Yves here. This post does a good job, at a high level, of confirming what everyone knows: that having health or homeowner’s insurance amounts to the insurer having an option as to when and how much to pay on a claim, no matter how clear the contract terms and the costs or damages are. The practices of most insurers, to engage in systematic schemes to avoid paying valid claims, is a fraud. I’m bothered at the reluctance of experts and commentators to call this practice by its proper name.
Professor Feinman points out that most beneficiaries don’t even know what their contracts say, in that the insurer normally does not provide the contract language and even if they do, it’s hard to laypeople to understand. I don’t know if any of you have tried to get the actual text of the contract, but my experience says that the insurers respond to those inquries in bad faith.
Specifically, my health insurance plan is in the communist state of New York, which has (or at least has had) a tough minded regulator in the form of the Department of Financial Services. Cigna kept giving me the run-around on getting a copy of my policy, saying I had to get it from my “benefits manager” when they had contracted with me as an individual when I was self employed (for the insurance geeks in the house, a conversion plan). After going to the DFS, Cigna coughed up a policy from 1992 (yes, that is how long I have had it). I had to go several more rounds via DFS to get two riders, one from 1993, the other an Obamacare rider (basically saying the policy was non-Obamacare compliant because not offered on an exchange but grandfathered). Each time, Cigna sent harrumphing cover letters saying they had already sent the full policy, which was false and as you will see below, still false.
This particular type of policy requires any changes, including increases in premiums, to be filed with and approved by New York State, and a notification sent to me. I had never received any notices of filings with the state and resulting notices to me, save for premiums. And Cigna has imposed changes in terms. For instance, they now try to deny claims if filed more than 120 after the date of service, which was something they acted as if they could impose unilaterally via a footnote to an Explanation of Benefits. Similarly, my policy does not have the concept of a network in it. It has an annual deductible and a co-pay level. Oddly, Cigna does a good job of processing claims of providers not in Cigna network. But for doctors that take OTHER Cigna plans, they impose those terms on my claim. This is a hopeless “code is law” battle that seems not winnable.
And this ties back to getting a copy of my policy. Cigna has claim processing procedures that have the effect of being amendments to my policy. I have repeatedly tried to get a full schedule of documentation of Cigna claim processing procedures that have the effect of amending my policy, as in overriding its terms. Even with trying to enlist the DFS, I have gotten nowhere.
By Jay Feinman, Distinguished Professor of Law Emeritus, Rutgers University. Originally published at The Conversation
My book “Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claims and What You Can Do About It” was thrust into the spotlight recently, after UnitedHealthcare CEO Brian Thompson was shot and killed in what authorities say was a targeted attack outside the company’s annual investors conference. Investigators at the scene found bullet casings inscribed with the words “delay,” “deny” and “depose.”
The unsettling echo of the book’s title struck me and many others.
That killing – and the torrent of online outrage that followed – put Americans’ unhappiness with health insurers at the front of the national conversation. Many people responded not by mourning Thompson, but by blaming UnitedHealthcare and other insurers for failing to pay for essential medical treatments. Gleeful online trolls even celebrated the alleged killer as a heroic vigilante.
Speaking as an insurance scholar, I think few should be surprised by this ghoulish reaction. The killing revealed many Americans’ resentment and even rage about insurance companies. And while the focus has been on health insurance, these frustrations extend across the broader insurance landscape. Homeowners insurance, for example, is becoming harder to get in many states even as coverage is shrinking, and auto insurance rates are skyrocketing. These trends are fueling widespread discontent with insurers of all kinds.
Why Policyholders Feel Betrayed
As many recent stories of health insurance denials in the news show, policyholders are most outraged when insurers fail to keep their promises to pay claims promptly and fairly.
And as I read people’s stories about their own experiences, I kept hearing echoes from my book. Too often, people say, insurance companies delay paying some claims, deny other valid claims altogether, and force policyholders to defend themselves in court – all to increase profits by cutting claim costs.
