The Economics Of Getting Sick: Rescissions & Fraud

By Justin Gardner | Related entries in Economy, Health Care, Law, Money

If you’re not familiar with the word rescission, this is the practice of canceling policies because people didn’t reveal a preexisting condition. And it’s one of the key reasons why the health insurance companies can claim that there’s $100 billion in health care fraud every year.

Here’s one example of what they consider fraud…

“They said I never mentioned I had a back problem,” said [Sally] Marrari, 52, whose coverage with Blue Cross was abruptly canceled in 2006 after a thyroid disorder, fluid in the heart and lupus were diagnosed. That left the Los Angeles woman with $25,000 in medical bills and the stigma of the company’s claim that she had committed fraud by not listing on a health questionnaire “preexisting conditions” Marrari said she did not know she had.

By the time she filed a lawsuit in 2008, she also got a diagnosis of pancreatic cancer and her debts had swelled beyond $200,000. She was able to see a specialist by trading office visits for work on the doctor’s 1969 Porsche at the garage she owns with her husband.

That’s rich, eh? Can’t afford medical bills so she has to trade services for it…to work on the doctor’s vintage car. If that’s not a symbol for everything that’s wrong with how we buy and pay for health care in this country, I don’t know what is.

Of course, finding cases of “fraud” is a lucrative business and the insurance companies are making sure they identify all they can. But sometimes they get caught…

In the past 18 months, California’s five largest insurers paid almost $19 million in fines for marooning policyholders who had fallen ill. That includes a $1 million fine against Health Net, which admitted offering bonuses to employees for finding reasons to cancel policies, according to company documents released in court.

To me, rescission is a patently immoral practice that amounts to private rationing so insurance companies can make more money. Not just make money. Not just stay in business. They are offering BONUSES to people who find fraud.

Folks, the “death panels” are here and while the insurance companies consider rescission a way to identify fraud in their system, I think this entire practice of finding ways to cut people from their insurance (especially in their most vulnerable hour) constitutes a systematic fraud on the public trust and it MUST end.

And that’s why, if we achieve nothing else in this health care fight, we should at least make it illegal for insurance companies to cut people from their policies because of preexisting conditions. That’s THE most important reform measure in this debate, and I hope those of you who continue to push the public option realize that.


This entry was posted on Tuesday, September 8th, 2009 and is filed under Economy, Health Care, Law, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

18 Responses to “The Economics Of Getting Sick: Rescissions & Fraud”

  1. gerryf Says:

    What do a thyroid disorder, fluid in the heart and lupus and pancreatic cancer have to do with a pre-existing “bad” back?

  2. Aaron Says:

    My fiance was kicked off her insurance through Blue Cross due to a “pre-existing condition” of getting migranes every now and then. We’ve since switched to Kaiser. So yes, rescission is quite active. I’ve had personal experience with it.

  3. Steve in KC Says:

    Rescission should be outlawed, period. It should never have been allowed in the first place. To take it as a reform victory I think is a little excessive, although in our current draconian, overly business-friendly insurance climate, I can see why many would want to call it a victory.

    Fear not, right-wing conservatives, the so-called public option is all but dead on the table, just like reasonable health care regulations in America. It would appear that we as a nation have succeeded in cutting our nose (cutting it OFF would be a better analogy as so many people are destitute due to lack of care/coverage) to spite our face. And with Kennedy’s passing, there are no strong voices to hold Obama’s feet to the fire of real change.

    We are a nation represented by people on both left and right, many of whom it seems will take any amount of money from business while turning a blind eye to the needs of their own electorate.

  4. kranky kritter Says:

    I am opposed to the practice of companies actively searching for fraud for the primary sake of allowing that healthcare company to discontinue the coverage of a costly subscriber. That’s unscrupulous.

    I am not opposed to allowing healthcare companies to discontinue the coverage of a subscriber who has committed legitimate fraud.

    However, I think this is all best remedied by making sure that folks have continuous lifetime coverage, so that fraud would not be tempting for folks with serious conditions, and so individual companies would not be tempted to sidestep their responsibility to sick people.

