Insurers Face Mounting Troubles, Many of Their Own Making

Unhappy days are here again for health insurers, who are suddenly facing higher costs, customer-service problems and aggressive probes by state regulators, particularly in California.

Some of these problems stem from unexpected events and simple business mistakes. But many reflect the inherent contradictions of an industry whose companies proclaim their dedication to serving their members, but whose underlying business logic too often leads them to do the opposite.

In recent weeks, a number of insurers have issued profit warnings, prompting a sell-off of health-plan stocks. Some, like Coventry Health, say they face higher costs due because of events beyond their control — in this case, an unusual flu season that came on late but strong. Humana, meanwhile, blamed its own mistakes in estimating demand for its Medicare prescription-drug benefit.

For others, customer-service problems are re-emerging as a major issue. WellPoint, for instance, shook markets recently when it lowered its earnings forecast for the second time this year, partly as a result of a membership shortfall. For a more dramatic example, look no further than UnitedHealth Group, which last year told analysts that billling problems and other shortcomings had cost it 315,000 members. In a January conference call, the company said it expected to lose 550,000 more in the first quarter. It takes some epic screwups to drive nearly a million customers away.

You can get a sense of how the insurer does business from Douglas Frazer, a letter writer to the Madison, Wisc., Capitol Times, who recently related his Byzantine, months-long struggle to get UnitedHealth to reimburse him for his family’s flu shots. After his wife’s claim was denied a third time, he wrote, “I think I’d have preferred to get the flu.” Dow Jones Newswires ran down a few additional examples of UnitedHealth’s problems with doctors — few of them particularly detailed — in an article last week.

Stories like Frazer’s are funny when they involve nothing more serious than flu shots — and so long as they’re happening to someone else, of course. More to the point, they’re also symptoms of a healthcare system that basically functions as a giant game of whack-a-mole — one in which insurers, employers, healthcare providers and patients all struggle to shift their costs onto someone else in a never-ending, zero-sum fight. Health plans in particular are frequently trapped between their care-centric marketing rhetoric and the hard reality that delaying or thwarting legitimate health claims can be good for business.

Push your luck too far as an insurer, though, and you can also end up on the wrong side of the law. UnitedHealth’s PacifiCare HMO stands accused by California regulators of a “meltdown” in its claims-processing operation and of improperly denying claims that it judged to involve “pre-existing conditions.” (Insurers have a long history of bolstering the bottom line by refusing to pay for medical conditions that they claim — sometimes less-than-persuasively — predated a member’s coverage.) The state is now seeking fines of as much as $1.3 billion against PacifiCare, although the company said it believes it won’t face the maximum penalty.

PacifiCare isn’t the only insurer in California’s sights. WellPoint’s Blue Cross of California, Kaiser Permanente and Health Net also face possible fines and penalties if state regulators find they have wrongly yanked coverage from individuals who rack up big medical bills. That practice, which is illegal in California and many other states, led to a $9 million court judgment in February against Health Net, which cancelled the policy of a breast-cancer patient while she was undergoing chemotherapy. It later turned out that the company had paid some employees bonuses based partly on how many policies they could cancel this way, which is technically known as a “recission.”

To be fair, health insurers are holding a pretty bad hand, just like almost everyone else in the healthcare system. That doesn’t excuse the ones who cheat to improve their odds, of course, but it does help explain why the industry keeps stoking public anger by denying or restricting care to the people who need it most. In other words, they’re not really bad — they’re just drawn that way.

(Photo courtesy of Flickr user TheeErin under Creative Commons.)