Insurer ends health program rather than pay out big

By William Ehart
The Washington Times
October 14, 2009

Ian Pearl has fought for his life every day of his 37 years. Confined to a wheelchair and hooked to a breathing tube, the muscular dystrophy victim refuses to give up.

But his insurance company already has.

Legally barred from discriminating against individuals who submit large claims, the New York-based insurer simply canceled lines of coverage altogether in entire states to avoid paying high-cost claims like Mr. Pearl’s.

In an e-mail, one Guardian Life Insurance Co. executive called high-cost patients such as Mr. Pearl “dogs” that the company could “get rid of.”

“The insurance companies are cheating in order to have obscene profits,” (Mr. Pearl’s father) said.

Guardian, a 150-year-old mutual company, reported profits of $437 million last year, a 50 percent increase over $292 million in 2007. It paid dividends of $723 million to policyholders and had $4.3 billion in capital reserves, according to its annual report. The company’s investment income totaled $1.5 billion that year, a small increase from the year earlier.

http://washingtontimes.com/news/2009/oct/14/ny-insurance-company-tries-to-rid-itself-of-high-c/

Although the individual private insurance market is infamous for discriminating against individuals with a potential for high health care costs, regulations largely prohibit group plans from singling out individuals for exclusion.

When private group plans prove to be unprofitable, they can often legally skirt the regulations by shutting down the entire plan or by withdrawing from unprofitable markets, often leaving the previously insured with very difficult or near-impossible choices. No matter how well regulated, the current proposed insurance exchanges cannot prevent an insurer that is failing in a market from shutting down. Even with guaranteed issue, other insurers would also shun unprofitable markets and unprofitable plans.

This problem is much more common than many realize. Look at the Medicare Advantage programs. This year many have declined to submit bids for renewal and will withdraw from unprofitable markets. Even this highly regulated option to Medicare can abandon patients, yet Medicare can’t. This is one more important reason why we should question the wisdom of Congress in insisting that reform be based on a market of private plans instead of an improved Medicare program for all of us.

Ian Pearl’s story has a couple of other important lessons for those supporting a public option as part of the reform package. Although private plans must always protect their business interests above the interests of the patients, a public option would have a mission requiring it to place patients first. The public option would be a victim of adverse selection since it would have to function as the safety net. Attempts to adjust risk would drive private insurers out of the exchange, leaving high-cost individuals with only very expensive options.

What about private co-ops instead, owned by the beneficiaries? That would prevent insurers from “cheating in order to have obscene profits,” as Mr. Pearl Sr said. Oops. Look at the profit statement of Guardian. It is a mutual company, and the profits are returned to the policyholders as dividends. That is essentially what a co-op is! Yet that did not prevent Guardian from jerking the rug out from under Ian Pearl. Private plans with their own segregated risk pools will always use any means legal (and sometimes illegal) to protect their reserves from being spent on health care.

Creating a public option and then throwing it into the amoral, dysfunctional private insurance marketplace to have it compete on the same perverse terms as the private insurers is a very sick solution for our health care crisis.

Single payer anyone?