But problems often begin long before anyone files a claim. Insurance consumers generally don’t know much about what they are buying. For homeowners, auto and many other types of insurance, companies seldom provide copies of policy language or accessible summaries of policy terms to prospective policyholders.
Even when consumers have access to policies, many don’t read or can’t understand the long, complex legal documents. Similarly, they can’t anticipate the many ways a loss could occur or the problems that could result if it does. As a result, they are only aware of a few key terms and otherwise believe that they will be “in good hands” with a “good neighbor,” to quote two of the iconic phrases of insurance advertising.
Then, when consumers need coverage, they discover that there are significant protection gaps. Health insurance can involve a tangle of limitations due to provider networks, medical necessity rules and preauthorization requirements. Homeowners reasonably expect that they will be fully covered for all major losses, but insurers have cut back coverageto account for rising costs due to inflation and climate change.
As a result, when disaster strikes, too many Americans feel like they haven’t gotten the security they already paid for.
An Insurance Industry Americans Can Trust
Rebuilding trust in insurance won’t be easy, but it’s essential. Insurance is the great protector of financial security for the American middle class, but only when it works. As the recent reaction demonstrates, it needs to work better. The insurance industry won’t change by itself; the financial pressures on insurers from increasing losses and fierce market competition are too great.
In order for insurance to serve its goals, lawmakers and regulators will need to take action. Based on my research, I see three big areas for improvement.
First, the government can help make the market for insurance work better. Markets need information, and better information produces better results. Regulators should require that key information about coverage be available in an accessible format for all types of insurance.
Consumers also need information on the quality of companies offering policies, and whether a company pays claims promptly and fairly is a key measure of quality. Consumers don’t have access to much reliable information on that now, so disclosure should be mandated there as well.
Second, states would be wise to consider minimum coverage standards, especially for homeowners insurance, as insurers have been cutting back on coverage recently to reduce costs. New York addressed a similar problem in 1943, legislatively adopting a Standard Fire Policy, since copied in many states.
Some 70 years later, the Affordable Care Act did something similar by requiring that insurers cover 10 “Essential Health Benefits.” In both cases, lawmakers set minimum standards that every company must meet. States again need to consider whether insurance coverage is too important to be left purely to the vagaries of the market.
Third, policyholders need effective remedies when insurance companies are found to have acted unreasonably. Many insurance claims result in good-faith disputes about how much the insurance company should pay — for example, whether roof damage was caused by hail, which is usually covered by insurance, or just wear and tear, which isn’t. But other times, insurance companies deny claims after inadequate investigations or for spurious reasons.
For example, a 2023 Washington Post investigation concluded that in the wake of Hurricane Ian, some Florida insurance companies aggressively sought to limit payouts by altering the work of their adjusters who inspected damaged homes. Some policyholders and their families had their Hurricane Ian claims reduced by 45% to 97%. The American Policyholder Association, a nonprofit insurance industry watchdog group, claimed to find “compelling evidence of what appears to be multiple instances of systematic criminal fraud perpetrated to cheat policyholders out of fair insurance claims.”
When people find themselves in this sort of situation, they have to spend lots of time and effort fighting to get what they were owed in the first place. Even when an insurance company eventually relents, it still hasn’t fulfilled its original promise to the policyholder to settle claims promptly and fairly. In these cases, requiring additional compensation to policyholders and insurer disincentives for unreasonable conduct would level the playing field.
The deep resentment many Americans feel toward insurance companies became apparent after the killing of Brian Thompson. Reforms such as these would be a meaningful response to that resentment.
The resentment is from the cost. I pay 17 percent of my salary for health Insurance for my family before I even see a dollar in my bank account. I have no other choice but to pay this, or else my family will go bankrupt when something major happens. I don’t want an argument from the insurance company when they need to do their part of the bargain.
There is also so much to unpack here, and I too have deep professional experience with insurance of all types. The issues, so long as so much of government clings to neoliberal ideologies and well financed corporations have deep pocketed legal and lobbying efforts, are complex and asymmetrically in the favor of the insurers.
