By: Guy O. Kornblum, Partner, Kornblum, Cochran, Erickson & Harbison, LLP
Health insurers provide insurance protection for consumers of medical service for their care – who does not fit that description?
So, the question is: what kind of insurance protection do we get when we incur medical bills and claim is submitted to our health insurer?
To answer that question we need to look at how health insurance works.
There are three types of health insurance programs (not including Medicare which is a somewhat different): individual plans, association group plans (through a common association), and employer sponsored “group” plans. Each has its own benefits and rules.
The premium charged for health insurance is based on the level of risk the insurer will assume. It must put limits on that coverage, and subject to federal and state laws, it has every right to do so. So, it is never going to agree to pay what is billed. It claims it needs to provide thresholds before coverage is “triggered” and limits to cap what the insurance company has to pay in benefits. (More on these limitations on coverage below.) Insurance companies claims this is the only way to make health insurance “affordable” (and allow the “for profit” companies to make a profit after commissions are paid to its sales force).
In the group situation, the insured group has some leverage in negotiations only because the premium is usually a good sum of money because a “group” not an individual is insured. The competition among insurers selling this coverage is fierce and is very price driven. The way to keep the price competitive is to reduce benefits. Usually, this reduction comes in negotiated: a) deductibles(an amount which provides the threshold before coverage begins), b) co-pays(a percentage of sharing between the insured person and the insurance company), and c) limitations on the benefits paid once coverage is triggered (i.e. a “cap” on the benefit paid for a particular service).
Competitive pricing is the way the large insurers get their nose under the camel’s tent and maneuver into a position to “sell” their “product” whether to an individual or group — by keeping premiums down. But the only way the carrier can do this is to reduce and limit benefits.
As part of this, health insurers cut “deals” (i.e. reduced payments for services provided) with providers. In many states, such as California, once the provider accepts the reduced (i.e. “negotiated”) insurance payment, that provider cannot bill the unpaid “balance” to the insured/patient (but the insured still must pay deductibles and co-pays). In these jurisdictions there is no “balanced billing” – if the provider accepts what the insurance company pays, the bill is satisfied, except, as noted, deductibles and co-pays.
Nonetheless, as a general rule, the insurer has the right to limit its obligation to pay under the terms of its policy. The medical provider is not a party to this process and has no say in what the insurer agrees to pay in the process of selling health insurance to consumers and groups.
To make it worse: insurers use what are really “ambiguous” terms such as “reasonable and customary” to limit what they are “obliged” to pay, or they rely on a “Schedule of Benefits” which is a limited sum for a particular service no matter what is billed). Often when the “reasonable and customary” standard is used for payment, the insurance policy provides that the insurance companyhas the RIGHT to determine what is “reasonable and customary”. Duh!
Who is in control here? Of course, we know.
In some cases, you can overcome this process by claiming that the contract is “adhesive”, i.e. one sided, and so much so, the court should intervene and interpret the policy in a more favorable way for the patient (i.e. insured). Sometime this is a very successful approach, but it takes litigation and lots of time. Meanwhile, the insurer does what it wants to do. It can afford to pay lawyers to guard its coffers.
Some insurers build in a mediation/arbitration provisions in their health insurance policies as a vehicle for short cutting the resolution process to avoid protracted disputes down the line. In many cases this is a prudent approach. It is certainly faster and more efficient than full blown litigation which is costly (thus, often not justified) and time consuming.
Whatever the system, it is not always fair. Before taking on an insurance company you must understand the “rules” and the process.
Challenging an insurance company’s conduct can involve the “equalizer” of “bad faith” claims, which means that the insurance company can be responsible for more than just what the policy provides IF it acts “unreasonably” in denying or limiting the claim of a policyholder or insured. The consequences of “bad faith” conduct add additional sums which the policyholder or insured can recover in cases of wrongful claims handling.
This gives the policyholder/insured a “hammer” IF the insurance company abuses the claims process by violating the basic “good faith” rules or the statutes (e.g. Cal. Ins. Code §790/03(h) – the Unfair Claims Settlement Practices Act) or administrative regulations (10 Cal.Admin. Code §2695.1 et seq.) which supplement the Insurance Code provisions.
The results of “bad faith” can be additional damages awarded an insured who is not treated fairly when making an insurance claim. This can include damages for the emotional distress of having to fight the insurance company as well as attorneys’ fees in bringing that claim.
As a lawyer, I have spent a career dealing with these issues. I know firsthand how difficult disputes with insurance companies are, but having said that, challenges should and must be made when insurance companies do not play by the rules they are required to follow.
That is my more than my two cents!