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An Insurance Insider’s Case for a Public Plan

This will shock only those who’ve never had to haggle with an insurance company, but a former employee of an insurance giant gave damning testimony yesterday against his former industry, telling lawmakers that companies like his go out of their way to avoid paying health claims even when they’re legitimate.

“I know from personal experience that members of Congress and the public have good reason to question the honesty and trustworthiness of the insurance industry,” Wendell Potter, Cigna’s former vice president for corporate communications, told members of the Senate Commerce Committee. He c0ntinued:

Insurers make promises they have no intention of keeping, they flout regulations designed to protect consumers, and they make it nearly impossible to understand — or even to obtain — information we need.

The deception, of course, is by design. Publicly traded companies don’t exist simply to make profits, they exist to make more profits today than they did yesterday. Why else would anyone invest in them? And in the case of private insurers, what easier way to pad the bottom line than to deny expensive claims by stonewalling confused patients?

Potter expands, somewhat technically, in his written testimony:

The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate based on companies’ quarterly reports, which are discussed every three months in conference calls with investors and analysts. On these calls, Wall Street looks investors and analysts look for two key figures: earnings per share and the medical-loss ratio, or medical “benefit” ratio, as the industry now terms it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies can see sharp declines in stock prices moments after admitting they’ve failed to trim medical costs.

There are other schemes the companies use to bolster profits, Potter said. They often dump sick customers by locating some minor disqualifying technicality in their coverage application — the omission of a minor illness, for example.

Companies also have techniques for dropping entire policies for small businesses when coverage costs grow higher than expected. “All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether,” Potter said.

Wednesday’s hearing coincided with the release of a Commerce Committee report finding that insurers have underpaid their customers by billions of dollars, forcing those costs on patients instead. The timing of the report is hardly insignificant. Democrats in Congress and the White House are pushing hard for a public option to be included in their sweeping health care reform strategy this year. To private insurers, though, the idea of having to compete with a government-backed plan is anathema, and they’re fighting tooth-and-nail to defeat the proposal.

Republicans, almost universally opposed to the public option, have sided with the private insurers. And that didn’t change during yesterday’s hearing even in the face of Potter’s damning insider testimony. Indeed, The Washington Post reported that Sen. Mike Johanns (R-Neb.) questioned why anyone should think that folks would have an easier time getting coverage under a government plan than they do from private companies. (Seems he missed the part about the manufactured confusion the for-profit companies employ to avoid paying claims.)

The moral of the story? “As you hold hearings and discuss legislative proposals over the coming weeks,” Potter warned, “I encourage you to look very closely at the role for-profit insurance companies play in making our health care system both the most expensive and one of the most dysfunctional in the world.”

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