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Monthly Archives: November 2008

By David McClard

The cover article in this week’s Houston Press illustrated an interesting battle going on between a Texas workers’ compensation insurance carrier and its unfortunate policyholders. Texas Mutual Insurance has recently appealed to the 14th Appeals Court a bad-faith judgment in which it was found to have caused undue suffering by wrongfully denying a claim. The insured in this case had a back injury which worsened over several years and TMI had denied paying medical bills for years. This was the second bad faith claim that TMI had lost, the first being a case where an adjuster had added a word to the insured’s doctor’s notes.

The lead counsel for TMI and senior vice president, Mary Nichols, has an interesting proposition in her appeal. She wants the higher courts to eliminate bad faith damages from workers’ compensation suits. In her words: “We’re going to be paying for [the insured’s] injury. We pay for unlimited lifetime medical. So if we delay your shoulder surgery and your shoulder gets worse, that’s still our nickel… That’s not a separate and independent injury. That is the comp claim that we are taking care of. That’s the shoulder that we bought.”

Mrs. Nichols could probably work on her choice of words, but more importantly, maybe reconsider the public policy issue at hand. Insureds who fight a workers’ comp claim must go through the internal complaint system, which is a series of mediations and hearings that can last for years, or hire a lawyer and haul the case through potentially multiple courts. If TMI has it their way, workers’ comp carriers could delay and deny payments through any manner of fraudulent means, and ultimately be subjected to nothing more than compensatory damages. All the while, they could drag the insured through a punishing internal review and civil court/appeals process without any worry of being punished for misrepresentation or fraud.

It remains to be seen if Texas Mutual will prevail in changing Texas law on the matter, but for the sake of policyholders who have the misfortune of being injured on the job, one would hope that it does not.

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By David McClard

recent article in the New York Times financial section described a horror story involving an insurer whose protracted financial meltdown caused the loss of $4.5 billion to its policyholders, including over a million dollars for a little girl with a hospital visit-caused brain injury.  The author made the assurance that such financial fiascos are rare with insurers because of the strict guidance and watchfulness of state insurance regulators. (But this assurance contains no consideration of the limited ability of insureds to collect more than remedial sums in ERISA-governed plans, thanks to O’Connor’s dicta in Pilot Life v. Dedeaux.)

The economic situation is now roundly considered precarious in almost every sector, and life and health  insurance companies do not seem to be the exception. For anyone who is convinced that their insurer is on the brink of a collapse, they are forced into the unenviable position of having to chose whether or not to pull out of a policy prematurely. It’s usually not something an insured ever wants to do (because of tax issues, penalties, paperwork, et al), but if it has to be done, there are some tips on making the next step a safer one:

1)When choosing a new insurer, consult with more than one agency rating. Each have their own criteria for rating insurance companies, so results may vary. The major raters A.M. Best, Fitch Ratings, Moody’s and Standard & Poor’s. 2) When shopping among the top-rated companies, be wary of terms which seem too good to be true, and exotic riders to policies. 3) Be extremely careful of gaps in coverage when switching policies. 4) Spread coverage over two (or three!) policies to hedge against an insurer financially tanking.

This advice is understandably disheartening, since it implies that the life and health insurance industry is now more than ever full of dangerous pitfalls.

By Dominique Donaho

Senate Finance Committee Chairman Max Baucus (D-Mont.) just released a somewhat official health reform plan for 2009.  For all its 98 daunting pages, it is a rather nonspecific glimpse into the future of what may be done on the national scale.  About 25 of those pages (the introduction and the last chapter) list problem areas in health care and its overbearing costs with very vague proposals for reform.  And for the most part, it is also conveniently plagiaristic of the Obama Health Care Plan.

As chairman of the Senate Committee on Finance, Baucus will likely have an influential role in national health care reform if it is to happen at all; that particular committee has jurisdiction over Medicare and Medicaid.  Under the Call to Action, Medicare would be made available to those over 55 (10 years earlier than the current requirement) and Medicaid to all beneath the poverty baseline.

For everyone between, the Call to Action sets up a Health Insurance Exchange, which appears similar to the current Massachusetts plan.  Participating employers are required to enroll in exchange for compliance with oversight by an Indpendent Health Coverage Council.  Additionally, a public health plan similar to Medicare would be set up.  Baucus claims the Exchange would become a self-sustaining entity “within a few years.”

