Insurance Case Reveals Industry Chaos -- Dumped High-Risk Policyholders In Limbo While Authorities Seek Solution
Seattle Times Staff Reporter
The medicine that 35-year-old Patrick Powers takes reminds him every day how expensive it is to live with AIDS. Powers, on disability now in Seattle, says his prescription bills range from $500 to $1,000 a month.
So when Principal Mutual announced it was dropping 8,500 individual health-insurance policyholders - including Powers - in the state of Washington, Powers said he could "understand the economics of it."
But when his application to King County Medical Blue Shield was then refused - along with the applications of 450 other people who tried to switch over from Principal Mutual - Powers' patience frazzled.
"That was the last straw," he said yesterday. "I never thought I'd be in this kind of situation."
Powers isn't out on the street - a King County Superior Court judge last week ordered Principal Mutual to make good on its 8,500 policies until a May trial decides the issue.
But he's a prime example of consumer chaos as Washington struggles to untangle its ever-tightening health-insurance snarl.
The fact that state Insurance Commissioner Deborah Senn waffled on blocking Principal Mutual from pulling out of Washington has further aggravated agents and policyholders. First Senn said she couldn't do anything about it, and then she issued a cease-and-desist order to keep the company here. In addition, she allowed King County Medical to refuse to sell policies to former Principal Mutual holders until the first of the year. Many of those seeking coverage are elderly and terminally ill.
According to statistics provided by the Insurance Commissioner's office, 16 insurers around the state offer individual health insurance now. And only some of those offer old-fashioned indemnity policies that let you pick your own doctor.
Industry observers point to two broad trends dovetailing in Washington. One is national: Companies are moving away from the indemnity plans toward managed-care plans less popular with consumers accustomed to enjoying broader coverage and picking their own doctors.
The other trend is unique to Washington: In 1994, Washington law forced insurance companies to accept anyone who applied for coverage, regardless of their risk - without demanding that everyone, healthy or not, be required to have insurance. The result: 33 companies stopped issuing new individual health-insurance polices.
Insurers themselves may be aggravating the cost spiral, industry observers say, by not combining the risk of covering individual policyholders with the risk of covering the group-policy people, who make up the vast majority of insured people in the state. In other words, insurers have chosen not to dilute high-risk individual policyholders in a bigger pool.
In October, Principal Mutual, too, wanted out of the game.
Its plan - a "Cadillac" matched by no other individual indemnity policy in the state today, agents say - was sold to 8,500 people. Most were self-employed, retired, on disability or employed by businesses that don't offer health insurance. Many are severely ill. Hundreds have AIDS.
Now, Principal says the policy isn't profitable.
"This is just absolutely insane," said a beleaguered Seattle insurance agent. Another broker explains the phenomenon as a "death spiral."
Senn agrees the situation is getting out of hand.
"The individual health-insurance market is close to crisis," she said Tuesday. "All the carriers are starting to play games with us, and they're trying to get out of the market."
Case mishandled, say critics
Senn argues she's trying to protect consumers by fighting steep rate increases. She said the reason Principal Mutual left in the first place was that she denied their request for a 25 percent rate increase.
But critics say Senn left a vulnerable group of consumers high and dry by mishandling negotiations with Principal. Had Principal been stopped earlier, thousands of ill customers could have been spared the anxiety and inconvenience of being given 30 days to find new health coverage.
When Principal first announced its exit in late October, Senn said she couldn't do anything about it because Principal was an out-of-state trust. She also said she thought the Principal Mutual policy and the Group Health policy that was set up to catch Principal policyholders were comparable.
It soon became evident, however, that customers felt they were being forced into an inferior policy. They filed a class-action lawsuit in November, and last Friday King County Superior Court Judge Charles Mertel ruled in their favor, ordering Principal Mutual to honor its obligation to all 8,500 policyholders until the trial scheduled for May.
The day before, Senn had reversed her position, issuing Principal Mutual the cease-and-desist order.
A Principal Mutual spokeswoman said the company is figuring out its next move but still plans to pull out of the state.
Further aggravating consumers and agents searching for policies is Senn's agreement to let King County Medical stop processing applications from Principal Mutual holders for the month of December.
"There was a dump of high-risk people into their company," Senn said in explaining the decision. She said she has the authority to allow a company to refuse applicants temporarily if a change in the market puts an undue burden on it.
Problem far from solved
King County Medical said this week that it will not process the 450 applications from former Principal Mutual holders that it has received. In a letter to applicants dated Nov. 30, King County Medical stated that 190 of the applicants were clearly high-risk people who would cost the company about $13 million and, as a result, force the company to raise rates 30 percent.
A King County Medical spokesman said the company was pleased by Mertel's order to Principal Mutual.
"Make Principal honor their obligation to these people," he said. "That's how we've all gotten into this situation."
But other industry observers say Washington's health-insurance woes can't be heaped on Senn and Principal Mutual.
Laws such as the one making insurance companies offer health insurance to everybody who applies still exist.
"This next session something's going to have to be done," said Richard Spoonemore, an attorney with the Seattle law firm representing the plaintiffs in the class-action suit against Principal Mutual. "In the rush to first enact and then repeal sections of reform, there was not a lot of thought into what the consequences would be.
"We've just seen the tip of the iceberg in terms of the problems," Spoonemore said
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