20-year health insurance senior executive: "They... dump the sick"

The former chief corporate spokesman of health insurance giant Cigna — and, before that, Humana — is speaking out… against his former employer and industry.

Wendell Potter says he was seduced by money into supporting immoral practices: “When you have a nice job in Liberty Place and you have a nice home on the Main Line, you can lose perspective on how most of America lives… I got very accustomed to living the lifestyle of a corporate executive.”

Potter says he thought he was engaged in a noble practice: “Many of us [at Cigna] have always felt that we were doing the right thing, helping people who had insurance. The problem is that most of us can’t see the forest for the trees.” That’s sadly true in so many fields. People in the mortgage industry writing or packaging or rating lousy mortgages convinced themselves their actions were OK. People working in the defense industry convince themselves building weapons is important work because we must defend our country, even if those weapons are likely to be used abroad in wars of choice.

Potter’s conscience flared when “I saw there was a ‘Healthcare Expedition’ going up to Wise, Va., which is a few miles away. That’s a coal-mining area… [I saw] Hundreds of people in a county fairground, lined up, in the rain, to get free medical care — that was being provided in the animal stalls.”

So Potter testified to Congress yesterday:

I saw how they confuse their customers and dump the sick—all so they can satisfy their Wall Street investors.

I know from personal experience that members of Congress and the public have good reason to question the honesty and trustworthiness of the insurance industry. Insurers make promises they have no intention of keeping, they flout regulations designed to protect consumers, and they make it nearly impossible to understand—or even to obtain—information we need…

The industry’s charm offensive — which is the most visible part of duplicitous and well-financed PR and lobbying campaigns — may well shape reform in a way that benefits Wall Street far more than average Americans…

To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick. Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment. Asked directly about this practice just last week in the House Energy and Commerce Committee, executives of three of the nation’s largest health insurers refused to end the practice of cancelling policies for sick enrollees. Why? Because dumping a small number of enrollees can have a big effect on the bottom line. Ten percent of the population accounts for two-thirds of all health care spending.1 The Energy and Commerce Committee’s investigation into three insurers found that they canceled the coverage of roughly 20,000 people in a five-year period, allowing the companies to avoid paying $300 million in claims.

They also dump small businesses whose employees' medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether—leaving workers uninsured. The practice is known in the industry as purging. The purging of less profitable accounts through intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees has fallen from 61 percent to 38 percent since 1993, according to the National Small Business Association. Once an insurer purges a business, there are often no other viable choices in the health insurance market because of rampant industry consolidation…

Purging through pricing games is not limited to letting go of an isolated number of unprofitable accounts. It is endemic in the industry…

Insurers often refuse to tell customers how much of their premiums are actually being paid out in claims. A Houston employer could not get that information until the Texas legislature passed a law a few years ago requiring insurers to disclose it. That Houston employer discovered that its insurer was demanding a 22 percent rate increase in 2006 even though it had paid out only 9 percent of the employer’s premium dollars for care the year before…

The collective medical-loss ratios of the seven largest for-profit insurers fell from an average of 85.3 percent in 1998 to 81.6 percent in 2008. That translates into a difference of several billion dollars in favor of insurance company shareholders and executives and at the expense of health care providers and their patients.

There are many ways insurers keep their customers in the dark and purposely mislead them—especially now that insurers have started to aggressively market health plans that charge relatively low premiums for a new brand of policies that often offer only the illusion of comprehensive coverage.

An estimated 25 million Americans are now underinsured for two principle reasons. First, the high deductible plans many of them have been forced to accept—like I was forced to accept at CIGNA—require them to pay more out of their own pockets for medical care, whether they can afford it or not…

Secondly, the number of uninsured people has increased as more have fallen victim to deceptive marketing practices and bought what essentially is fake insurance. The industry is insistent on being able to retain so-called—benefit design flexibility so they can continue to market these kinds of often worthless policies. The big insurers have spent millions acquiring companies that specialize in what they call—limited-benefit plans. An example of such a plan is marketed by one of the big insurers under the name of Starbridge Select. Not only are the benefits extremely limited but the underwriting criteria established by the insurer essentially guarantee big profits. Pre-existing conditions are not covered during the first six months, and the employer must have an annual employee turnover rate of 70 percent or more, so most of the workers don’t even stay on the payroll long enough to use their benefits. The average age of employees must not be higher than 40, and no more than 65 percent of the workforce can be female. Employers don’t pay any of the premiums—the employees pay for everything. As Consumer Reports noted in May, many people who buy limited-benefit policies, which often provide little or no hospitalization, are misled by marketing materials and think they are buying more comprehensive care. In many cases it is not until they actually try to use the policies that they find out they will get little help from the insurer in paying the bills.

The lack of candor and transparency is not limited to sales and marketing. Notices that insurers are required to send to policyholders—those explanation-of-benefit documents that are supposed to explain how the insurance company calculated its payments to providers and how much is left for the policyholder to pay—are notoriously incomprehensible. Insurers know that policyholders are so baffled by those notices they usually just ignore them or throw them away. And that’s exactly the point. If they were more understandable, more consumers might realize that they are being ripped off.

Posted by James on Thursday, June 25, 2009