In the Debate Over Rescission, No One Looks Good
In yesterday's Wall Street Journal, Scott Harrington had an important op-ed accusing Obama of misrepresenting several anecdotes about the insurance industry, particularly those that deal with the practice of rescission—revoking someone's insurance for a previous error or omission after the individual files a claim. With one partial exception, Harrington convincingly exposes Obama's untruths. But a close look at the anecdotes in question reveals a practice that I suspect most people will still find ugly.
Let's start with the exception. Harrington writes:
Later in his speech, the president used Alabama to buttress his call for a government insurer to enhance competition in health insurance. He asserted that 90 percent of the Alabama health-insurance market is controlled by one insurer, and that high market concentration "makes it easier for insurance companies to treat their customers badly—by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates."
In fact, the Birmingham News reported immediately following the speech that the state's largest health insurer, the nonprofit Blue Cross and Blue Shield of Alabama, has about a 75% market share. A representative of the company indicated that its "profit" averaged only 0.6% of premiums the past decade, and that its administrative expense ratio is 7% of premiums, the fourth lowest among 39 Blue Cross and Blue Shield plans nationwide.
Harrington is right to note the absurdity of calling out Blue Cross Alabama for profit-minded stinginess. But Obama's claim about its market share seems basically reasonable to me. The line in question from Obama's speech reads: "Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company."
But as TimesDaily.com reports, the 75 percent market share number doesn't include additional insurance programs run by the state's Blue Cross:
Koko Makin, vice president and corporate secretary for Blue Cross, said the company provides coverage for about 75 percent of consumers who have health insurance in Alabama. But Blue Cross also administers AllKids insurance for needy children and others not included in the official number.
The president's estimate is close to the American Medical Association's 2008 market share figure of 89 percent for BlueCross in Alabama.
Given this, I don't see any problem with Obama's claim that "almost 90 percent of the market is controlled" by a single company.
The anecdotes Obama uses to talk about rescission, however, are inexcusablely misleading. Here's the key section from Obama's speech:
One man from Illinois lost his coverage in the middle of chemotherapy because his insurer found that he hadn't reported gallstones that he didn't even know about. They delayed his treatment, and he died because of it. Another woman from Texas was about to get a double mastectomy when her insurance company canceled her policy because she forgot to declare a case of acne. By the time she had her insurance reinstated, her breast cancer more than doubled in size.
These anecdotes come from Senate testimony given by Peggy Raditz and Robin Beaton. As Harrington notes, Raditz's testimony reveals that though her brother's insurance was revoked, it was reinstated under orders from the state AG after Raditz, a lawyer, contacted the AG's office. And in fact, her brother did receive the treatment he needed in the appropriate window, and following the treatment, he lived for an additional three and a half years. Obama's statement that "they delayed his treatment, and he died because of it," is plainly false.
Beaton's testimony reveals a somewhat more complex story. Soon after obtaining an individual insurance policy, Beaton was diagnosed with breast cancer. She was cleared for surgery, but an insurance company investigation was triggered when, during an acne examination, a doctor mistakenly wrote something on her chart indicating that she was precancerous. Her insurance was canceled, but after assistance from her local representative, it was eventually reinstated. She got the surgery she needed, but a few months later than planned. In other words, the primary problem wasn't that she forgot to declare a case of acne, as Obama claimed, but that a doctor made a mistake (or perhaps miscommunicated).
But what's notable about both these cases is that even when you get the facts right, as Obama failed to do, they still portray rescission as a deeply unpleasant practice. In the first case, the patient was only treated in time because his sister was a lawyer who managed to get assistance from the AG. In the second case, the woman's treatment was delayed for months, and only went through after pressure from her Congressional representative.
Investigating claimants is critical to maintaining a functioning insurance market. Individuals do occasionally knowingly lie about their health, and if insurance companies lacked the ability to protect against such applicants, there would be little incentive for anyone to buy health insurance until they got sick. The system would quickly break down.
In other words, this is one of those issues in which everyone comes out looking bad: Obama's untruths are inexcusable, but the insurance companies come off as bullying, callous, and reluctant to pay for reasonable claims. As for the bigger question of what's actually the right policy, I'll admit I'm not entirely sure. Harrington and insurance executives argue that it's vitally necessary. Tyler Cowen thinks it's a "significant moral wrong." But I suspect it really doesn't matter. The optics weigh against the industry, and in battles between politics and policy, policy rarely wins.