Small businesses have moved to center stage in the health care debate as part of a new congressional investigation into an insurance industry practice known as “purging.”
Rep. Henry A. Waxman, chairman of the House Energy and Commerce Committee, and Rep. Bart Stupak, chairman of the Oversight and Investigations Subcommittee, sent letters last week to Aetna, UnitedHealth Group, WellPoint, Humana, Medica, and Wellmark Blue Cross Blue Shield, seeking information about the practice.
“As part of our ongoing investigation, we are now looking into the practice of health insurance companies terminating the coverage of small businesses when their employees become ill and their health insurance claims increase,” said Waxman. “We need to better understand how widespread this harmful and destructive practice has become, and how it is impacting small businesses and their employees across the country.”
“Much like rescissions in the individual market, this practice is alarming,” Stupak added.
Most small business owners may not even be aware of “purging,” but far too many may have been hit by the practice. Purging is where an insurance company jacks up rates, usually but not always after an employee becomes seriously ill, with the sole purpose of forcing the company to drop coverage.
In essence, the business is “purged” from the insurance company’s rolls to cut costs and boost profits. It’s unknown at the moment how widespread the practice is.
The term only rose to the level of public debate recently when Wendell Potter, the former head of corporate communications for Cigna, the country’s fourth-largest health insurance company, testified before the Senate Commerce Committee and exposed the practice. He’s since given numerous media interviews, recounting his experiences as a high-level executive.
“What we have today,” he told journalist Bill Moyers recently, “is Wall Street-run health care that has proven itself an untrustworthy partner to its customers, to the doctors and hospitals who deliver care, and to the state and federal governments that attempt to regulate it.”
Potter went into detail about how increasing corporatism, dwindling competition, and the slavish need to meet investors’ and Wall Street’s profit expectations has distorted the traditional role of health insurance. He said the game, today, is all about controlling what’s known as the “medical loss ratio,” an industry term for how much of a premium dollar the insurance company pays to actually cover medical costs.
And one of the chief ways insurance companies control the ratio is by purging employer accounts, he said.
“If a small business has an employee, for example, who suddenly has a lot of treatment, or is in an accident, and medical bills are piling up, and this employee is filing claims with the insurance company, that’ll be noticed by the insurance company,” he explained.
“And when that business is up for renewal, and it typically is up once a year, up for renewal, the underwriters will look at that. And they’ll say, ‘We need to jack up the rates here, because the experience’ — when I say experience, the claim experience, the number of claims filed — ‘was more than we anticipated.’
“Often they’ll do this, knowing that the employer will have no alternative but to leave. And that happens all the time,” he explained.
In January 2008, Cathey Sandman, who owns a home-based child care center in Lockport, N.Y., testified before Congress about the wrenching health insurance policy increases that she and her husband were hit with, ultimately forcing them to drop their coverage.
The decision came after consecutive annual premium increases ratcheted up their costs by 100 percent in six years. “It was not an easy choice, but after the last few premium increases the monthly cost for our health insurance was the same as the cost of our monthly mortgage payment,” she said.
It’s unknown whether she was the victim of purging, but the effects on her and her family were devastating and put her in a group that is growing every year; gainfully employed small business owners who have no health insurance.
The committee wants to determine how prevalent purging is and precisely how many small businesses are impacted, according to Stupak. The Committee is requesting information and documents for small group policies, including their renewal rates, factors used to determine premium rates, and the maximum premium rate increases.
In a conference call with analysts earlier this year, Cigna president David Cordani routinely discussed his company’s efforts to reduce its exposure to small businesses. “In 2008 we were essentially actively decreasing our posture in several markets, particularly the under-50 book of business. You could use the term ‘purge’ if you’d like. You could also use the term ‘hard harvests’ or ‘soft exits,’” he said, according to BusinessWeek.
Cigna has since said that it doesn’t engage in the purging of small business group health accounts. It says insurance rates are typically based on claims experience.
Regulators and lawmakers in about dozen states have been aware of the problem and have placed curbs on the practice. As part of what’s known as a “community-rating” system, insurers are prohibited from setting premiums for firms with 50 or fewer employees based on the their health and must charge all small firms uniformly.
In most of the country, however, insurers have wide latitude to set premium prices, and Pennsylvania and Virginia have no rating restrictions at all.
The insurance industry trade group America’s Health Insurance Plans has called the Waxman investigation a “fishing expedition” to bolster support for a public insurance option. “This is just a continuation of a politically timed and politically motivated fishing expedition in an attempt to justify a new government-run insurance plan,” spokesman Robert Zirkelbach told the San Francisco Chronicle.
There’s no question that the health care debate has become highly politicized. Democrats in Congress are arguing for a so-called public health insurance option, and it is being cited as one way to level the playing field for small businesses hit by alleged purging. Hopefully, the committee investigation will shed light on the practice, and point to reasonable solutions to end it.