(I am putting aside our families issues with health insurance, denied coverages, etc.)
The system is the way it is by design. In personal lines insurance (auto and homeowners), which the author cites there is no possible way to provide insurers an adequate return on their capital unless prices are allowed to increase to the level required to absorb the increased losses from climate change. The political process won’t permit it. The poster child for this is Florida – but as other reporting shows, this is coming to almost every state. In auto, much do to car manufacturers adding complexity and cost to cars, the repair costs for parts and labor for fractional losses have changed the equation. Hence, in order to maintain loss ratios at a reasonable level prices need to go up. At the extreme, is the Tesla Cybertruck which is so costly to repair that major insurers won’t cover it.
While much of the focus is on domestic insurance, it relies on global reinsurers to help manage risk. The global reinsurers are facing losses worldwide, not just in the US. This impacts the entire system.
In a funny way, the system works. The neoliberal free market argument is resulting in insurers changing business practices, denying coverage, withdrawing from states and counties, etc. But too much of the functioning of the economy is dependent on insurance to manage risk.
There is another aspect to this which is implied above. We now ask policyholders to have the skills and expertise to read and understand complex legal documents, and frequently have to do it a time of maximum duress. Again, cost pressures have removed the buffers in the system — e.g., insurance agents — who understand and can navigate the issues and sit on the policyholders side of the table. And, this is likely to get worse as proponents of Fintech, AI, etc. seek to take more of the intermediaries out of the process.
Talk to anyone who knows and the only question is when will the first $150 billion dollar insured event occur (a hurricane hitting the populated southeast coast of Florida); which means the losses could approach $300 – 500 billion without considering the economic impact. The ripples into the financial system will be interesting to watch.
“too much of the functioning of the economy is dependent on insurance to manage risk”
Well, exactly. If we are going to have a capitalist economy then it’s pure fanaticism to say capitalism must rule all aspects of our lives. When it comes to our health and preserving it we don’t really have any choice but to turn to a system that can bankrupt many people in an eyeblink. And when it comes to our cars we are legally required to have liability insurance so we don’t have a choice there either. People I know are all talking about the huge increase in car insurance cost and if you look at your bill the greatest source of it is that govt required liability. And I don’t think this is because cars are “more complicated”–digital cars are modular and more reliable and I’m typing on a computer that is older than many cars on the road. What they are however is larger and more expensive and so the cost of replacing them to the insurers is also much greater. And perhaps there are a lot more uninsured drivers out there also driving up the cost just as uninsured emergency room visitors are also said to drive up costs. The whole system is broken because it is indeed fanaticism driven by he triumph of private power over government power with the latter supposed to be the enforcer and police of the private, not their “partner.”
Clearly the risks for everyone and not just the poor are going up for many reasons and not just climate. But the biggest reason is the refusal of our ruling class to be reasonable. They need to be overthrown by a reformed system that makes that possible rather than protecting their grift.
There is a lot to unpack. There is a lot that needs to change. In addition to the insurance companies operating decisions about coverage, the insureds need to change what they’re asking for too. Which is perhaps the hardest part because we’re not good at telling people “No” in the country. Such as, no, you’re not a good driver and shouldn’t have a license or be allowed to drive. No, you shouldn’t be allowed to live in some places in the US. No, you’re not allowed to rebuild at the location where you have experienced prior floods and fires. No, you decided to do something stupid and you shouldn’t be allowed to sue anyone for damages.
But enforcing all of that would be enormously difficult. You’d end up evicting millions of families from entire regions of the country. You’d see enraged home owners following terrible disasters. We need a kind of mutual disarmament here. No idea if anything like that is possible.
Great overview.
