Do You Have a Blue Cross Scorched Earth Policy?

If members of Congress and the United States Senate faced the same indignities that you and I confront dealing with our collapsed healthcare system, I'll go out on a limb and suggest that change would be in the wind.

So as you read about these atrocities inflicted against American citizens ask yourself:

How many members of Congress or the United States Senate have their insurance coverage pulled when they file a claim?

When was the last time you opened your local newspaper to read that your state representative was about to lose her home because of medical bills?

Then ask yourself, where would be, who could we turn to for help, if the legal system were turned on its head as some advocate?

For some time I have been following the corrupt business practices of Blue Cross of California and writing about what I discover on Daily Kos.

The sordid Blue Cross history involves a retroactive review department which is tasked with terminating the health insurance coverage of certain enrollees who become ill and file claims.

Recently the Los Angeles Times reported that among California insurers, Blue Cross of California spends the lowest percentage of its revenue on patients and patient care.

This public admission from a Blue Cross spokeperson tells the whole sordid story:

Blue Cross of California spent less on medical care last year, as a percentage of its patient revenue, than any other large health plan in California, a physician group said Monday.

. . ."We provide policies and plans that are efficient, customer focused, meet public demand and are reflected in our membership numbers," spokesman Robert Alaniz said."

. . .The association's leaders criticized Blue Cross' relatively low level of healthcare spending — known among insurers as their "medical loss ratio" — saying patients would be better served if profit was capped, as overhead expenses are now.

. . ."From the perspective of Wall Street, a lower medical loss ratio is great," association Chief Executive Jack Lewin said. "But, from the vantage point of a patient or a doctor or hospital, we look at it as a travesty. We believe more money should be spent on healthcare.",1,905988.story

Why am I writing about insurance company atrocities on Tort Deform?

Here's why. The Blue Cross rampage is continuing. All that stands between this predatory company and some deeply aggrieved citizens whose only mistake was to get sick and file a claim, are a few heroic and civic minded lawyers.

Insurance companies know that insurance regulation is very weak.

Insurance companies know there is no federal regulation.

The industry took care of that 60 years ago when it pushed through Congress the McCarran-Ferguson Act, which outlawed federal regulation of insurance.

State regulation of insurance ranges from bad to worse.

The only viable deterrence to wrongdoing of any kind are a handful of lawyers who specialize in suing insurance companies for bad faith insurance.

Bad faith insurance is where an insurance company willfully denies legitimate claims. This appears to be the Blue Cross business model.

Unfortunately, the Blue Cross outrages are multiplying like a California wildfire. Blue Cross is on a coverage pulling spree.

They are not in business to protect you when you become ill. They are in business to provide profits to Wall Street and a revenue stream to shareholders.

Here's what the Los Angeles Times reported a few days ago about the newest wave of assaults.

When Steve and Leslie Shaeffer's daughter, Selah, was diagnosed at age 4 with a potentially fatal tumor in her jaw, they figured their health insurance would cover the bulk of her treatment costs.

Instead, almost two years later, the Murrieta, Calif., couple face more than $60,000 in medical bills and fear the loss of their dream home. They struggle to stave off creditors as they try to figure out how Selah can keep seeing the physician they credit with saving her life.

. . .Shortly after Selah's medical bills hit $20,000, Blue Cross stopped covering them and eventually canceled her coverage retroactively, refusing to pay for treatment, including surgery the insurer had authorized in advance.

The company accused the Shaeffers of failing to disclose in their coverage application an undiagnosed bump on Selah's chin and physician visits for croup. Had that been disclosed, the company said in a letter, it would not have insured Selah.

Shortly after Selah's medical bills hit $20,000, Blue Cross stopped covering them and eventually canceled her coverage retroactively, refusing to pay for treatment, including surgery the insurer had authorized in advance.

The company accused the Shaeffers of failing to disclose in their coverage application an undiagnosed bump on Selah's chin and physician visits for croup. Had that been disclosed, the company said in a letter, it would not have insured Selah.


