The Purge Is On

When your insurer hikes rates after an employee gets seriously ill, the goal may be to dump your small business

Mosley: "The health-care system left us unprotected" Photograph by Thomas Strand; Photo Illustration by Sean McCabe

By Joshua Kendall

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When it comes to health insurance, entrepreneurs are in a state of sticker shock. And it's not just the initial quote that has the power to astound. It's the wild premium increases that can accompany a single employee's unfortunate diagnosis. Wendell Potter, the retired director of media relations for Cigna, says those increases aren't always meant merely to cover insurers' costs. Instead, he says, they're sometimes levied with the aim of forcing a small company to drop its health insurance policy. This practice is known in the industry as "purging," and while it may seem shocking that an insurer would raise premiums in order to get rid of a client, industry insiders say it's common practice. Purging, says Len Nichols, who directs the health policy program at the Washington nonpartisan think tank New America Foundation, "[has] always gone on. It's the way business is conducted."

But it's only recently that purging has attracted the attention of Congress. Both the House and the Senate are launching investigations to find out more about the way health insurance for small companies is sold and priced. In a statement, U.S. House Energy & Commerce Committee Chair Henry Waxman (D-Calif.) said: "We need to understand how insurance companies set premiums and to what extent insurance companies are 'purging' small businesses when their employees become ill or their medical claims increase." At the end of August, his committee sent letters of inquiry to six insurers. That same month, Senator John D. ("Jay") Rockefeller IV sent a letter to Cigna Chairman and CEO H. Edward Hanway requesting an explanation of the use of the word "purging" by Cigna President David Cordani in a February conference call with analysts.

IT ONLY TAKES ONE

That February conference call, together with Potter's testimony, has done much to fuel the current interest in purging. In the call, Cordani said: "In 2008 we were essentially actively decreasing our posture in several markets, particularly the under-50 book of business [companies with fewer than 50 employees]. You could use the term 'purge' if you'd like. You could also use the term 'hard harvests' or 'soft exits.' "

And in June testimony before U.S. Senate Committee on Commerce, Science & Transportation, Potter said insurers "dump small businesses whose employees' medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year's premiums so high that the company has to cut benefits, shop for another carrier, or stop offering coverage altogether—leaving workers uninsured."

Cigna spokesperson Chris Curran says that, for small employers, "Rates are often based on claims experience. While we try to work with all our customers, when medical costs are higher than premiums, we may need to requote."

In response to Rockefeller's inquiry, Cigna's statement says that companies with 2 to 50 employees have "historically been less than 1% of Cigna's total medical membership," and that the company has decreased its presence there to focus on other businesses. Cigna says it has done this "by limiting the number of plans offered and by reducing marketing activities in specific small group markets, and not by focusing on any particular customer or employer group."

"REQUOTED" PREMIUMS

Joy Mosley, COO of Biotest Laboratories, a medical testing company in Minneapolis, is one business owner whose premiums rose drastically after an employee was diagnosed with pancreatic cancer. Her insurer, Medica, covered the million-dollar treatment, but the following year said nearly $156,000 in additional premiums were justified—an increase of 72%. "I felt angry that the health-care system left us unprotected," says Mosley. The official renewal letter proposed a 60% increase. After getting a quote from another insurer, Mosley was able to bargain Medica down to 39.6%. Larry Bussey, a spokesperson for Medica, says: "We don't purge. We try to keep our customers."

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