Perhaps the most glaring divergence from the Obama Health Plan is Baucus’ proposal for a universal mandate for all individuals.  Whether this is acceptable might depend on the effectiveness of these expanded programs (Medicare and Medicaid, but also SCHIP to all children below 250% of the poverty level) reaching those who would not be able to afford insurance in the first place.

Overall, I would characterize Baucus’ Call to Action as a call to awareness.  The proposals made are largely recycled or vague, but it is at least a small, semi-formal step in a new direction.

By Steven Edmondson

It is my opinion the high deductible health insurance policies are illusory.  According a recent news article, average premiums for family coverage is $12,680 per year.  In the past attempts to slow the increasing cost  (i.e. increasing premiums paid for coverage, health care plans with high deductibles were developed.  In fact, the number of persons enrolled in these high deductible plans (plan with deductible of $1000 or more increased from 12% to 18%.  Despite this trend, premiums continued to rise and in many situations rose faster than wages.  Although this type of policy may make coverage more affordable, it discourages utilization.  This is a windfall for the insurer, the company continues to collect premiums without incurring liability for coverages.   Utilization is discouraged because an individual must pay a large sum for basic preventive health care services and minor medical issues.  In effect there is no coverage.  The only medical care covered is either a major medical expense from hospitalization or surgery.  When you consider that the majority of the “risk pool” is employed and presumably healthy, the selection seems to favor the insurer.  At a time when the economy is struggling and many are without the means to pay high deductibles this type of policy would seem to be counterproductive to promoting the health of the nation.  Please comment with your thoughts.

By Ian Wasser

 

Public Policy and the Means-End Test

In New York LIfe v. Dodge, the dissent argues that the regulation of insurance is an exercise of state police power.  In determining whether a state can regulate various aspects of a life insurance policy, a means-ends test is applied.  In this case, the subject matter is life insurance, which is regulated by contract.  The specific end or goal is for the state to protect the net value of insurance by regulating forfeiture provisions.  The means used by the state to accomplish this end are non-forfeiture laws, which serve to protect the value of life insurance policies.  In applying this test, the dissent concludes that a state can prevent foreign insurers from abusing the rights of their citizens.

The court in Griffin v. McCoach similarly agrees that a state has the police power to regulate life insurance contracts.  Specifically, the Griffin court held that there must be an insurable interest in all named beneficiaries to a life insurance policy.  In coming to this conclusion, the court suggests that public policy should dictate who can be a beneficiary to a life insurance policy.  Applying the means-ends test of the dissent in Dodge to the the case in Griffin yields a similar result.  The state interest is to prevent members of the public from having life insurance contracts placed upon their heads by strangers.  The means used by the state to accomplish this end are regulation of life insurance.

In reconciling the different holdings in Dodge and Griffin, it is important to consider the prevailing state interest.  In Griffin, the state interest was to prevent potential contracts for murder.  In Dodge, the state interest was to protect the value of life insurance policies against ill-advised contracts.  The Dodge court was also forced to balance the counter-interest in freedom of contract.  Clearly, the state interest in Griffin is far more compelling when compared to the state interest in Dodge.  Thus, Griffin stands in direct opposition to Dodge, simply by application of a means-end test for the regulation of certain aspects of life insurance by states.

By Rebecca Owens

Does anyone else think it’s sad, pitiful, embarrassing [insert any other synonym for pathetic] that it has taken what amounts to a $700 billion bribe for the Senate to pass a bill putting mental health coverage more in line with other types of health insurance?  I’ve heard the disparity between mental health and regular health coverage called discrimination; ludicrous is more apt.  From what I have read in various articles, the discrepancy is something to the effect of a 30% increase in co-pay with only 10% the limit of health insurance!

