COMMENTARY:

It Pays for Insurance Companies to Let Us Die

They sell malpractice insurance to doctors but are exempt from needing it, themselves

My post on Tuesday–about how the health reform legislation will do nothing to stop private health insurance companies from continuing to turn down claims–brought in a comment from Richard Johnston, an employee benefits lawyer in California. Johnston has an entire blog dedicated to this subject–and to its legal underpinning in the Employee Retirement Income Security Act of 1974, or ERISA. The blog’s inaugural post has the clearest description of how this travesty of a law functions, and I recommend reading it in full.

Basically, ERISA says that if an insurance company wrongfully turns down your claim, and you take them to court and win, the only thing you can collect is the value of the benefits that the company should have paid out in the first place–plus, if you’re lucky, some attorney’s fees. No damages, as Johnston says, to compensate for “the trashed credit, the lost home, the bankruptcy, the ruined life.” In practice, this means there is a strong incentive for insurers to turn down claims, because even if they are violating their own policies and thus committing fraud, they literally have nothing to lose.

As of now we have a situation where the law tells insurers they face no meaningful consequences if they deny care improperly or even commit outright fraud. As one federal judge has commented, “if an HMO wrongly denies a participant’s claim even in bad faith, the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith. Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all.”

All this holds true even if the insurance company’s behavior causes death. When a 17-year-old died after Cigna turned down her request for a liver transplant, her parents sued the insurance company. As Johnston writes:

Thanks to ERISA, a Los Angeles judge had to dismiss their wrongful death case against Cigna, because ERISA provides the Cignas of the world immunity from liability for killing people....

The insurance companies’ flack, one Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, defended the outcome, saying that to hold insurance companies accountable for killing people will “bankrupt these plans, and employers would no longer be able to offer coverage.”

That makes perfect sense. How can you be expected to offer your services at a reasonable price if the courts are going to nitpick about you killing people?

The insurance companies, as many before me have pointed out, are this country’s real “death panels.”