Health Insurance: Widespread Copayment Abuse

A newly exposed health-insurance abuse, run by some of the
biggest companies in the business, is costing policyholders
billions of dollars a year, according to expert estimates.
Anyone who pays a copayment (usually 20%) for health care is
potentially at risk. The scheme was described in a page 1
article in The WALL STREET JOURNAL, August 21.

The way it works is that the companies sell standard
insurance contracts in which they agree to pay 80 percent of
certain medical costs. But then they negotiate secret deals
with doctors and hospitals, by which they receive huge
discounts over the nominal price -- often more than 50
percent. This way the insurance company ends up paying much
less than the 80 percent agreed to in its contract.

In some cases discounts can be more than 80 percent. This
means that not only did the insurance company pay nothing, it
actually got a rebate from the physician, out of the
patient's copayment.

The insurance companies then use the fictitious 80-percent
amounts to tell people that they have reached their policy
maximum, when the company has actually paid far less than the
amount agreed in the contract.

Meanwhile, all this is concealed from the patients by
contracts with the doctors and hospitals, requiring them to
keep the information confidential.

The WALL STREET JOURNAL article described the case of one
company, Trigon Blue Cross Blue Shield, in Virginia. The
state forced it to abandon such practices and pay millions of
dollars in civil fines and restitution. (Technically a not-
for-profit, Trigon has accumulated a surplus of more than
$650 million, and pays its chief executive an annual
compensation of $895,000.)

Meanwhile, similar practices continue in other companies
across the country. Activists could help by getting
documentation from friendly physicians and hospitals, or
their employees, to the attention of regulatory agencies and
the press. Doctors and hospitals know if they are billing
your insurance for more than they are really being paid.
Another approach might be to urge medical societies to
develop ethical codes governing such practices, which could
not exist without collaboration by healthcare providers.

Note: A different approach to reforming healthcare abuses was
suggested in an interview with Lonnie Bristow, the new
president of the American Medical Association, published in
the SAN FRANCISCO CHRONICLE, August 20. He said that after
the loss of health-care reform, managed care, which can be
legitimate, had often become "managed profiteering." The
interview lacked details, but Dr. Bristow protested that
Federal antitrust laws discourage doctors from competing with
healthcare corporations by providing their services directly
to employers, etc., at lower cost, while maintaining the
integrity of the doctor-patient relationship. It may be
illegal for doctors to collectively price their services,
while legal for a corporation to hire the same doctors and
set the same prices. (Doctors can start their own healthcare
corporation -- and are doing so in California -- but this can
be difficult.) Federal law may have unwittingly created
special privileges for corporate healthcare, helping it take
billions of dollars out of the healthcare system without
providing comparable value in return.