Ezra Klein - The Truth About the Insurance Industry

Ezra Klein - The Truth About the Insurance Industry

Insurers often complain that their critics don't understand their business practices. It would be hard to say that about Wendell Potter. Potter, whose name sounds like that of a character in a Frank Capra movie, worked in the health insurance industry for more than 20 years. He rose to be a senior executive at Cigna. He was on their calls, at their board meetings, in their books. And today, at a hearing before Sen. Jay Rockefeller's Commerce Committee, he testified against them.

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The industry literally has a term for how much money it "loses" paying for health care.

The best way to drive down "medical-loss," explains Potter, is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. "One is policy rescission," says Potter. "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."

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Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases." One famous example came when Cigna decided to drive the Entertainment Industry Group Insurance Trust in California and New Jersey off of its books. It hit them with a rate increase that would have left some family plans costing more than $44,000 a year, and it gave them three months to come up with the cash. ...