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Health Insurance Insider: 'They Dump the Sick'

Retired Health Insurance Executive Blows the Whistle on His Former Industry

Alice Gomstyn

Former health insurance company insider Wendell Potter is expected to pull no punches when he talks about the flaws of his former industry at a hearing before the Senate today.(ABC News Photo Illustration)

Frustrated Americans have long complained that their insurance
companies valued the all-mighty buck over their health care. Today, a
retired insurance executive confirmed their suspicions, arguing that
the industry that once employed him regularly rips off its

"[T]hey confuse their customers and dump the sick, all so they
can satisfy their Wall Street investors," former Cigna senior executive
Wendell Potter said in remarks prepared for a hearing on health
insurance today before the Senate Committee on Commerce, Science, and

Potter, who has more than 20 years of experience working in
public relations for insurance companies Cigna and Humana, said
companies routinely drop seriously ill policyholders so they can meet
"Wall Street's relentless profit expectations."

"They look carefully to see if a sick policyholder may have
omitted a minor illness, a pre-existing condition, when applying for
coverage, and then they use that as justification to cancel the policy,
even if the enrollee has never missed a premium payment," Potter said.
"&(D)umping a small number of enrollees can have a big effect on
the bottom line."

Small businesses, in particular, he said, have had trouble maintaining their employee health insurance coverage, he said.

"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," he said.

Potter also faulted insurance companies for being misleading
both in advertising their policies to new customers and in
communicating with existing policyholders.

More and more people, he said, are falling victim to "deceptive
marketing practices" that encourage them to buy "what essentially is
fake insurance," policies with high costs but surprisingly limited

Insurance companies continue to mislead consumers through
"explanation of benefits" documents that note what payments the
insurance company made and what's left for consumers to pay out of
pocket, Potter said.

The documents, he said, are "notoriously incomprehensible."

"Insurers know that policyholders are so baffled by those
notices they usually just ignore them or throw them away. And that's
exactly the point," he said. "If they were more understandable, more
consumers might realize that they are being ripped off."

The Senate is also heard from Karen Pollitz, a research
professor at the Georgetown University Health Policy Institute, and
Nancy Metcalf, a senior program editor at Consumer Reports.

Pollitz said that insurance companies should provide more
information about how coverage works so that consumers are better
equipped to compare policies as they shop for coverage.

Metcalf spoke of how many Americans have mistakenly bought
lower-cost insurance policies without realizing how little it actually

"They were no match for insurance companies who know exactly
how to design and market plans whose gaping holes don't become apparent
until it's much, much too late," she said.


Sick Patients, Canceled Policies

As Congress and the White House continue to work on health-care reform, health insurance companies have been subject to intense grilling by lawmakers during several hearings.

Last week, three insurance company executives testified before
Congress on the issue of health insurance rescissions -- the
cancellation of insurance policies -- for seriously ill policyholders.

A year-long investigation by a subcommittee of the House
Committee on Energy and Commerce found that three major U.S. insurance
companies, WellPoint Inc., Assurant Health and United HealthGroup,
canceled nearly 19,800 customer policies between 2003 and 2007.

The companies argue that rescissions are relatively rare and are important in combatting insurance fraud.


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"In 2008, WellPoint's affiliated health plans rescinded
one-tenth of one percent of new individual market enrollment,"
WellPoint said in an e-mailed statement to "While
rescissions impact a very small percentage of applicants for coverage
it is important to protect the majority who are honest on their
applications for coverage."

Insurance companies are, by law, allowed to rescind policies
for customers who found to have purposely lied or omitted information
from their policy applications. But some of the rescissions the
subcommittee found were for seriously ill people who had simply made
mistakes on their applications.


Catching Fraud or Skirting Health Care Bills?

The committee found that the companies saved more than $300 million
as a result of the rescissions. One WellPoint employee, the committee
said, was awarded with a perfect performance appraisal after saving the
company $10 million. (WellPoint told that the money-saving
reference in the appraisal was an "aberration" and said that the
employee did not receive any extra salary or bonus.)

"These practices reveal that when an insurance company receives
a claim for an expensive, life-saving treatment, some of them will look
for a way, any way, to avoid having to pay for it," subcommittee
chairman Rep. Bart Stupak, D-Mich., said at the hearing.

Two former customers of Blue Cross of California, a subsidiary
of WellPoint Inc., told that the company canceled their
insurance policies after such mistakes.

Mark Robison, of Santa Rosa, Calif., said Blue Cross canceled
his policy after claiming that he knowingly omitted information about
his then 8-year-old son having an undescended testicle. Robison said
that Blue Cross already had information on his son's medical history on
file. His son was under Blue Cross's coverage when he was initially
diagnosed with his condition.

Sally Marrara, of Los Angeles, said the company canceled her
policy after determining she never told them about back pain and a
history of anti-depressant use. Marrara said the back pain was related
to a hysterectomy that she had included in her Blue Cross application,
while the anti-depressant use dated back some 10 years. She used the
drugs temporarily, she said, to cope with her father's death.

Both Robison, whose son eventually underwent surgery, and
Marrara, who was later diagnosed with lupus, are now saddled with
thousands in medical bills. Each is suing the company.

"It's a total travesty," Robison said. "It's unwarranted and unconscionable."

Insurance companies argue that health care reforms that ensure
coverage for those with pre-existing conditions should help tackle the
problem of rescissions.

"In a reformed health care system, individuals and families
will never again have to worry that they may lose coverage on the basis
of their medical history," Karen Ignagni, the president of the health
insurance company lobbying group America's Health Insurance Plans,
wrote in a letter to Stupak.

Out-of-Network Agony

Today's Senate hearing comes three months after the Senate held
hearings on concerns that health insurance companies are forcing
consumers to pay more than they should for care from doctors outside
the companies' networks.

The March hearings included testimony from a representative of
the New York State Attorney General's office. An investigation by the
state attorney general found that the insurance industry systematically
under-estimates how much it should reimburse policyholders.

UnitedHealth Group CEO Stephen J. Hemsley said at a March 31
hearing that the insurance company stands by the integrity of the
database -- run by UnitedHealth subsidiary Ingenix -- used to determine
reimbursements and health care costs.

A report released today by the Senate Commerce Committee found
that in addition to UnitedHealth, at least 17 other major insurance
companies used Ingenix data.

The committee has claimed that evidence indicates that Ingenix data is faulty -- a claim the company has denied.



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