February 23, 2008 - A Big Loss for Big Insurance

On November 11, 2007, I wrote about a California hairdresser named Patsy Bates, whose insurance company, Health Net, canceled her coverage in the middle of her chemotherapy treatments for breast cancer. The reason they cited was that, on her application for insurance, she had understated her weight by 35 pounds, and had failed to mention that she had once been screened for a possible heart condition, after having taken the diet pill, Fen-Phen.

Of course, the real – although unstated – reason was that she had been diagnosed with cancer. Some bean-counter in the insurance company offices, whose job it was to discover legal loopholes allowing the company to cancel unprofitable policies, had targeted Ms. Bates as a likely victim.

Ms. Bates, who suddenly found herself with over $129,000 in unpaid medical bills, was forced to discontinue her chemotherapy for several months, until she could find a charity that would help pay for her treatments.

The Los Angeles Times reported today that a judge has awarded Ms. Bates a $9 million settlement in the case. Evidence produced at the trial demonstrated that not only did Health Net pursue a policy of canceling customers’ policies on this sort of pretext, but they actually paid their employees bonuses to uncover such cases.

From the article:

“Calling Woodland Hills-based Health Net's actions ‘egregious,’ Judge Sam Cianchetti, a retired Los Angeles County Superior Court judge, ruled that the company broke state laws and acted in bad faith.

‘Health Net was primarily concerned with and considered its own financial interests and gave little, if any, consideration and concern for the interests of the insured,’ Cianchetti wrote in a 21-page ruling.”

Health Net CEO Jay Gellert did express remorse. “I felt bad about what happened to her,” he told the Times. “I feel bad about the whole situation.” He called an immediate halt to such cancellations and announced that Health Net “would be changing its coverage applications and retraining its sales force.”

It’s amazing how much repentance a $9 million legal judgment will produce.

Just for fun, I did a little search to find out what Mr. Gellert’s annual compensation is. According to the Forbes magazine website, it’s $7.03 million. (He also owns $28.3 million in company stock.) Do you suppose the Health Net Board of Directors will vote to dock his salary?

I’ll believe that when I see it.

This is the sort of situation that would never happen if we had a single-payer, national health system in this country. Nobody’s insurance coverage would be dropped to improve some corporation’s bottom line. Nobody’s. And we wouldn’t have health-insurance executives being paid multi-million dollar salaries based on their willingness to cancel people’s policies, either.