Imagine—its lunch time and you head to McDonald’s for a classic Big Mac Combo. You order your food, pay for it, and sit at a table. The waitress calls your number and you head to the counter, but before you can grab your meal she says, “I’m sorry sir, but you did not wait in the designated waiting area. Only customers who wait in the designated waiting area are granted access to our food. Since you did not comply with this policy McDonald’s reserves the right to deny you the opportunity of consumption. Good Bye!” She takes back the food as two gigantic bouncers dressed in black with insignias on their shirts that read, “MTF—McDonald’s Task Force,” escort you out of the building.
Such egregious customer treatment is inconceivable in the land of the free and the home of free-markets, or is it? Recently, congressional committees called out Wellpoint, the nation’s largest health insurance company (1 in 9 Americans get their insurance through Wellpoint), for the practice of rescissions. Rescissions are as the root of the word suggests, it means to cut a policies holder’s insurance coverage after they have paid for it. But this is not a random elimination of coverage; they cut it when you need it most. As soon as insurance companies discover that a patient has any type of serious or terminal illness—pancreatic cancer, aids, leukemia, etc.—they then peruse all of the patients past medical records, information forms, or any other type of document to discover errors, such as inconsistencies with weight or past addresses. If they find anything that does not align perfectly with their information they cut the policy. It’s like paying for a hamburger and getting kicked out of the door for unintentional gaffes.
Wellpoint’s most recent rescission offenses were exposed last month when federal investigators discovered that Wellpoint rescinded 90 women’s insurance policies after they were diagnosed with breast cancer. Each of these women had paid their premiums on time and none of them had trouble receiving coverage before they fell ill. However, as soon as the insurance claims were sent to Wellpoint these women discovered that they were suddenly uninsured. Many of them initially supposed that their policy had been cancelled by mistake. What they didn’t know was that Wellpoint had a software algorithm that automatically began the rescission process as soon as the breast cancer diagnosis was reported. This algorithm worked like a heat-seeking missile. It would find ambiguities in past information, lock in on denying coverage, and destroy the insurance policy. For example, one breast cancer victim was denied coverage because she did not report that she had acne as a teenager. Another was denied for not reporting her bone density issues (of which she was unaware). Another was denied for not mailing back forms that she never received because they were sent to the wrong address.
Wellpoint claims that the algorithms and the rescissions were done solely as a solution to prevent fraud. Yet federal investigators found that not one of these cases was denied for legitimate reasons. From these 90 rescissions alone Wellpoint made a profit of $300 million. The investigators also found that on average Wellpoint generates annual profits of $100 million from various types of rescissions. Since the news of these breast cancer rescissions broke, insurance companies (out of the goodness of their hearts, of course) have agreed to end the practice of rescissions.
Now, before we send every insurance company to the shackles, there are two ways in which their actions must be assessed—from a moral and an economic standpoint. From a moral standpoint, it seems safe to question their ethics. In my mind I envision the executives of these companies sitting in their mansions, merrily eating dinner with their healthy families, while blood slowly drips off their hands and into their veal and potatoes, the blood of all the rejected policy holders who died prematurely after paying a life’s worth of premiums—filthy pigs.
However, from an economic standpoint the verdict is absolutely not guilty, and here’s why. Each one of these insurance companies is established and operated like a well oiled machine; they are continually retuning what works and eliminating waste. We praise companies like Apple, Toyota, Google, and Starbucks for cutting costs and fast-tracking production. The reason why Wellpoint rakes in record profits every year is because they follow these same business models. If paying for someone’s breast cancer treatments is going to cost you $1.3 million over the next ten years, what is the quickest way to eliminate this expense? Eliminate the source. Insurance companies are just like every other publicly traded company—they are not the Boy Scouts, the United Way, or the Parish of the Holy Order of Saint Mary Magdalene’s First Church in Christ of Grand Rapids, MI. No, they are in the business of making money, of maximizing profits, and therefore their presumably heinous misdeeds should be put into perspective.
While their business savvy is laudable, does it qualify them as great candidates to run our entire healthcare system? With the passage of the recent healthcare reform bill, by 2014 every American must buy insurance through one of these profit-maximizing companies. This bill ensures that these companies will get approximately 32 million more policy holders. The only downside for them is that the law declares they can no longer discriminate against people with preexisting conditions, nor can they practice rescissions. Does this bill include strong oversight to ensure that they will not violate these conditions? Of course not. Will insurance companies find a way around these regulations? Of course, and they already have. The day after the healthcare reform bill was signed into law insurance companies found a loophole. It turns out that the bill does not guarantee that children with preexisting health problems qualify for coverage. There is a reason why insurance companies, pharmaceutical companies, and hospitals love this bill; it promises them increased profits while providing weak regulations to deter them from taking advantage of the American people.
Since insurance companies currently do everything possible to avoid covering us when we are sick, what makes us think that they will suddenly have our best interest in mind when we are mandated to rely on them? Won’t they have less incentive to cover us when we are stuck with them regardless? In a recent Reuters article regarding Wellpoint’s deplorable rescissions, they said, “The revelation is especially striking for a company whose CEO and president, Angela Braly, has earned plaudits for how her company improved the medical care and treatment of other policyholders with breast cancer.” It is obvious that these companies are not in business to represent our needs; they are in business to make money. It is unconscionable, however, that those who are supposed to represent us would turn us over to such companies, like a piece of meat to ravaging wolves. Is this what Obama meant when he said “Change we can believe in?” By relying on the problem to fix the problem it has only exacerbated our healthcare debacle.
