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MAY 17, 2004
A License To Cherry-Pick A legal loophole lets insurers cull their rolls of costly customers Diana Peek has lost almost everything except her life, and she blames her health insurer for much of that. When the 43-year-old former secretary in Mt. Vernon, Ill., was diagnosed with a brain tumor in October, 2002, she was fully insured for just $162 a month. But her insurer, RightCHOICE Managed Care Inc., which had just been taken over by industry giant WellPoint Health Networks Inc. (WLP ), had announced that it soon would stop providing individual health insurance in Illinois. Customers could shift to another WellPoint unit, UNICARE Life & Health Insurance Co., but that required a medical review unless they were applying for UNICARE's most basic plan. Suddenly, Peek's brain tumor was a preexisting condition, and UNICARE's best plans wouldn't cover her. She was forced into the basic plan, which covered a much smaller share of her expensive treatments than RightCHOICE would have done. What's more, her premiums nearly tripled, to $472 a month. Like Peek, some 12,000 customers lost their RightCHOICE coverage. Peek and two other former RightCHOICE customers filed a class action last year against WellPoint and UNICARE. But the law may not be on their side, and WellPoint has moved to dismiss the case. Ken Ferber, a spokesman for the Thousand Oaks, Calif., company, said in a written response to BusinessWeek: "WellPoint believes that its actions were in compliance with insurance and other laws, and therefore it will vigorously defend itself in this case." Health insurers apparently have found a legal loophole big enough to drive a truck through. It allows them to buy another company and then dump the costliest individual policyholders and cherry-pick the healthiest, most profitable ones. According to the laws of 46 states, if a company pulls out of a state's health-insurance market for individuals, it can't return for at least five years. But the state laws don't forbid another company with the same parent from picking up the business. "It's technically legal, but a violation of the spirit of the law," says Kansas Insurance Commissioner Sandy Praeger, who chairs the health-insurance and managed-care committee at the National Association of Insurance Commissioners. The association is due to discuss the issue for the first time at a meeting in San Francisco on June 14, which could step up pressure on states to close the loophole. Absent action, the problem seems certain to grow as the industry consolidates and companies seek to rationalize overlapping businesses. At the same time, the ranks of individual policyholders have grown as employers limit coverage by their group health plans. The number of people buying health insurance on their own rose to 16.8 million in 2002, from 16.1 million in 2000, according to Deborah J. Chollet, a health policy analyst at Mathematica Policy Research Inc., a Princeton (N.J.)-public policy group. A BusinessWeek tally shows that in the last three years, health insurers have culled, or attempted to cull, as many as 28,700 people from their rolls -- or forced them to pay steep premium hikes to keep their coverage -- after a merger or acquisition. UNDER SCRUTINY. Regulators will closely watch how Anthem Inc. (ATH ) handles its $16.4 billion purchase of WellPoint, which is expected to close this summer and create the nation's largest health insurer. Already WellPoint sells individual coverage in five states where Indianapolis (Ind.)-based Anthem offers policies, so some state officials fear that many people could lose coverage or face stiffer premiums when WellPoint, as the combined company will be called, merges plans and cuts costs. (Another megadeal, UnitedHealth Group Inc.'s (UNH ) pact to buy Oxford Health Plans Inc. (OHP ) for $4.7 billion, announced in April, won't affect individual policyholders because Oxford doesn't offer such plans.) WellPoint says it can't discuss its plans for those five states until the merger is completed but adds that it never aims to drop expensive customers. "WellPoint's M&A strategy is well-documented," Ferber said in his written response. "It involves a number of factors, including geographic location, economic growth, and others. So-called cherry-picking is not a factor." Where the law can't block companies from treating old customers as though they were new, sometimes a hue and cry can. That's what happened in December after UnitedHealth ended its individual HMO plan in Missouri, Illinois, and Kansas. To stay insured, policyholders could sign up with a UnitedHealth subsidiary, Golden Rule Insurance Co., acquired the month before for $893 million. But there was one catch: Many were told they had to undergo a medical review. In Missouri, state regulators estimated that about 2,000 customers wouldn't pass the exam and would be dropped; 7,000 more would probably keep their insurance but only after paying sharp premium increases. After a barrage of complaints, the state insurance department pushed UnitedHealth to have Golden Rule guarantee coverage for all 9,000 at its usual rates for healthy customers. UnitedHealth says Golden Rule erred when it informed its policyholders that they faced a new medical review. FEW SAFEGUARDS. Regulators say there are few real safeguards for individuals when an insurer closes a plan after an acquisition. "We see movement across the health-insurance industry to privatize the good risk and socialize the bad risk," says Scott B. Lakin, director of the Missouri Dept. of Insurance. Indeed, in 32 states, people who don't qualify for private-health insurance end up in state-run high-risk insurance pools and are forced to pay much higher premiums. Just six states, including New York and Massachusetts, guarantee that state residents losing their individual health insurance at one company will be picked up by another offering similar premiums and benefits. Only Maryland has closed the loophole that allows cherry-picking. In 2002, then-Insurance Commissioner Steven B. Larsen persuaded state legislators to amend the law after CareFirst Inc., the state Blue Cross & Blue Shield provider, left 7,000 policyholders without coverage when it merged two HMO plans. In the future, insurers won't be able to do business in the state for five years if any one of its units ends coverage. In Illinois, William R. McAndrew, assistant deputy director of the Dept. of Insurance, admits that the loophole in the state law enabled WellPoint to cut some RightCHOICE policyholders. But he says he can't stop such cherry-picking unless the state legislature amends the law. Even if more states finally focus on this issue, any action will come too late for Peek. Today, terminally ill and unable to work, she lives on a $919 monthly disability check and financial help from her 25-year-old daughter. Her car and mobile home were repossessed last year. In recent months, her neighbors have taken collections to help cover her spiraling treatment costs. In March, no longer able to afford her UNICARE coverage, she dropped it for Medicaid, the government-run health insurance for the poor. In an era of rapidly rising health-care costs, weeding out costly customers may seem to be smart business. But a merger made sundae-sweet by such tactics can only mean a very bitter cherry for those forced to join the millions who, like Peek, are uninsured or underinsured.  By Brian Grow in Atlanta
BW MALL
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