Insurers' Cost of Doing Business Costs Us Dearly

Since you likely don't pay as much attention to the behavior of insurance companies as I do, you probably are not aware that CIGNA, my last employer, was fined $600,000 by the North Carolina Department of Insurance earlier this week for, among other things, not charging its customers correctly.

It was the second largest fine ever levied by the state's regulators, the largest being a $1.8 million fine in 2003 against Blue Cross Blue Shield of North Carolina for underpaying claims for emergency care. The news about the CIGNA fine was picked up by a few media outlets in the state, but not many, and it got almost no press coverage outside of the state. In addition to the fine CIGNA has been ordered to pay, the company will have to shell out several hundred thousand dollars in refunds to North Carolina employers whom regulators say were charged too much over a three-year period.

That didn't surprise me. Having served as head of PR for two of the country's largest health insurers -- CIGNA and Humana -- I know from personal experience that such fines are not widely considered newsworthy.

Insurers know this, and so, annoying as being charged with breaking the law might be, they largely shrug off the fines and the threat of a day's worth of bad publicity that occasionally accompany them. They are perfectly willing to risk being caught because they long ago realized that the fines are never severe enough to make them radically change the way they do business. Such a change would involve dealing more honestly with both their customers and the doctors who provide care to the people they insure.

Fines are Chump Change to Insurance Companies

Insurers know, too, that most state regulatory agencies are not sufficiently resourced to effectively monitor their behavior, although the main responsibility of state insurance departments is actually to protect the interests of consumers against predatory practices. Because of this often-inadequate oversight, insurers realize that the chances of getting caught are, in many states, pretty slim. And they consider the infrequent and inconsequential fines they have to pay when they do get caught just another cost of doing business. Considering that the five largest health insurers made a combined $11.7 billion in profits last year, the fines are little more than chump change.

When I learned about the most recent fine against CIGNA, I decided to do a search of other recent actions against insurers by various state regulatory agencies -- actions you probably haven't heard about. Here's a sampling from just the last six months:

• Horizon Blue Cross Blue Shield of New Jersey was fined $500,000 and ordered to pay $8 million to doctors and other providers for taking too long to pay claims
• Humana was fined $100,000 for "numerous deficiencies and violations" in its business practices in Kentucky, particularly in the way it deals with doctors and chiropractors
• Aetna, Anthem Blue Cross of California, Blue Shield of California, CIGNA, Health Net, Kaiser Permanente and UnitedHealthcare were collectively fined nearly $5 million for late or inaccurate payment of claims to doctors and hospitals
• Health Net was fined $375,000 by the Connecticut Department of Insurance "for failing to safeguard personal information" of policyholders
• Aetna was fined $850,000 and UnitedHealth was fined $1.9 million by New York regulators for not providing policyholders with required information and for not paying claims in a timely manner
• UnitedHealth was assessed nearly $10 million in fines in California for paying claims incorrectly, losing documents and medical records, failing to respond to member appeals in a timely manner and failing to resolve disputes with providers

These are the cases that were reported by at least one news outlet. If I had gone further back in time and gone directly to state insurance departments rather than relying on news reports, I would have found many, many more.

And of course, these are just violations that regulators caught. Many states are so inadequately resourced that insurers' misdeeds frequently go unnoticed, and many states have comparatively few regulations on the books to protect consumers in the first place.

I mention this for two reasons. One is that insurers frequently complain that they are over-regulated, that as a consequence of having to comply with various state regulations designed to protect us, they have to charge us all more in premiums. The other reason is that one of the health care reform ideas favored by many Republicans -- allowing insurers to sell their products across state lines -- would make matters much worse for most consumers and health care providers.

Selling Insurance Across State Lines: A BIG Mistake

Here's why: if insurers were allowed to do what the GOP proposes, they would set up operations in the states that have the fewest regulations and consumer protections and the flimsiest history of fining insurers for violating what scant regulations are on the books. It would encourage what consumer advocates call a "race to the bottom."

Regulators in the states that do pay attention to problems like insufficient claims payments or ignoring appeals for denial of care would have no jurisdiction over the plans sold in other states. The threat of fines and bad publicity insurers now face for violating regulations would essentially be a thing of the past. Yes, premiums might go down for a while, but bad behavior on the part of insurers -- and the deadly consequences of that bad behavior -- undoubtedly would go up.

So the next time you hear a politician say that reducing regulations and allowing the sale of health insurance across state lines would go a long way toward controlling health care costs, think of the real cost of such a solution. It's no wonder that most state insurance commissioners think it is a lousy idea.