Also important are proprietary physician/provider contract restrictions and “sanctions”. These are often imposed by insurers, and their many subcontractors, via online “contracts”, hundreds/thousands of fine print pages long. These pseudo-contracts routinely can be unilaterally changed at any time by the insurer, usually without notification (becoming active after 30 days, if provider does not object). Meanwhile, providers have to provide extensive notice to insurers (usually 90 d or more) to withdraw, as well as notify and help manage care transition of covered patients. Legally, at least in my state, patients get far less notification than insurers…
Physicians are often contractually not allowed to recommend best care, without vague insurer threats that could cause serious financial hardship. If one insurer labels a physician problematic, others may follow, or hospitals may cancel privileges. Overprescribing docs who illegitimately crank up profits make headlines, but rarely do those who prioritize patients, and go above-and-beyond begging for approvals. The phrase, “every good deed gets punished”, is not uncommon in MD offices and on hospital floors. A major source of burnout, and the high MD/provider suicide rate, are the conflicts between patients and insurers/administration.
The first thing I did after making my final contract for deed payment last spring was to let my home owners insurance lapse. The contract for deed required insurance but once that was completed I could see absolutely no reason to continue to pay some dodgy company to allegedly protect my home. Greatest risk where I live is flooding, insurance doesn’t cover flooding so why bother?
My health insurance is walking, no processed foods, and no booze. It’s a very cheap policy but I have more faith in good habits than in bad insurance.
I see no realistic possibility of any remedy to the insurance problems we all face. It’s a matter of a culture in the USA which is and has been changing slowly to one where money is the only religion whether it concerns insurance or anything else, i.e., the medical industry, the military industrial complex and so on. We have always tended to be a hustler society which has made us dynamic, but we were always tempered by religious-based values that diffused through even non-religious parts of society as we can see when we watch old movies. While and echo of that still resonates in a kind of perverse way in movies the movement is towards amorality and “getting what you want” (and not just what you need)–just look at the heroes we see like in Breaking Bad or The Sopranos just for starters. Certainly, the ruling class is militantly amoral, but that tendency is filtering to the population at large. I’ve talked to many people in a variety of industries and their complaints are increasing along with a general feeling of helplessness at work which has increased and, of course, extends into relationships with large institutions.
The result is increasing despair, the obvious shortening of lifespans (stunningly not emphasized in public policy debates), a need for drugs and escape into virtual lives strong on fantasy. In other words, our society is in deep decline and, unless there is dramatic change, we are stuck with it. No debate on insurance (as a racket) can ignore the larger issues I’ve addressed. Congress is only going to go for policies that invite bribes–they don’t care.
As a Canadian, I can’t even begin to imagine the difficulties of understanding and managing health care insurance coverage for the average American. I have dental care coverage through my pension plan and recently had a claim rejected. I spent several hours trying to understand why and whether or not I could appeal it. It turns out that I have 3 separate ‘buckets’, each one paying for different kinds of treatments and the relevant bucket was empty. Sigh. If I had to approach medical care this way, I would be as angry as most Americans seem to be. And I am a relatively healthy 63 yr old. How does anyone with serious illness or their own and their children’s coverage cope?? Very worried about the creeping privatization happening here in the Great White North. Instead or recognizing our system for the good that it is, we seem bent on heading down the American road. Makes no sense at all.
Of course the insurance companies are trying to manage their risks. Otherwise they have no viable business. They are the buffer between the real escalating social costs accruing because our form of governance has no will to fix our health systems, or better mitigate climate change, or contain the excess greed of billionaires and private equity companies dumping their negative externalities on the public.
We should have a little more kindly socialism in our federal government, not less. Everyone wants their $500,000 of home coverage at low premiums. Everyone wants their $50,000 prosthetic limb every 5 years (apolgies for the heartless example).
Well, who pays for that? It is NOT the insurance companies; they’re NOT a pool of free money standing idle for claimants. It’s the annual premium payers of the insurance companies who pay for it. The insurance company is an empty siphon with leaky walls. That’s outsourced property redistribution by another name. Mandated insurance coverage is a form of taxation, the Supreme Court once ruled.
