Tuesday, September 19, 2006

Feelin’ Blue...

[UPDATE: For more insight, check out Bob's follow-up, and especially these commments from a CA agent]

I am not a shill. My challenge is that, if I’m going to write about health insurance (and I am), I can’t help but discuss Blue Cross (in all its various and sundry forms). It would be like writing about the automotive industry without mentioning GM, or discussing the fast food sector while ignoring McDonald’s.
So why the disclaimer and qualifications? Well, because I’m going to defend BX (of California, of all places). Well, that’s not really accurate: it’s more a matter of explaining how and why insurance works the way it does, and how sometimes folks have to live with the bad decisions they make (or others make on their behalf).
When she was 2 years old, little Selah was found to have a lump on her chin, and a case of the croup. About that time, her parents applied for medical insurance with the aforementioned BX, and neglected to completely, accurately, and honestly answer all the medical questions. About two years later, Selah has been diagnosed with a potentially fatal tumor in her jaw, and BX (having reviewed her application and medical records) has rescinded the policy [rescission is a process whereby the insurer essentially annuls the policy, and returns all the premiums]. They did so because, at the time, their underwriting guidelines apparently required that folks with the croup and/or undiagnosed (but visible and known) lumps be declined.
In fairness, I looked at the current underwriting guidelines for the BX available here, and it is silent as to both. Since I don’t keep outdated guidelines handy, I have no idea what they might have done with this several years ago. Regardless, according to the carrier, they would not have accepted this risk had the conditions been fully disclosed.
Which brings us to the “controversy:” my friend Joe Paduda calls the Blues’ decision “cheap, heartless, and stupid.” Based on the news report he cites, though, it appears to be none of those, but good business sense. Contrary to popular belief, underwriting guidelines are not “fine print” nor are rescissions based on “obscure technicalities.” Rather, the guidelines are based on research and experience, and policy provisions (including the right of rescission) are based contract law. In this case, the insurer was apparently prevented from adequately assessing the risk, and faced the very real possibility that it would harm its other policyholders (as well as stockholders) if they had actually paid such a claim.
That’s right, it’s not just about poor little Selah (although she’s been victimized as a result of her parents’ apparent actions); it’s about treating all insureds fairly and equally. If BX had paid her claims, what about the next insured who “fudged a little” on their application? It’s not a perfect system, of course, but it requires that we all follow the same rules. It appears that Selah’s folks chose not to, and now seek to blame someone else for their own mistake.
Of course, I’m relying on a newspaper article that may (or may not) have all the facts. For example, it appears that the BX in question has a reputation for post-issue underwriting, and rescission. If true, this is no less wrong than what Selah’s parents did; that is, the carrier is obliged to follow the rules, as well. What, if any, consequences ultimately befall the BX remains to be seen. The consequences for Selah appear to be self-evident.
The article doesn’t say whether or not Selah’s parents bought their policy through an agent, nor is it clear that the end result would have been different had they done so. But, having a professional, independent agent at least gives the consumer an advocate, one who knows the system, and can “work it” on their client’s behalf.
Let the firestorm begin…
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