Health Insurance Scams Leave People High and Dry

by on March 9, 2013 · 12 comments

in Business, Encore, Government, Health

Goldman Sachs, Blackstone Group rake in hundreds of millions selling useless ‘mini-med’ policies

Part Two of a series on the Business of Health

health_insurance.gifIn Part 1 we told about how hospitals have a huge computer file called a Chargemaster that details prices for every possible item a hospital can charge for. These prices don’t have anything to do with reality because in fact there is no market for health care services.

In a truly capitalist economy there would be a competitive market by means of which people could check prices and choose the service that’s the most reasonable in terms of price and other factors. It’s called price discovery.

Hospital charges represent a dark market just like over the counter derivatives because it’s next to impossible to get hospitals to reveal their prices for any of their services. According to an extensive article in Time, the author was given the brushoff and even told it was illegal every time he tried to get pricing information. Therefore, the Chargemaster details prices that are sky high and out of sight compared to the paying abilities of most Americans.

In Part 2 we will cover the plight of many folks who thought they had sufficient health insurance coverage only to be told that their insurance policies were useless and they would be required to pay cash upfront if they wanted to access hospital services.

hospital2Take the case of Sean and Stephanie Recchi, for example. They had purchased for $469 a month a policy that covered $2000 a day of any hospital costs. When Sean, age 42, was diagnosed with non-Hodgkin’s lymphoma, he needed immediate cancer treatment, and so they called for an appointment at MD Anderson Cancer Center in Houston, Texas.

They were told by the person on the other end of the line, “We don’t take that kind of discount insurance,” and that they would have to pay $48,900. in cash in advance just to be examined for six days so a treatment plan could be devised. Luckily, Stephanie’s mother had the wherewithal to write the check.

The doctors diagnosed Sean’s condition as making immediate treatment necessary. He had a large mass in his chest that was growing and his condition was deteriorating. However, treatment could not be begun until the Recchis wrote out another check for $35,000. But even this didn’t satisfy the doctors at MD Anderson Cancer Clinic. They were going to make Sean Recchi wait until the check had cleared.

Only after they advanced the hospital $7500. on Sean’s credit card did they start treatment. The total costs for Sean’s treatment plan and to begin his chemotherapy came to $83,900. which the hospital wanted up front… in cash! 

God help the poor slob who couldn’t come up with the money! Here’s the truth about the American health care system: the rich will live and the poor will die. As Billie Holiday sang: “God bless the child who’s got his own.”

The kind of insurance the Recchis had was a coverage plan commonly called a mini-med. They are widely sold as an alternative to expensive comprehensive care. The premiums are more affordable but the catch is that the benefits are limited. Those limitations might seem reasonable to most people, but they have no idea what hospitals are charging nowadays for even the most basic items.

Chargemaster prices defy any rational assessment. These policies target the self-employed like the Recchis and cover very little when it comes right down to it in the health care world of exhorbitant charges. They are also targeted at employers in industries such as retail, temporary staffing agencies and food service who want to show that they have a little something extra to offer employees while in fact what they have to offer is virtually worthless.

In 2010 the Los Angeles City Attorney’s office filed a suit on behalf of the people of California against a company called HealthMarkets Inc and its Wall Street owners saying the policies were just junk.

The Wall Street owners were none other than our old friends, Goldman Sachs and private equity fund Blackstone Group founded by Peter G Peterson and Stephen A Schwarzman. The suit alleged that Goldman and Blackstone knew about the health insurance scams when they bought a majority stake in the company in 2006. They also controlled the Board. An LA Times article stated:

“The city attorney’s suit, based on state laws for unfair competition and false advertising, accuses the defendants of engaging in a “scheme to defraud California consumers … through the sale of junk insurance,” which it defined as coverage that has “hidden or obscure” terms.

“All their marketing and training and advertising was aimed at convincing people that this was comprehensive coverage that will protect you in your time of need. It certainly did not prove to be that way,” Chief Assistant City Atty. Jeffrey Isaacs said.”

And then there was the case of the Woffindens. Their agent assured them that they would have catastrophic coverage the same as their prior Blue Cross coverage which they had lost when the company Howard Woffinden worked for went out of business. But some time after they bought the policy Charlotte Woffinden became seriously ill.