Redistribution would better be done by an accountable government with progressive payment principles instead of a profit seeking company using regressive payment schemes (like delay and deny). With government involvement, we have a better chance of seeing and balancing the many advocating interests involved and plugging the leaky walls.
Of course in the United States that’s not where we’re going in the near term. We’re going toward a lot more outsourced (regressive) taxation, with the lowering of federal income taxes for those with the most assets and income. Billionaires today explicitly bully elected congressional reps. That’s what we see happening. And some people think that makes America great again?
I can see the government supporting prosthetic limbs. Everyone is at risk of becoming an amputee.
I see no public interest in subsidizing home owners further (we already do via tax deductions for mortgage interest and Fannie, Freddie and the FHA) at the expense of renters, PARTICULARLY to remedy the problem this article flags, homes in areas that now look disaster prone. They need to be encouraged to move, not subsidized to remain.
I agree that the policy might best be exactly as you state. My point is that it would be an explicitly public policy, as opposed to leaving it in the dark for insurance companies.
And encouraged not to build luxe vacation homes in remote areas with the expectation that firefighters will prioritize protecting those homes during fires.
Perhaps also discouraged from having Teslas in a area with fire risk.
I’m of the opinion that insurance should be a public utility. It seems to be the only innovation occurring is figuring out new ways to not insure people. It should be provided at cost (Adam Smith).
one benefit of living in France is that insurance contracts are standard and transparent. Insurance companies pay but there are still exclusions and deductibles.
Any discussion of allowing the property insurance costs to rise to the true cost of the risk needs to recognize that thousands of local governments and special districts across the country are funded by property taxes.
Fewer homes and lower priced homes will sorely bite into that funding.
Reading an insurance contract is a great education. Because it is written, you approach it with the faulty assumption that it exists to communicate something to the reader, but no. The contract is really a protective device whose meaning can only open for specially trained professional readers preparing for the court arguments that are the only way to settle on what it means. Until that day, it means whatever the insurance company says it means, unless you can call on a regulator for enforcement.
When I was in college, my Dad and I decided to actually sit down together and read an insurance policy. We figured that since I was coming off a long stretch of studying Kant and Hegel, and he was an attorney and administrative law judge, we’d be equal to the task. We gave up after a couple hours when we realized that the text was designed to be as hard to understand as possible, while meeting a standard of legal defensibility. Even somebody as experienced and cynical as my Dad was surprised. We had a great laugh together about how business is really done.
Automobile insurance feels like a scam, in my opinion. For example, if I own three autos, then I pay 3X – but – other than not-in-motion coverage, theft, for example, there is only one ‘me’ driving the cars, so they’re exposed to collision risk one one-at-a-time – but – they charge ‘me’ for collision 3X. Make a lot more sense to put the policy on me, the driver, instead of the car. Then loaning a car to a pal is not an issue as long as they’re insured. But nobody asked me and society has instead, charged politicians with the task of ensuring the insurance companies get rich off the citizens (I’m surprised there’s no requirement to have homeowner’s insurance once a mortgage is paid). There’s a reason Warren Buffett maintains the money making machine known as GEICO.
Oddly enough, no people hate insurance companies more than Americans, even though the business model should be the same all over the world: the more they refuse to pay, the more money they make.
In 2009 a friend and I visited a fishing village on the northwest coast of Cuba a few months after it was hit by back-to-back hurricanes and learned about home owners insurance there. When a hurricane alert comes, the people activate their insurance plan. First the fishing boats and other valuables are brought to a secure spot and lashed down. Then the people, with their pets, load onto trucks and go inland to caves where they wait out the storm. When it’s over, they go back, organize into crews, and get to work. First one house is dug out (they are all made of concrete) and then the next and the next. The government supplies heavy equipment which travels from village to village. The government also provides new sheets of metal roofing. The villagers proudly explained the system to us as we sat in a pub near the beach which pub had been covered with 12 feet of sand.