June 24, 2009
Mr. Chairman, thank you for the opportunity to be here this afternoon. My name is Wendell Potter and for 20 years, I worked as a senior executive at health insurance companies, and I saw how they confuse their customers and dump the sick
— all so they can satisfy their Wall Street investors.
I know from personal experience that members of Congress and the public have good reason to question the honesty and trustworthiness of the insurance industry
. Insurers make promises they have no intention of keeping, they flout regulations designed to protect consumers, and they make it nearly impossible to understand — or even to obtain — information we need
. As you hold hearings and discuss legislative proposals over the coming weeks, I encourage you to look very closely at the role for-profit insurance companies play in making our health care system both the most expensive and one of the most dysfunctional in the world
. I hope you get a real sense of what life would be like for most of us if the kind of so-called reform the insurers are lobbying for is enacted.
A few months after I joined the health insurer CIGNA Corp. in 1993, just as the last national health care reform debate was underway, the president of CIGNA's health care division was one of three industry executives who came here to assure members of Congress that they would help lawmakers pass meaningful reform.
Those goals included covering all Americans; eliminating underwriting practices like pre-existing condition exclusions and cherry-picking; the use of community rating; and the creation of a standard benefit plan
. Had the industry followed through on its commitment to those goals, I wouldn't be here today.
The average family doesn't understand how Wall Street's dictates determine whether they will be offered coverage, whether they can keep it, and how much they'll be charged for it.
But, in fact, Wall Street plays a powerful role. The top priority of for-profit companies is to drive up the value of their stock.
To help meet Wall Street's relentless profit expectations
, insurers routinely dump policyholders who are less profitable or who get sick
. Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment.
Asked directly about this practice just last week in the House Energy and Commerce Committee, executives of three of the nation's largest health insurers refused to end the practice of cancelling policies for sick enrollees.
Why? Because dumping a small number of enrollees can have a big effect on the bottom line. Ten percent of the population accounts for two-thirds of all health care spending. The Energy and Commerce Committee's investigation into three insurers found that they canceled the coverage of roughly 20,000 people in a five-year period, allowing the companies to avoid paying $300 million in claims.
They also dump small businesses whose employees' medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year's premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether
— leaving workers uninsured. The practice is known in the industry as "purging."
The purging of less profitable accounts through intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees has fallen from 61 percent to 38 percent since 1993,
according to the National Small Business Association. Once an insurer purges a business, there are often no other viable choices in the health insurance market because of rampant industry consolidation.
An account purge so eye-popping that it caught the attention of reporters occurred in October 2006 when CIGNA notified the Entertainment Industry Group Insurance Trust that many of the Trust's members in California and New Jersey would have to pay more than some of them earned in a year if they wanted to continue their coverage. The rate increase CIGNA planned to implement, according to USA Today, would have meant that some family-plan premiums would exceed $44,000 a year.
CIGNA gave the enrollees less than three months to pay the new premiums or go elsewhere.
Purging through pricing games is not limited to letting go of an isolated number of unprofitable accounts. It is endemic in the industry
. For instance, between 1996 and 1999, Aetna initiated a series of company acquisitions and became the nation's largest health insurer with 21 million members. The company spent more than $20 million that it received in fees and premiums from customers to revamp its computer systems, enabling the company to "identify and dump unprofitable corporate accounts," as The Wall Street Journal reported in 2004.
Armed with a stockpile of new information on policyholders, new management and a shift in strategy, in 2000, Aetna sharply raised premiums on less profitable accounts. Within a few years, Aetna lost 8 million covered lives due to strategic and other factors.
While strategically initiating these cost hikes, insurers have professed to be the victims of rising health costs while taking no responsibility for their share of America's health care affordability crisis. Yet, all the while, health-plan operating margins have increased as sick people are forced to scramble for insurance.
Unless required by state law, insurers often refuse to tell customers how much of their premiums are actually being paid out in claims. A Houston employer could not get that information until the Texas legislature passed a law a few years ago requiring insurers to disclose it. That Houston employer discovered that its insurer was demanding a 22 percent rate increase in 2006 even though it had paid out only 9 percent of the employer's premium dollars for care the year before.