    I really think we Americans all need to work on our fundamental understanding of healthcare and its relation to the concept of insurance, which is very problematic. Most of the insurance we are familiar with concerns protections against bad things which might happen. Some folks go their whole lives without having their house burn down or having an auto accident.

    But with healthcare, virtually everyone will consume some of it. It doesn’t have quite the same level of balancing out the lucky folks and the unlucky folks. In other words, to a very substantial extent, healthcare insurance is more like healthcare financing.

    We all have to pay for it. At its most basic, we are divided between:
    • those who prefer a low-management system where individuals take more risk and who benefit if they are lucky and pay more if they are unfortunate

    •those who prefer a more highly managed system where risks are averaged out and every shares the cost in return for more cost certainty and more security against ill health

    I am oversimplifying quite a bit here, but I think that’s the root of the divide. At this point, I am tempted to suggest that we resolve that argument with a binding “which way do we go” referendum.

    Prior to that referendum, I think we probably need to forcibly educate folks to accept the notion that whatever plan we come up with, there will be no such thing as “free” healthcare. because there’s really no such thing as free. Even if the folks who lean towards bullet point 2 get their way, all of us will have to pay for what we get.

  5. Lyle Says:

    If my insurer believes I have committed insurance fraud on my homeowners insurance, they are free to pursue criminal charges and a civil suit to recover their damages.

    If they believe I have committed fraud on my health insurance policy, they are likewise free to pursue relief in court.

    They should not be permitted to simply *claim* that I have committed fraud without a court’s ruling.

  6. Chris Says:

    Can I finally say F**K health insurance companies on here without being deleted? Seriously.

  7. michael reynolds Says:

    Chris:

    I’m with you. They can’t die off soon enough for me.

  8. gerryf Says:

    Kranky,

    And you forgot the third group–those dominated by people who benefit directly or indirectly from illness by lining their pockets at the expense of the sick or who fear they may become sick.

    I think you made some excellent points, but I am not being facetious about this third group, which is at present controlling the debate. If all we had were the two groups, a mandate that people be insured with a public option would address both people’s concerns.

    A public option provides the second group’s needs, while the private insurance industry could provide for the first group either a very basic level of a low cost, or a very high level for a high cost.

    The problem is that the third group does not benefit as much from this setup and they are fighting it with every weapon at their disposal.

    Any rational review of the problem leads to the real solution–a single payer system, but unfortunately, the insurance industry killed that idea in the womb.

  9. Jimmy the Dhimmi Says:

    Can I finally say F**K health insurance companies on here without being deleted? Seriously…I’m with you. They can’t die off soon enough for me.

    Hey Chris & Mike: If you hate it so much, don’t buy health insurance.

    Its a free country (so far); nobody is forcing you to buy services you don’t like (yet).

  10. Nick Benjamin Says:

    However, I think this is all best remedied by making sure that folks have continuous lifetime coverage, so that fraud would not be tempting for folks with serious conditions, and so individual companies would not be tempted to sidestep their responsibility to sick people.

    The current bills fix this be end pre-existing conditions clauses. Insurers won’t ask for that info., so it will be impossible for people to defraud them by withholding it.

    I don’t really think the left is in favor of a high-management option. MediCare has very few actual managers. They set prices, Doctors send them bills. They have some anti-fraud guys. That’s it. Insurance companies have much more sophisticated, complex, and byzantine management structures.

  11. WHQ Says:

    Hey Chris & Mike: If you hate it so much, don’t buy health insurance.

    Its a free country (so far); nobody is forcing you to buy services you don’t like (yet).

    There’s a good argument: the false dichotomy of “love it or leave it.” We can’t possibly imagine some other route with a better outcome than no heath insurance or crappy health insurance. God forbid we attempt to improve things in a free country.

  12. Jimmy the Dhimmi Says:

    Hey WHQ, what is stopping every limousine liberal in this country from cashing out of their cadillac plans and starting a health insurance cooperative based on the priciples that Mike and Chris and you believe in?