The Woffindens were told that their policy wouldn’t cover an expensive test she needed. So Howard wrote the hospital a check for $6,500. Then although Howard knew that there was a $5000. deductible on the policy, which he thought was an annual deductible, it turned out that it was a $5000. deductible per occurence.

hospital4Charlotte’s illness turned out to be cancer and she would need expensive surgery and chemotherapy. They were told by Cedars Sinai hospital that their insurance policy was virtually useless. It wasn’t worth the paper it was written on. According to a Dan Rather report, the Woffindens were greeted by a Cedars Sinai admissions agent who informed them that their policy didn’t even cover one day in the hospital, and asked how they were going to pay the bill. They were told they couldn’t be admitted with such a policy.

Cedars Sinai eventually agreed to admit Charlotte, but she wouldn’t be given certain expensive therapies. She died at home four months later knowing that they owed more than $700,000. in medical bills and believing that her family was financially ruined.

A former agent for HealthMarkets, Eric Dyer, outed the deception that HealthMarkets encouraged its agents to practice. They were encouraged to give the impression that what they were selling was Major Medical when in fact it wasn’t. What the Woffindens bought was not Major Medical which they had had with Blue Cross but a specified limits or limited benefits plan although the premiums were about the same so they assumed the coverages were similar.

For example, Woffindens’ HealthMarkets policy stated that it would cover the cost of a room at the hospital up to $300. a day. However, the average cost for a room at a hospital in the LA area was around $4000. a day. The HealthMarkets policy claimed it would cover the cost of chemotherapy 100% up to $1000. a day. One day of chemo actually cost the Woffindens $14,000.

Howard Woffinden and many others have sued and settled with HealthMarkets. Two state attorneys general have gone after them as well. A deputy city attorney in LA has disclosed that his office is also going after HealthMarkets owners: Goldman Sachs and Blackstone.

These Wall Streeters have made over $200 million in dividend payments to them from HealthMarkets. Since they are directly involved in HealthMarkets and are not passive investors, the LA city attorney’s office thinks they should also be named as defendants in the lawsuit.

If you go over Sean Recchi’s hospital bill line by line, you come up with some fascinating information. Every time a nurse drew blood, there was a $36.00 charge accompanied by a dozen or more charges ranging from $23. to $78. for lab analyses performed on the blood sample. In all, the charges for blood tests on Recchi were more than $15,000.

If he had been old enough for Medicare, Medicare would have paid a few hundred dollars for all those tests because Medicare negotiates prices based on actual costs- not pie in the sky, detached-from-reality Chargemaster insanity. Recchi was charged $13,702 for one injection of the so-called wonder drug, Rituxan.

The average price paid by all hospitals for this drug is $4000., but MD Anderson probably pays more like $3000. because of a volume discount. That means that the non-profit cancer center’s markup for which Recchi had to pay upfront was about 400%.

hospital5Non-profit MD Anderson knows how to charge in return for its lifesaving cancer therapies. Its operating profit for 2010 was $531 million based on revenues of $2.05 billion. That’s a profit margin of 26%! MD Anderson’s President, Ronald DePinho, was paid last year $1,845,000. That does not count money made from his ties with three pharmaceutical companies.

That salary is triple that paid to the president of the entire University of Texas system of which MD Anderson is only a part. This is typical of university systems in the US where the president of a hospital associated with the university is paid more than the university president him or herself. (Mainly, “him”, I think.)

The American health care market has transformed tax-exempt “nonprofit” hospitals into many towns’ most profitable businesses and largest employers. And the system offers lavish paychecks even to mid-level hospital administrators. Fourteen administrators at New York City’s Memorial Sloan-Kettering Cancer Center are paid over $500,000. a year including six who make over $1 million.

The advance of medical technology and wonder drugs, while praised by some as forging ahead and creating a better future for American health care, only result, to my way of thinking, in the addition of huge costs over what we would have had to pay for less technologically sophisticated apparati and procedures without producing appreciatively better results.

This drives the costs of health care so that we Americans pay 20% of GDP on health care while the rest of the world spends closer to 10%. Yet our health care results are no better and often worse than those in countries that spend a fraction of what we do on health care.

We’re not done yet. Stay tuned for Part 3.

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John Lawrence

John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.
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{ 11 comments… read them below or add one }

avatar Anna Daniels March 9, 2013 at 7:45 pm

The non-profit hospital scam is even more pernicious because they don’t pay property taxes, further eroding the tax base and public services for citizens in the areas where they are located. The University of Pittsburgh Medical Centers (UPMC) is an enormous medical financial complex that has bled the city of Pittsburgh dry.

Ok- one more scam. I got an advertisement for “concierge” medical services. For a couple thousand bucks a year I could talk directly to my doctor. Or something….

