Care for allegedly canceling individual health policies over a mistake in the application for coverage, and this without investigating applications at time of submission, reviewing the files only when the customer developed a medical problem requiring care.
California’s Department of Insurance has launched a task force on elder issues, the Senior Issues Working Group, and is warning elder residents to be watchful about insurance scams in long-term care and annuities. The department has announced “an alarming increase in cases in which California seniors have been targeted by agents for unsuitable annuities and long term care policy sales.”
Related problems in Medicare drug coverage by private insurers were revealed in an October 2007 report by the House Oversight and Government Reform Committee. Among other malfeasance, under the partly privatized “Medicare Part D,” some insurers receive rebates not passed along to consumers.
In other words, our federal system must be well aware that multi-state insurance carriers, operating across multiple state lines, can and do cross the line.
If necessary, federal agencies could get word from the states. State agencies in the five largest insurance markets—California, Texas, New York, Florida and Illinois—annually receive thousands of complaints regarding health and accident policies. Statistics provided by the Insurance Department in New York show that NYID received 2,959 complaints against health insurers in 2006, and reversed 4,649 company decisions. WellPoint alone had 524 internal appeals, with 197 reversals.
The Texas Department of Insurance lists 1,684 justified complaints in its Accident and Health Complaint Index for 2006, mostly for Aetna, the Blues, Humana, UniCare and United HealthCare. The Illinois Division of Insurance lists 7,751 complaints about individual and group health and accident policies for 2005 and 2006, the overwhelming majority related to claims handling. California’s Insurance Commissioner announced a settlement with United Healthcare in 2007 over “claims payment practices” in which United Healthcare agreed to pay a fine of up to $20 million nationally. All the insurance majors hauled into court, either by state agencies or by class-action lawsuits, have parent corporations operating hugely in interstate commerce. Still—as said—they are regulated within the states.
Obviously, a delay of a few days in processing a claim, while intensifying the distress of the policyholder, adds up—multiplied by thousands of claims—to millions of dollars in interest on money held onto by the companies, an obvious motive for delay at the very least. Furthermore, it is a central fact of life in our justice system that, while contractual good faith is regarded as a bedrock principle, large companies can more afford legal counsel than can individual consumers. Yet apparently no United States Attorneys’ offices under the current administration have found evidence of systematic bad faith by any major insurance company. The five biggest insurance markets in the US are California, with 29 million health insurance customers and another 7 million citizens not covered; Texas, with 17.5 million insurance customers and an uncovered 5.7 million; New York, with 16 million insured and 2.7 million not; Florida, 14 million covered and 3.8 million not; and Illinois, with 10.9 million covered and 1.8 million not. In these five states—at least two of them suffering the impact of Hurricane Ike—there is no indication, from agency web sites and inquiries placed by phone and email, of any prosecutions of insurers. This is a track record of remarkable rectitude for an industry operating almost without federal oversight.
A broad analogy here is that the Justice Department’s pursuit of ‘insurance fraud’ over bad faith insurance is a lot like its pursuit of ‘voter fraud’ over the much deeper problem of election fraud.
In the near term, the federal takeover of gigantic American International Group raises another threat. Protecting insurance customers will become even more difficult if the administration argues that the interests of policyholders have to be balanced against the interest of the taxpayer.
While the administration frantically shuffles policies and changes course to protect a GOP presidential campaign—bailing out Fannie Mae and Freddie Mac to save what’s left of the housing market, pursuing yet more Abramoff cronies to clean up connections in John McCain’s Arizona, sternly denouncing price gouging at the pump, and helping one large bank buy another to stave off finance and credit disruptions—the real watchdogs, wherever they are, must keep an eye open for unintended consequences.
Margie Burns is a Texas native who now writes from Washington, D.C. Email margie.burns@verizon.net. See her blog at www.margieburns.com.
From The Progressive Populist, October 15, 2008
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