Individual Health: How the Individual Market Threatens the Entire Private Health Insurance System
by Jeff Miles
For decades, the private health insurance system has done much good for Californians. We have protected families from financial ruin; made sure that people are productive by keeping them healthy; and given them the peace of mind of knowing that healthcare costs wouldn’t alter their lives for the worse.
While all of these things are positive for consumers and for us in the industry, we are only as good as our weakest link. For decades, the individual health insurance market has been our weakest link and it’s time to change it if it’s salvageable at all.
I stopped selling individual health coverage. As an agent with nearly 30 years in the health and life insurance business, it was a very tough decision for me to exit this market, but a necessary one nonetheless. I have experienced enough arbitrary underwriting decisions and heard of enough similar experiences from agents throughout California while I served as president of the California Association of Health Underwriters (CAHU) to make the decision a bit easier.
While other segments of the health insurance business are regulated to uniformity (small group) or self-regulated by market forces (large group), the individual market just keeps doing business in a way that exposes us all to media backlash and ruin. Our industry’s Achilles’ Heel is the regular use of retroactive rescission and post-claim underwriting to avoid paying claims.
There are many key problems in this market, beginning the underwriting process itself. Just take the applications -- they presume that the applicant can understand them and can answer them efficiently. They also require a bit of self-diagnosis in many areas. They are filled with trap doors to catch applicants who make every attempt to complete them correctly, as well as those who do not. Screening out the latter is fine, but should those who make every good faith effort to complete them correctly be punished with post claim underwriting, which is illegal under California law?
Beyond the poorly written applications in this marketplace, what about the rest of the underwriting process? Most carriers use the Milliman Individual Medical Underwriting Guidelines (IMUG) to help them underwrite risk. Virtually every underwriting decision is based on these guidelines, along with the answers on the application.
Unfortunately, the IMUG guidelines are just that – guidelines. They help underwriters evaluate each condition individually, but not the person as a whole. That process is left to the judgment of a home office underwriter who has the complete authority to operate as they and their respective home offices choose.
Too frequently, this means that issues with no place in underwriting policies are used to make arbitrary decisions, such as whether they have too much work on their desks, what side of the bed they woke up on that morning, how much pull the agent has with the company’s executives, and other factors
Just to prove this point, let me share one example with you. During my recent term as CAHU president, I was approached by the vice president of a major carrier and asked to sell their individual health product. I told him that I didn’t care for this market and wasn’t excited to sell the product even though it was designed perfectly for my client base. Additionally, this company executive was a long time friend. I reluctantly agreed to write some business with them and submitted an application later that week.
The client was a 38-year old man in perfect health, his 34-year old wife who had never been sick a day in her life except to deliver her two kids, their 2-year old daughter, and 4-year old son. I gave him the application to complete and instructed him how to do so.
The client called me the next day with a question, “My son was having trouble getting along with other kids in school, and the teacher suggested we bring him to the school counselor. Should I list this on the application?” I asked him if any professional therapy was rendered or whether the school counselor suggested that the boy needed such care. He responded no to both questions.
While my gut feeling was to tell him not to list the episode at all, the application asked a specific question about mental health history that made us both feel uncomfortable leaving this information off the form. He finished completing it, brought it to my office, and we submitted it for him.
We received the underwriting decision a week later. Mom, Dad, and the daughter were approved, but the boy was declined. I was stunned so I called the underwriter. He hemmed and hawed about how mental health medications and in-patient care were so costly. Even though no treatment had been rendered or even recommended, he was stubbornly arrogant that this was his decision and that was final.
Our conversation went something like this:
“I probably shouldn’t have allowed him to list this information if I thought you would take such an arbitrary action without any substantiation from a medical professional.”
“Ah hah! So, you’re one of those agents, are you? An agent who would tell an applicant to lie on an application! Perhaps I should talk to our contracting department and have your appointment terminated!”
• “You’re kidding, right?”
• “No, I’m not. You,
sir, can expect a contract termination in the mail soon.”
I laughed out loud and hung up. I called my friend at the carrier and left a detailed message on his voice mail, summarizing the conversation with his underwriter and expressing my dissatisfaction with the company and its underwriting process. I knew that this wasn’t unusual with individual health policies based on my experience with other home offices and my conversations with dozens of other agents.
I got a call from the underwriter an hour later. While he tried to stay cool, he was obviously shaken since he had obviously gotten a call from my friend. This time, the conversation went much differently. He apologized for the “miscommunication” and let me know that it was all cleared up and my applicant and his family were approved – a miscommunication indeed.
Does anyone believe that it was anything other than pressure put on the underwriter based on my relationship with the executive, my being president of CAHU, or both? Good for me, but what about the rest of the agents in California who deal with this mess on a regular basis?
Why have some carriers stopped doing the work we used to expect from them? I can remember days when discrepancies or unanswered questions were triggers to ask for additional information. Now these discrepancies frequently go unanswered until claim time.
If a proposed insured gives conflicting answers on an application, shouldn’t someone at the carrier see this as a trigger to ask for clarification? Instead, most carriers merely ignore the discrepancy and deal with it at claim time, sending the file to their retroactive rescission departments for action after the fact. These departments do not speak to the clients or take calls from agents. It’s something like a secret society.
This kind of behavior makes our entire industry vulnerable to unnecessary scrutiny. It’s unnecessary because these problems can be avoided with quality, thoughtful underwriting done by home offices at the point of application. Perhaps the time has come to re-visit this entire segment of the industry and consider making some changes.
First, change the applications to include an optional answer to health questions besides “yes” or “no.” Health literacy is at an all time low in this country. What’s wrong with a box that says, “I don’t know” or “I don’t understand,” which would trigger a request for more information?
How about a routine follow-up call to verify the answers the applicant provided on the form as is done for many life insurance applications and virtually all long-term care applications? Why can’t we move to a system with clear, uniform guidelines for underwriting policies, such as in the group insurance market – guidelines that would clearly spell out what happens when the application is submitted, including risk banded rates?
Until we change this dog’s breakfast of individual coverage, the entire system of private health insurance is in jeopardy of coming crashing down. We have enough challenges as an industry. I’m sure we can do better. Why continue to make things worse?
If you sell health ins. in CA (or elsewhere)...
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