By Quianta Moore

The statistic that health insurance is the No. 2 cause of death is quite shocking. Even if those numbers are exaggerated, any deaths caused by the stress and agony of dealing with insurance companies seems to defeat the purpose of health insurance. The article focuses on high deductible HMO’s, which made me think of McCain’s health plan. We did not fully address in class the consequence of allowing people/employers to purchase health insurance across state lines. If certain states are more “favorable” to insurers by not requiring coverage for pre-existing conditions, then most healthy people will choose to purchase insurance in those states because the plan will be cheaper. That leaves all the high risk sick people in the states that require coverage for pre-existing conditions. McCain proposes these states have a “high risk coverage” for the sick, but because the so called “community rating” will be based on all sick people the premiums will either be much higher or the deductibles will be higher or both. If the article is true, do we care that people are dying as a result of these policies? Also, who will pay for those who cannot afford these new deductibles/premiums? It seems like the states who require coverage for pre-existing conditions will ultimately be burdened with this high risk pool and have no incentive to continue to have laws that require coverage for pre-existing conditions. I guess eventually the healthy people then would be evenly spread out once no state requires pre-existing conditions, but how long will that take? Overall, I think it would be okay for people to purchase plans in the individual market, but the adverse selection problem really bothers me. Does anyone else see a solution to this problem?

By Ian Wasser

Recently, I went to the doctor for my annual checkup.

It was time for me to update my immunization against tetanus and diptheria.  A standard immunization, and one that would seemingly be covered by health insurance.

I don’t have the student health insurance plan.  Instead, I am insured through my wife’s employer.  We have a good health plan–a nice, high deductible PPO plan that covers almost everything.  Not gold-plated like a Congressional plan, but certainly not the bare minimum of coverage.

Much to my surprise, I learned that routine immunizations for people over 18 are not covered.  The only exception is yearly influenza vaccination.  I checked my policy–sure enough, immunizations were listed as an exclusion.

The interesting part is that while immunizations are excluded, the administration of injectable medicines are covered.  The doctor’s office billed the immunization as two charges–one for the medicine and one for the administration of the drug.  Both charges were rejected by my insurance on the basis of being excluded.

My question is this:  I agree that the cost of immunization is not covered.  That is clear from the policy language.  The immunization was injected, however, and injections of medications are not excluded from the policy.  Is it worth a fight to get the insurance company to cover the cost of receiving the injection?

And, more importantly, shouldn’t all health plans include coverage for routine immunizations?  Why don’t states mandate such coverage?  After all, people only need these immunizations on an infrequent basis.  And failure to take the precaution of getting immunized creates a much greater risk for the insurance company–should I become infected with tetanus, the cost of treatment would certainly exceed the cost of immunization.

I came across this article about a month ago (sorry for the delay). http://news.cincinnati.com/apps/pbcs.dll/article?AID=/AB/20080908/ENT09/809080314/

To sum it up, MassMutual is giving away free life insurance to parents of dependent children who make between $10,000 and $40,000 a year. MassMutual will pay the premiums, and once the parent or guardian dies, MassMutual will put $50,000 into a trust for the dependent child to pay for college. This is a nationwide program. Here is where you can get more information about the program: http://www.massmutual.com/mmfg/pdf/lifebridge_eligibility.pdf

I looked at this searching for something dealing with insurable interest. I am not familiar with the insurance laws in Ohio (where I saw the news story), but we’ve studied that here in Texas, there needs to be an insurable interest in the life of the insured. Therefore, how would this work for a Texan? In the literature on MassMutual’s website, it says:

“We realize that all children – including yours – are the future of our country. And the more educated our future leaders are, the better prepared they will be to help meet the challenges of tomorrow.”

Is that enough of an insurable interest–that the parent, who cannot make more than $40,000 annually, will in the event of death not be able to pay for his or her child’s college tuition? In the end, who will challenge it–not the dependent or the insurance company who knowingly entered the contract? Any thoughts here or am I missing something?

By Laura Range

I stumbled across this article and thought I would share it with our class as I thought it was interesting in light of our ongoing discussions of health insurance.   To summarize, the Alabama State Employees’ Insurance Board has approved a new plan that will charge employees an extra $25 to cover health insurance premiums if the employee elects not to take advantage of free health screenings designed to detect health risks, such as obesity, high blood pressure, etc.  As we’ve discussed, there has been an increased push across the country to incorporate wellness plans and focus on preventative medicine, and I thought this was an interesting example of the idea in practice.  Here’s the link:

http://www.theroot.com/id/48533?GT1=38002

Laura