Thank God that good, yes, there are decent public-minded lawyers, who are stepping in to sue Blue Cross into submission.

Cancellations such as Selah's are fueling a new backlash against health plans. In a series of recent lawsuits, policyholders say they were illegally terminated, causing substantial financial hardship and jeopardizing their healthcare. State regulators are investigating and said they were preparing to take action against Blue Cross.

The people being cancelled hold individual plans.

Last week the Commonwealth Fund reported that an alarming 89% of our fellow citizens who attempt to secure individual insurance are unable to obtain coverage either because of the prohibitive cost or due to the notorious pre-existing medical condition.

The suits accuse health plans of dumping sick policyholders without evidence that the consumers intentionally omitted information about their medical condition or history. They also accuse insurers of using applications that are vague and confusing by design, trapping consumers into making mistakes that can be used to cancel their coverage later.

The complaints involve individual policies -- the type of coverage sold to people who work for themselves or for employers who don't offer health benefits. Unlike many work-based plans, which are open to qualified employees regardless of health, insurers in California and many other states can reject applicants for individual policies based on their conditions or health histories. After an applicant is accepted, a state law prohibits health plans from canceling unless the policyholder lied to obtain coverage.

Aside from appealing to the company that dumped them, subscribers' only recourse is to complain to state regulators or sue. After an insurer yanks coverage, it can be difficult, if not impossible, to get a policy from another carrier.

More than 2 million California residents buy their own health policies, which some see as an increasingly important form of coverage because many employers have dropped the benefit as costs have gone up. Insurers, in a push for healthier and wealthier subscribers, view individual policies as a growth opportunity.

I read these stories and say, there but for the grace of God go I. I am self-employed. I had individual insurance that was pulled. I'm one of the lucky ones, I was able to secure new insurance--but it wasn't easy!

What this is all about is outrage heaped on outrage, heaped on outrage. Sounds very familiar to most of us, doesn't it? Pay your premiums, file a claim, then get cancelled.

The way Steve and Leslie Shaeffer saw it, their $498 monthly premium was the price of peace of mind. The self-employed tile installer and stay-at-home mother wanted to make sure that they and their two children got whatever care they needed and that the bills would never bury them.

Two years ago, they bought a family health policy from a Blue Cross affiliate, BC Life & Health. Only a couple of months later, Selah's diagnosis -- aggressive fibromatosis, an extremely rare and fast-growing tumor -- put that policy to the test.

Initially, Blue Cross paid for her care. But when the bills surpassed $20,000, it stopped. Then, after collecting the Shaeffers' premiums for most of a year, Blue Cross canceled Selah, saying her parents left key information out of their application for coverage.
The Shaeffers say that's not so. When Leslie filled out the application, the couple said, Selah was a healthy girl who hadn't seen a doctor in months. After submitting the document, Leslie said, she noticed a bump on Selah's chin, but doctors told her they didn't think it was serious.

If you file a claim, you run the risk of being investigated then cancelled. This makes perfect sense. Blue Cross needs to maintain a low, Wall Street friendly medical-loss ratio.

The name of the game for the for-profit insurance industry, is Wall Street and low medical-loss ratios. The more revenue they spend on your health, the higher the medical-loss ratio.

Health plans say such cancellations are necessary to guard against people lying on applications. The companies rely on the information contained in that document to determine who gets coverage and at what price.

"The reason there is a rescission policy is to prevent fraud," said Chris Ohman, chief executive of the California Assn. of Health Plans.

But according to the depositions of Blue Cross and Blue Shield employees, fraud has little to do with it.

A review of depositions and company documents produced for the lawsuits shows that the health plans routinely scrutinize medical records, back 10 years or more, when subscribers submit claims for certain conditions within two years of signing up for coverage.

If the health plans find information in the records that was absent from the application, they cancel, often without finding out whether the discrepancy was an intentional lie or an honest mistake, according to the depositions.