    I would guess that corporate income taxes and regulations would be a huge obstacle in achieving that goal, but conservatives are on your side with that one, so what’s the deal?

    Remember, health insurance is a service provided to you by others; therefore, you don’t have an intrinsic right to health insurance because it requires other people to provide it to you, and these people deserve to be compensated.

    Stop complaining about it and come up with some better options instead, but don’t force me to pay for it if I don’t wan’t to join your plan.

  13. Chris Says:

    Hey dummy, stop being a dummy.

  14. WHQ Says:

    Stop complaining about it and come up with some better options instead, but don’t force me to pay for it if I don’t wan’t to join your plan.

    Sometimes democracy doesn’t go your way, Jimmy. It’s an imperfect world. If I apply the same logic you did in your previous comment to Mike and Chris, I might suggest your moving to Somalia or some other anarchic locale where you can enjoy the freedom from government you seem to crave. No pesky laws or regulations fettering the free market of every man for himself. It’s a darwinistic paradise. You’ll love it.

  15. gerryf Says:

    Real helpful Chris–and that is coming from someone who agrees with you.

    The problem with your argument Jimmy, is that we WILL pay for it one way or another when very sick people end up in emergency rooms. Whether you believe healthcare is an intrinsic right or not (most of the western world DOES), ultimately the cost of caring for the uninsured falls on the taxpayers in our system.

    Whether you want to admit it or not, no rational adult can defend the current system. If the goal is healthcare, it has failed miserably. It is inefficient, costly and falls short of the goal of healthcare.

    A single payer system would have instantly improved the system–maybe not made it perfect, but it would have been better than what we have now. Obama and the Dems blew it, the Republicans blocked it for all the wrong reasons. The healthcare protestors were played like idiot violins. The progressives rolled over.

    Anyone who supports the watered down version of healthcare that the GOP has won and the Dems have conceded is not paying attention. Co-ops are a joke, A personal mandate will only line the pockets of private insurers even more than they do now.

    The world is laughing at us; personally, I’m crying. We probably had only one shot at this and our leaders let us down. The least we can do is do the same to them.

  16. Nick Benjamin Says:

    Hey WHQ, what is stopping every limousine liberal in this country from cashing out of their cadillac plans and starting a health insurance cooperative based on the priciples that Mike and Chris and you believe in?

    Jimmy you really should do some research on the insurance market. I’m seriously starting to suspect you’re actually a liberal, because there’s no way a smart guy like you would make these ignorant arguments accidentally.

    The health insurance market is a market that tends to be dominated by one or two companies for several reasons. One major reason is a plan needs a large risk pool to break even. This means a state like Wyoming can only support a handful of health plans even under ideal circumstances.

    A second major reason is that insurance companies negotiate steep discounts from providers. Typically they pay 40% of retail. For obvious reasons a plan with more members can negotiate an even lower price.

    Therefore the only thing stopping “limousine liberals” as you call them from doing this is that you’d need hundreds of thousands of them to sign up at the start, you;’d need enough staff (and skilled staff) to negotiate steep discounts from every provider in the country, etc.

    In the polisci literature this is referred to as a “Collective Action Problem,” and it is widely acknowledged that the only way to solve these problems is for the government to get involved.

    Thank you, fellow liberal, for allowing me to demonstrate that I know lots about health care, and imply anyone who disagrees with me simply doesn’t understand the problem.

    Remember, health insurance is a service provided to you by others; therefore, you don’t have an intrinsic right to health insurance because it requires other people to provide it to you, and these people deserve to be compensated.

    Kind of like firefighters?

  17. Chris Says:

    Gerry – not trying to be helpful, there is nothing to gain by arguing with an idiot troll who just repeats whatever he copies off of stormwatch.

  18. facet Says:

    I really think we Americans all need to work on our fundamental understanding of healthcare and its relation to the concept of insurance, which is very problematic. Most of the insurance we are familiar with concerns protections against bad things which might happen. Some folks go their whole lives without having their house burn down or having an auto accident.

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