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avatar John Lawrence March 10, 2013 at 9:17 am

It is becoming obvious that there is a two tier medical system in this country – one for the rich and one for the poor. No poor person is going to be able to afford the expensive therapies or even a one day’s stay at a hospital. Nor are they going to be able to afford the insurance that would cover cancer therapy, for example. And all the new technologies that are being developed are only going to drive up costs even more.

Obamacare does little to control health insurance costs. In fact health insurance companies are going to raise their rates to cover all the things that Obamacare is requiring them to cover. The only system that actually works is Medicare despite all the tweaking it needs. But it does keep most costs down because it negotiates prices based on actual costs with hospitals.

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avatar Frank Thomas March 10, 2013 at 12:07 pm

John,

In reality, “It is obvious that there is a two tier medical system in this country — one for the top 20% and one for All The Rest!”

You may recall my personal story of a family member (named Bob) who lives in Toronto, Canada. He and his wife were vacation visiting with my brother-in-law, Dr. Bert van Beever (urologist surgeon) and his wife, in Fort Myers, Florida.

Bob came down with a very serious kidney stone attack and thus was rushed to the hospital where another doctor met him at the door and talked to him After a few minutes, the doctor’s parting remarks, “You are in good hands with Dr. Bert van Beever. ” Dr. van Beever arranged some standard tests immediately as well as a C-Scan. It was quickly determined that Bob’s stone required major invasive surgery. Dr. van Beever checked carefully with Bob’s insurance firm in Canada how far he could go treating Bob without jeopardizing his insurance.

Based on this information, Dr. Van Beever performed a minor non- invasive treatment that stabilized the pain and bleeding situation sufficiently for Bob to fly back to Canada for the serious surgical treatment. All in all Bob was twoand half days in the Fort Myers hospital. Guess what the cost was? It was $27,800 including $380 for the short chat with the Doctor who met him at the hospital entrance door … but excluding any charges from my brother -in -law as a family gesture!

The final invasive surgery and two day hospital stay in Canada cost $9,700. Bob´s stantdard Canadian insurance covered the entire medical treatment cost of $37,500 without any bureaucratic delays or obstacles.

America has perhaps the best trained doctors and advanced medical treatment services in the world … BUT we are almost below a third world country in making our medical knowledge and technical facilities available at an affordable cost for the bottom 80%. It doesn’t take a brain to realize we desperately need a standard low-cost Medicare plan for All, if necessary as a national public medicare option, leaving to the private insurance companies the medical coverage markets for more costly health care upgrades and luxory treatments.

Will that happen? Of course not. That’s European Socialism!

My wife and I pay $3,500 a year for an excellent standard basic health care plan in the Netherlands required for ALL Dutch citizens. This also covers medical treatments when traveling abroad (as does Bob’s standard Canadian coverage). Not bad, for this Socialist country recently ranked the 6th most competitive country in the world, ahead of Germany and the U.S.

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avatar John Lawrence March 10, 2013 at 5:33 pm

Frank, unfortunately, what happened to your family member is happening on a daily basis to people. In an emergency situation one doesn’t have a choice of which hospital to go to. But even if one did, in the US they pretty much all charge rates totally out of proportion to their costs. The fact that your family member had the surgery done immediately when he got back to Canada gives the lie to what American apologists for the medical system say that “there are long lines in Canada and everybody has to wait for medical attention.”

The actual situation is that those who need immediate attention get it, and elective surgery or surgery that doesn’t have to be done immediately may require some wait time, but that just represents a wise use of resources.

Thanks, Frank, for this anecdote which supports the findings of this article and makes it seem only common sense that Medicare for ALL is the way to go. If Congress would undo Bush’s Medicare prescription drug law which requires Medicare to pay retail for drugs that seniors need and lets Medicare negotiate drug prices like the Veterans’ Administration does, there would be no need to cut Medicare benefits.

Also, there’s no reason why the rich shouldn’t have higher co-pays for benefits than the middle class and poor. They will also pay in at a greater rate starting this year. Starting in 2013, the Medicare tax on wages (which is being increased from 2.9% to 3.8%) will be expanded. The tax rate will be increased for higher-income individuals, and the income subject to the Medicare tax will be expanded to include investment income. These are steps in the right direction thanks to Obamacare.

The problem isn’t with Medicare so much as it is with the fact that Obamacare will not control hospital or health insurance rates for those not on Medicare.

