The headline reads: "Health Insurer Must Pay $9 Million for Canceling Sick Woman’s Policy."
The article has gory details about company employees being given cancelation quotas and bonuses, apparently regardless of whether the cancelations were merited under the terms of the initial policy.
If you think that health insurance policies are unjustly canceled fairly frequently (and yes I can believe this), surely this penalty should be much higher. The cancelers are rarely caught, so a simple application of law and economics suggests severity not leniency. For a large health insurance company a $9 million fine is peanuts.
As far as I can tell, credibly stiffer fines have not been tried. In other words, the government does a poor job at enforcing the health insurance contract.
You might hold a theory that the government judiciary will malfunction in such a way but a health care government bureaucracy would not make mistakes of comparable importance.
I do not hold such a theory. When it comes to health care reform, I would like to start with the enforcement of contracts based on rational and just penalties.
As I read this, all of the payment goes to the woman( minus lawyers etc of course).
Isn’t this way of fining complicating 2 things? On the one hand compensating the victims, and on the other hand acting as deterrent? This can lead to a situation where the size of a fine is determined to be ‘fair compensation’, not to be effective deterrent.
Wouldn’t fines be easier to set if one part is used as compensation, and another, potentially much higher, part is the deterrent and goes to the government, or some earmarked fund?
But the government judiciary just did fail at enforcing the contract.
How many instances of failure are needed to declare failure? Do we count each unjustified but non-litigated cancellation as a separate instance?
We’ve had the current system in place for a couple of decades now. There are plenty of legal incentives to pursue such awards. But they haven’t been pursued.
At what point do we decide the current system isn’t working?
Or do we conclude that it is the best of all worlds because it might work sometime in the future?
It seems to me that the failure of the government to enforce contractual responsibilities of corporations to their customers is basically ubiquitous in our system, but is a bigger problem in insurance because the expenses that can be imposed on customers of, for instance, phone companies, are much smaller. The Law and Economics approach would work well if it accorded with the sense of justice held by most Americans, but in practice it feels like a lottery. Also, the court system is simply too noisy and imposes large risks on all businesses if that approach is adopted. In addition, such a cost encourages the vulnerable businesses to buy political influence in order to protect themselves, which contributes to the sort of corruption of the system that we have seen since the Gingrich revolution.
Leave it to a libertarian to blame government for “free market” failure.
In libertopia, where government oversight/regulation of industry policy has no teeth, lawsuits will be the only recourse. Of course given the response of this post, I wonder what libertopia *really* looks like.
@mike rappaport
and what relevance does the fact that she had a heart condition have to with the fact that she was being treated for breast cancer? None. The insurance company was looking for any out to avoid paying. Had she failed to disclose a previous cancer, then I would agree with your position.
This was an arbitration, the government judiciary was not involved. The arbitrator was hired by the defendent. So please apologize for all the insults hurled at the judiciary.
If you want to change these awards, which are almost entirely handled in arbitration, change the contract or get your congressman to change the law.
A simple idea to address pre-existing conditions would be for insurance companies to charge a higher premium and require a “vesting” period like some companies with their 401(k) match before being fully covered.
Why don’t we buy maximum dollar values of coverage? Maybe outlays beyond a certain cap would have to be paid back. Well, we sort of already do some of these things, but they aren’t explicit. Insurance companies don’t care about your pre-existing conditions, they care about getting shafted out of cash. It would be nice if I could purchase X dollars of coverage and could buy Y more dollars each year.
I think you have to think about insurance as how you’d want it to work if 10 members of your family or friends formed a co-op and self-insured. In fact, insurance companies exist because we refuse to do this!
For a large health insurance company a $9 million fine is peanuts.
So what? Surely the question is what is the benefit to the company of breaking its contract divided by the probability of its being caught.
Why would you penalise big companies more than small ones (for the same crime)?
I worry about the inflation to insurance premiums.
@ Russell Carter
What possible relevance does the role of actuaries have in Tyler’s post?
The post has nothing to do with how insurance companies decide who to cover but rather makes the simple argument that the government could better enforce contracts by increasing penalties on insurance companies for unjustly cancelling policies.
In keeping with the spirit of Cowen’s position I propose the following:
1) The government impose penalties on healthcare companies that illegaly break their contract with their clients.
2) This fine be large enough to deter the behaviour.
3) The patient receive a reasonable portion of the fine but the rest be directed towards medicare/aid.
4) The government pursues cases even where the client has died. (very ill patients are the least able to aggressively defend themselves)
This assumes that you agree that their is a problem with companies looking for ways to illegaly cancel expensive(to them) policies.
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