Some consumer lawyers say that violates state law, which forbids companies from canceling coverage unless a policyholder was intentionally misleading.

Here's the money quote.

Consumer advocates said the practice makes a mockery of the purpose of health coverage.

"You think you have insurance, and then, after you get the treatment, you find out you really don't have insurance after all," said Claremont lawyer William Shernoff, who represents former policyholders in several lawsuits against Blue Cross and Blue Shield.

. . .Irvine lawyer Robert Scott, who represents the Shaeffers and several others in suits against Blue Cross and Blue Shield, said the current practice was a misguided effort to hold down costs.

"It's all about the money," he said.

To make matters worse, Mr. Bush, the insurance industry and its lobbyists, are engaged is a skillful manipulation of the facts. Their goal is to convince the American people that the reason health care costs are skyrocketing is because of those damn "trial lawyers" and the frivolous lawsuits they file.

More lies and deceit from the same folks who brought us Medicare D.

NycEve: Author Bio | Other Posts
Posted at 7:45 PM, Sep 18, 2006 in Civil Justice | Health Insurance
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Well, yes, health-care costs skyrocket when you make insurers cover fraudulent risks they didn't agree to cover, and force them to spend money on attorneys defending bogus bad-faith claims. How can you write a lengthy post about insurance and not once mention the adverse selection problem? Bad-faith insurance suits are just a good way to guarantee that more people are uninsured.

George Soros and ATLA have plenty of money: if it's so easy to make money providing health insurance the way you think it should be provided, why doesn't Soros/ATLA create a Daily-Kos-friendly health-insurance provider that provides better care for less money? It's not like people have to use Blue Cross. Just as a matter of math, at least one insurer is going to have the lowest medical loss ratio.

Posted by: Ted | September 18, 2006 11:59 PM

The Blue Cross of California story is an excellent example of the economic model of many insurance companies. Some are less blatant in their tactics, but the goals are the same. You are correct in stating that bad faith litigation is virtually the only remaining protection for the average policyholder.

Posted by: Greedy Trial Lawyer | September 19, 2006 3:33 AM

You know, in that case, there may well be an injustice in progress. Of course, as you yourself mentioned, state regulators are looking into it as well, and they won't take a cut of the money at the end.

Also, you DON'T mention that there are cases very similar to this where the fraud was on the PATIENT side, which is exactly why this practice (dclining coverage after the fact) is allowed at all.

This case may indeed be fraudulent - Blu Cross of California may indeed be committing fraud on a large scale. That does NOT negate the fraud (also on a large scale) beeing perpertrated by people lying to get insurance in the first place (or suing to get coverage they never purchased, as in the Katrina mess).

BOTH actions are wrong. The question, from a systemic standpoint, is this: which is easier to accomplish, and how do we make BOTH wrongs harder to accomplish?

Posted by: Deoxy | September 19, 2006 12:03 PM

Ted as someone who has been wrongly denied coverage and only after much personal lobbying been given it I have to tell you that your hatered of regular people is not warrented.

Are there cases of fraud ever? of course. Are there scores of cases of people denied care they WERE covered for? Yes. In fact I have had to deal with this several times with various insurance companies I have had over the years. Each time I was right - the care was covered in the end. Why should I have to spend so much of my time advocating for my right to the services I had been promised?

Am I wrong for fighting the insurer to provide the coverage promised?

I am very lucky that I never had to go to court but not everyone is an effective self-advocate. People need experts who can fight for them when they cannot fight for themselves.

Posted by: ann on | September 19, 2006 12:25 PM

There is a myth that the United States has the best health care system. This is not true. We don't have the best health care in the world -- we have the most expensive health care system in the world.

For example, the pharmaceutical industry and the FDA are both working overtime to limit Americans' access to prescription drugs from Canada and other countries at far lower cost. They want to make sure that Americans buy their prescription drugs from sources in the United States, where prices can be set at any level in order to enrich the profits of pharmaceutical companies. This is one of the biggest cons ever perpetrated on the American people, and it is fully supported by the Bush administration and FDA.

