California Insurance Lawyer Blog

Although it’s much too soon to tell how the federal healthcare overhaul will affect the way the insurance industry conducts business, the bill may have done a few things right. “Immediate Effects of Health Reform Bill.” A few provisions go into effect in six months; others won’t be enforceable until 2014.

• People whose policies are rescinded through no fault of their own are now protected under federal law. Even though rescission is regulated under the law of most states, carriers tend to ignore the laws and do as they please until they are caught, then pay moderate fines. How the federal government will enforce this provision remains to be seen.
• People with pre-existing conditions can no longer be denied coverage; however, because the bill doesn’t regulate caps and increases, insurers can change as much as they want and increase when they feel like it. The federal plan does provide a government program for people whose health problems make them uninsurable now.
• Insurers can no longer place lifetime caps on benefits and annual limits on coverage.

If insurers don’t find a way to wriggle out of these three reforms, the bill imposes important measures that are necessary to rein in abusive industry practices. But we don’t expect the industry to embrace reform without a fight.

Rather than criticizing the bill for its flaws, which many say include an inability to contain costs, industry and enterprise could turn this into an opportunity to provide products and services both affordable and sustainable for this century.

While President Obama took his health reform to the American people this week, Health and Human Services Secretary Kathleen Sebelius sent an open letter to the CEOs of UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Health Care Service Corporation and CIGNA HealthCare Inc. asking them to publicly justify proposed health insurance premium increases. “If insurance companies are going to raise rates, the least they can do is tell us why,” she said.

Sebelius referred to a recent Goldman Sachs analyst report that upgraded most insurance company stocks because the industry has so little competition. Even if they raise their rates, existing customers won’t be able to find less-expensive options. And if the plans lose customers, premium increases will more than make up the loss.

“Not only is price competition down from year ago ... but trend or (healthcare) inflation is also up and appears to be rising. The incumbent carriers seem more willing than ever to walk away from existing business resulting in some carrier changes,” Steve Lewis (of the employer benefit consulting firm Willis) stated in the Goldman Sachs report.

Something has to change.

February wasn’t a good month for Anthem Blue Cross. While the health insurer was defending itself in Los Angeles Superior Court for refusing to allow a policyholder to receive a liver transplant at an out-of-state/out-of network hospital because it cost too much, a Los Angeles Times analysis of the company’s regulatory findings revealed that since 2004 Anthem increased it’s parent company’s profitability by $4.2 billion. See Lawsuit Targets Anthem Denial Policy, Los Angeles Times,and “Anthem Profit Shifts Scrutinized,” Los Angeles Times.

Anthem is also being investigated by the California Department of Insurance for more than 700 violations in the past three years for failing to pay medical claims on time and misrepresenting policy provisions to its policyholders. And to top it off, President Obama’s revised healthcare overhaul proposal, which includes federal authority to regulate premium increases, appears to be in response to Anthem’s decision to raise premiums for individual policyholders up to 40 percent. See “Anthem is Accused of Breaking Laws,” Los Angeles Times, http://www.latimes.com/business/la-fi-anthem-claims23-2010feb23,0,186309.storyand “Obama Plan Would Curb Health Insurers on Rate Hikes,” Los Angeles Times.

Hmmmm... if the Department of Insurance proves that Anthem violated state law 700 times, and the insurer were have to pay up to $10,000 per violation. That’s $7,000,000, but when you make a $4.2 billion profit, that merely amounts to part of the cost of doing business, not a punishment for ignoring the law. Toyota is probably wishing it had gone into the health insurance business.