The LA Times and the Failure to Understand Risk

The Los Angeles Times ran an article December 31st headlined, “Healthy? Insurers don’t buy it”.  The article features the plight of Scott Svonkin, who chairs the Los Angeles County Commission on Insurance. An active 40-year old who describes himself as being in great health, he was denied individual health insurance coverage by Blue Cross of California, Blue Shield of California and PacifiCare. Svonkin has a history of asthma, but he says it’s now under control.

The article describes a real and serious problem: some people cannot buy individual medical insurance from non-government health insurers at any price. These insurers review their medical history and decline to accept them for coverage. I’ll write more on the “uninsurables” in another post, but what amazed me about the article is that the reporter, Lisa Girion, who normally does a thorough job, completely missed a key point concerning the nature of health insurance.

So I wrote a Letter to the Editor to the Times. I don’t expect to see it published there, but, hey, I have a blog. So here it is:

“Concerning, Healthy? Insurers don’t buy it — December 31, 2006
The “uninsurable” problem your article describes is real. But your use of Scott Svonkin’s situation doesn’t make the case well. He says he’s “healthy as a horse.” Yet he’s taking medication retailing for $1,200 a year. Maybe there’s another standard used for measuring the health of horses, but most people would say someone who has $1,200 in medical costs — before they get the flu or sprain an ankle — is in less than perfect health. Mr. Svonkin says insurers “are missing the whole point about assuming some risk.” But in his case there was no risk — only the certainty of a $1,200 bill. It’s the equivalent of someone shopping for home insurance announcing they’re scheduled to burn down their garage next month. I doubt if there’d be many takers.”

The article successfully points out a serious problems with today’s system. It also unintentionally highlights the critical need to define the role of health insurance. Is it  insurance which is meant to protect against risk? Or is it a financing tool for paying known costs. The LA Times article, unfortunately, blurred the distinction doing a disservice to its readers and the public debate on health insurance reform.

That’s my opinion. What’s yours?

2 thoughts on “The LA Times and the Failure to Understand Risk

  1. Alan,
    I think the story in the LA Times (which I was quoted in) was designed to point out the level of underwriting inadequacy on matters of little or no significance. I think they missed the mark with Mr. Svonkin, but the big picture facts are still true.

    Individual insurance carriers make it very difficult to buy insurance and act punitively toward any applicant who uses services that they value judge as “bad.” I have had several applicants who were “hangnail underwritten” for things so petty its incomprehensible how these carriers even call themselves insurers.

    For example, I had a 27 year old woman in perfect health. No medications, no surgeries, no hospitalizations, no conditions checked “yes” except that she had the nerve to visit a marriage and family counselor following a breakup with a long term boyfriend. Result? DECLINED.

    How about this one: A family of four, with both parents in their late 30’s. The applicant wanted to be totally truthful on the application so he put down that the teacher in his 4 year old’s pre-school suggested he go to visit the school counselor because the boy was having problems “getting along” with some of the other kids. Mom, Dad, and Sis were all perfectly clean, except that Mom had two hospitalizations for childbirth. Sounds OK, huh? Result? 4 year old boy is DECLINED.

    The complete hypocrisy of these two examples is that in both cases, it was mental health services which caused the declines. The total out-patient benefit for these services was limited to $25, 12 to 20 visits per year. Both applicants were applying for high deductible insurance.

    Additionally, the underwriting decisions were amazingly changed as soon as I called the marketing executives of these two different carriers and identified myself as a board member of CAHU. A nice advantage for me, but what about the fact that the situations arose at all?

    Finally, the issues surrounding this type of underwriting is probably much bigger picture. Insurance carriers CAN decline people individually, but not in small group. There are really four market segments in health insurance (at least that we deal in). Individual, small group, groups over 50 but below experience rated sizing, and large group in experience rated sizes.

    As the small group and experience rated markets are either regulated to treat people fairly (small group) or financial pressures and transparency force them to act fairly (large group) it’s the other two markets where insurers extract their pound of flesh disproportionately.

    Individuals get declined even though the loss ratios are very low, and mid-sized markets get abused with high rates and a complete lack of data to substantiate the rate actions. It’s as if some people in the home offices decide to act punitively in the markets they are allowed to, simply because they can’t do it in the other markets. Most lay people (the public) would agree with me as would any thinking reporter. Our bad rap in the news is brought on by our business, not the other way around.

    Thanks for creating this blog. I look forward to having these ongoing discussions!

  2. One thing that was mentioned in the Los Angeles Times article, but definitely downplayed, was the fact that Scott Svonkin was a expectant father. As an insurance agent, I know from experience that was probably the number one reason he was declined coverage. He has a known expense that is going to cost thousands of dollars before he has paid one cent in premium. That’s like getting in a auto accident and than going to an insurer and asking them to cover the damage. Add to that his pre-existing ashthma condition and you have two conditions that will probably cost over $5,500.00 before a policy has been issued. The last time I checked insurance was to cover for unforseen risks. No wonder he was declined coverage. My two cents.

Comments are closed.