The latest desperate trick in the FDA playbook is to scare senior citizens into thinking that the prescription drugs they are obtaining from Canada are counterfeit.

But the AARP which stood shoulder-to-shoulder with the GOP to pass through the worst legislation ever--Medicare D, announced yesterday that it was beginning an advertising blitz in key states in an attempt to sway certain senators up for re-election to support the importation of Canadian drugs.

So much for Medicare D, which is an assault targeting our most vulnerable citizens.

Posted by: Eve Gittelson | September 19, 2006 2:51 PM

I am accused of "hatered of regular people," but the fact remains that Gittelson's argument that insurers should be subject to bad-faith lawsuits for rooting out fraud will hurt far more regular people, especially the regular people who are honest.

The reimportation program Gittelson supports will ensure that neither Americans nor Canadians will get pharmaceuticals in the future. Again, regular people will be hurt, but at least pharmaceutical companies won't make any profits! (Too bad for all the retirees and widows who have pharmaceutical stocks in their retirement accounts, and too bad for the people who will die because pharmas won't make investments in life-saving drugs where they won't be allowed to recoup their costs.)

These are short-sighted, demagogic, and dangerous public-policy proposals that fail to account for the dynamic and unintended consequences that will result from their implementation. And in defense of these poorly thought out policies, all Ann and Eve offer are name-calling of their opponents.

Posted by: Ted | September 19, 2006 3:42 PM

Importing drugs from Canada is not the ideal solutions to our American healthcare catastrophe.

Americans should be able to buy drugs in the United States.

Having American citizens buy drugs from Canada is a sad acknowledgement that our own system is a failure.

Posted by: Eve | September 19, 2006 7:17 PM

Simple education is the easiest answer to the "reimportation" call.

The production of each individual pill (ANY pill) is cheap. This is why "generic" drugs are cheaper than brand-name drugs. Once the system is set up, the individual cost is cheap.

It's the SETUP that is expensive, and I don't just mean the physical production setup. There's R&D costs, as well.

Example: Pill A cost $1 million to discover. It costs $1 dollar to make an individual pill.

In order for this to be worth doing, the $1 million has to be rcovered plus a reasonable amount of profit (yes, profit - if there's no profit, IT DOESN'T GET DONE).

So, if you only expect there to be a market for 5,000 pills a year, and you only get 7 years before "generic" drugs undercut your prices, let's see... 7 x 5000 = 35000 pills.

You have to recoup $1 million investment (plus profit) on 35K pills. OK, let's assume a mere 5% profit (considering that not all R&D investmnts produce marktable drugs at all, and that some drugs then become huge sinks of money after the fact, like Vioxx, means that, realistically, you have to assume MUCH larger R&D per product or MUCH higher profit margin, or some combination).

1,000,000 * 1.05 / 35,000 = 30

(Wow - I picked those number out of the air, honest, and I got a round number at the end! Cool.)

So, $31 a pill (remmber, the pill costs $1 to make). Now, let's say that some other country, such as Canada, has a market for another 2,000 pills a year, but they (by law) requir you to sell the pill for only $5. Well, since the pill only costs $1 to make, that $5 is still worth doing, so they sell pills in Canada, too, but much cheaper.

So, the end effect of reimportation is that the domestic price of the pill beomce essentially whatever CANADIAN laws demand that it be. And, since that's below the price necessary to cover R&D, the company LOSES money.

This means that they won't bother to develop the next pill, as developing new pills is a net loss.

The reason American medicine costs so much (besides our high labor costs and stupid malpractice/legal - stupid bcause it's innefficient and random) is that we are subsidizing the rest of the world's medicine.

If you have a good idea on how to stop that, please pipe up, but "reimporation" certainly isn't it. (How many new drugs have been developed in coutries that have legal caps on th costs of pills?!? Oh yeah, almost none.)

Posted by: Deoxy | September 20, 2006 2:16 PM