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avatar Grace Rich March 10, 2013 at 2:03 pm

John for exposing these greedy scams in health care Once again the middle class gets “socked in the face” so the greedy can continue their quests When will we realize that the US is going to have to set prices for all levels of health care and that any profits made have to go towards reducing costs and not go to stock holders or expensive new not needed buildings Also all costs have to be disclosed so we can shop around for the hospitals and doctors we can afford,,,any other solution is unethical and destructive! grace rich

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avatar John Lawrence March 10, 2013 at 5:10 pm

Grace, thanks for that comment. We definitely need laws to be passed that require hospitals to list their prices (online would be nice) so as you say we can shop around and make intelligent choices. If restaurants are required to post their prices at the door so we can decide if we want to eat there or the place down the street, how much more important is it that we are able to make intelligent choices about things that are going to cost as much as a car or a house?

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avatar Jillian Barclay March 10, 2013 at 6:06 pm

John,
I have been in the health care field for over 30 years, on the financial end, and believe me, if the American people had seen the things I have, they would never get a good night’s sleep again. Chargemasters are the tip of the iceberg, and the difference in costs from one region of this country to the other are astronomical. While a patient in the state of Florida might be presented with a $500.00 emergency room bill, that patient receiving the same services in Southern California would be presented with a bill of at least $3000.00. Government reimbursement is even different based on region, state, etc. The mathematical formulas for reimbursement can be found online.

All health care in this country is based on a for profit system. and therein lies the problem. The pharmaceutical, health insurance companies and physicians own our nation’s legislators.

As for non-profits? In reality, they do not exist…They tout themselves as being ‘non-profit’, but they subscribe to the same theory as the ‘for profit’ facilities: Cash is King!
Check out the largest non-profit in San Diego County- they are no different than the facilities you have used as examples in your article. Always advertising their “special experience”- What a joke! A 2 month wait to see a specialist? That is special!

Anna’s comment as to concierge medicine? It is more than a scam-it is a scandal!

Sorry- I could go on for days- The corruption of the health care industry is unmatched- even the oil companies may be less corrupt.

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avatar John Lawrence March 10, 2013 at 6:32 pm

Thanks, Jillian, for some insider verification. The fact that a lot of these hospitals are non-profits yet pay their administrators millions of dollars and mark up some supplies by as much as 1000% is enough to make anyone sick. On top of that one can contract infectious diseases while at the hospital including superbugs for which there is no treatment and a 50% death rate. Hospitals are places to be avoided at all costs, but, unfortunately, sometimes they are absolutely necessary.

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avatar bob dorn March 11, 2013 at 9:52 am

It is chaos, driven by greed. As I wrote in a note to you once before, this year I was presented a $555.00 bill for hospital services I’d been told were to be covered entirely by Medicare. During my appeal, the hospital actually raised my part of the bill to $38,000. A few days later, the hospital told me the billing “has been adjusted” to -0-.

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avatar Jillian Barclay March 11, 2013 at 10:48 am

I wanted to give you an example of the difference between the bill that a cash paying patient would receive VS the payment made by an insurance company for the same hospital stay. The disparity is huge and comes down to the contracts that each hospital negotiates with the health insurance companies.

This is personal experience- In the year 2000, I was hospitalized in a North County hospital. I was there for 6 days and was covered by Cigna through my employer at the time—–remember, these are numbers from 13 years ago and the costs today are significantly higher.

The hospital mistakenly sent me a bill with the cash amount due being $160,000. That did not include lab or pathology charges-they were separate, and totaled $25,000. The surgeons, anesthesiologist and other physician charges were also not a part of the hospital bill and were well over $40,000. Cigna paid all of the bills in full, but their payment (because of their contract with the hospital) to the hospital was $888.00 per day, or roughly $5400.00. Quite a difference, wouldn’t you say?

Because of their contract with Cigna, the rest of the bill was written off. In fact, all of the other bills were paid at substantially less than would have been required had I been without coverage.

The point here is that each insurance company negotiates contracts with each provider which allows them to pay substantially less than any uninsured patient would have to pay. So, premiums keep rising, yet insurance companies never, ever pay what a cash paying patient would have to…

The chargemaster is a significant part of contract negotiations. As for consumers, most have no idea of what their policies cover, and more importantly, what their policies do NOT cover.

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avatar John Lawrence March 12, 2013 at 8:32 am

Yes, Jillian, insurance companies and Medicare negotiate with hospitals so that what they pay for any service or procedure is significantly lower than the Chargemaster prices which is what someone without insurance pays. Wouldn’t you think that those without insurance, who are usually poor people who can’t afford health insurance, should be able to pay less rather than more than what the for profit health insurance companies pay? In fact why shouldn’t those without insurance pay exactly what Medicare pays? It would take an act of Congress to make that happen.

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