Health Insurance Scams Leave People High and Dry

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

Part Two of a series on the Business of Health

By John Lawrence / San Diego Free Press

In 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.

Take 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.

Charlotte’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%.

Non-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.