Of the life- and health-insurance companies, 121 went broke in the last three years, according to Standard & Poor’s. (S&P doesn’t break out health insurers alone.)
Blue Cross and Blue Shield of Charleston, W.Va., collapsed in 1990, leaving some $41 million in unpaid bills.
Around 131 health-maintenance organizations failed between 1986 and 1990, says Jon Christianson, a professor in the School of Public Health, University of Minnesota.
Unknown numbers of Multiple Employer Welfare Arrangements (MEWAs) have gone broke, often through fraud. MEWAs sign up small companies that can’t afford coverage from the major insurers. Some arrangements are legitimate, but others collect premiums, then skip town.
So serious is the carnage that, in some states, doctors and hospitals require their patients to agree, in writing, to pay any bill that their insurers default on.
When looking for a sound insurance company, all you can go by is its safety rating. You want an A+ from A.M. Best and AAA from at least one of the other major rating firms-Moody’s, Standard & Poor’s or Duff and Phelps. S&P also passes out “q” ratings for insurers it hasn’t examined in full-the highest being BBBq. Such a company might be an AAA, had S&P gone into its books.
No rating system covers individual HMOs. But here’s one way to sniff a potential failure in an HMO that contracts with independent doctors and hospitals: get the past three annual lists of its health-care providers. If a lot of them are dropping out, that’s a bad sign.
On paper, you should be able to trust the Blues. The Blue Cross and Blue Shield Association (BCBSA) sets financial standards for all its plans. In 1990, the West Virginia plan held a “conditional” membership, supposed on a rehabilitation program. Yet it was allowed to linger in the red for five long years before it died. BCBSA’s procedures have since changed. To get the financial statement of any Blue’s plan, call its public-information department or your state’s insurance commission. Look at its five-year summary to see if it’s making or losing money.
A.M. Best doesn’t evaluate the Blues. Standard & Poor’s has rated six of the better ones (in Alabama, Florida, Minnesota, Texas, western Pennsylvania and Indiana). S&P senior vice president Mark Puccia considers a good number of the Blues “financially vulnerable,” due in part to their being the insurer of last resort. BCBSA, however, says that its plans collectively are getting stronger.
With MEWAs, the sign of a high-risk plan is lower monthly premiums than the competition offers. Employers shouldn’t buy into a MEWA without asking their state insurance commission if the plan is licensed for sale there and whether there have been any complaints. Avoid new MEWAs. If the agent says that a major insurer stands behind your claims, call or write the insurer to find out.
If you’re damaged by a failure, you might be caught by one of the following safety nets:
‘Hold-harmless’ clauses. These stop doctors and hospitals from dunning you for bills that your medical-service plan should have paid. All federally qualified HMOs have them, as do HMOs in 33 states. Some states also require them of the Blues and of regular insurers. Some doctors ignore the clauses and bill their patients anyway (ask your state insurance commission if you have to pay). If you sign an agreement to pay when you enter a hospital you might, in some states, lose the protection of hold-harmless clauses.
State guaranty funds. All of the states-the only exception being the District of Columbia-now provide guaranty funds that cover up to $100,000 of medical expenses (more in some states). To collect, however, your insurer has to have been licensed by your state. Also, your policy generally has to be bought by you as an individual. Most group plans aren’t included, nor are most MEWAs. Eighteen funds now cover the Blues; seven cover HMOs.
In general, the funds guarantee (up to the dollar limits of state law) all your back bills, all your current bills and all future bills until you find another insurer or your policy comes up for renewal, which may be any time from tomorrow to 12 months. Starting from the time your insurer failed, you have to pay premiums to the guaranty fund, perhaps at a higher rate than you paid before.
Bailouts. The national Blue Cross and Blue Shield Association has helped bail out a number of plans, including those in Louisiana, Nevada and Vermont, by offering various types of assistance. State regulators try to do the same for failing insurers and HMOs.
Insurance-agent liability. If your agent sold you a policy from a company not licensed in your state, the agent may be liable for any bills it defaults on. Pennsylvania, which is vigorously pursuing MEWA cases, has collected more than $70,000 from agents on consumers’ behalf, says Linda Wells, chief counsel for the state insurance department. Some states hold agents liable if, when they sold the policy, they knew or should have known that the company was insolvent, says Washington, D.C., attorney Gregory Luce. In Texas, agents may be liable for insolvencies that occurred even after they sold you the policy, if they failed to tell you about the insurer’s deteriorating finances.
Your own company. If a larger employer picks an insurer that subsequently fails, the chances are good that it will cover its employees’ bills. Smaller companies, however, may not have the money to rescue you.
The kindness of strangers. After the failure of the West Virginia Blue, many doctors and hospitals didn’t bill their patients. Instead they’ve sued Blues’ association for not terminating the West Virginia plan years earlier.
Memo to President Bush: tax credits won’t save people bankrupted for claims that their insurers should have paid. A safety net needs to be swung for everyone.
