Consumers Who Buy Health Insurance Vulnerable to AbuseJun 13, 2008 | Parker Waichman LLP
Americans who buy their own health insurance have very little protection if companies want to deny coverage or raise their premiums when they get sick. A new report published by the consumer advocacy group Families USA says states should do more to protect consumers from insurance companies that will stop at nothing to avoid paying claims.
About 14.5 million Americans bought their own insurance on the individual market in 2006. The Families USA survey of insurance commissioners across the country showed that all but five states allow insurance companies to deny coverage to sick or older patients. All but 15 states have no limits on how much companies can raise premiums if individual policy holders.
For those states that do offer some safeguards against insurance company abuses, the kinds of protections varied greatly. Some states -- such as Maryland, Illinois, and Idaho -- let patients appeal when their individual coverage is revoked; other states -- such as Ohio, Kansas, and Arizona -- don't allow appeals. Most states guarantee that customers can review when companies deny individual claims. But in only a handful of states are those reviews free and conducted by an independent third party, the report says.
Overall, New York, Connecticut, New Hampshire, and California had among the most protections. States including Alaska, Arkansas, and Wisconsin had relatively few, according to the report.
Recently, some states have taken aggressive action against health insurance companies that abandoned policyholders when they became critically ill. In April, the Los Angeles City Attorney sued Anthem Blue Cross for illegally dropping patients when they became sick. The lawsuit claims Anthem maintained secret units in the company that looked for ways to drop the policies of sick patients.
Prior to the Anthem Blue Cross lawsuit, the Los Angeles City Attorney sued Health Net for the same type of abuse. That complaint alleges that the company illegally paid bonuses to employees for meeting policy cancellation targets. The incentive program led to the illegal cancellations. For its part, Health Net has admitted that such a bonus policy was in effect at the company in 2002.
It may be more important than ever that states take greater steps to protect consumers from such abuse, as more and more people are forced to buy private health insurance. In fact, the number of people buying their own individual policies could explode if Sen. John McCain (R-Arizona) is elected to the White House. Health insurance reform touted by the Senator would replace existing tax breaks for employer-sponsored coverage with tax credits individuals could use to buy coverage on the individual market. The change would likely shift millions of workers onto individual coverage, where they would be vulnerable to insurance companies' cost-saving tactics.