Former insurance exec: Why insurance companies deny health care

As President Barack Obama addressed the nation on health care, the California Nurses Association revealed that health insurers have rejected about one-fifth of all medical claims in the state over the past seven years.

Using data culled from California's Department of Managed Care's Web site, the CNA said it found that the state's five largest insurers rejected 31.2 million claims for care from 2002 through June of this year. According to the nurses' union, PacificCare denied the largest percentage of claims (40 percent), followed by Cigna (33 percent), HealthNet (30 percent) and Kaiser (29 percent).

To find out why so many insurance claims are being rejected, New America Media editor Aaron Glantz interviewed Wendell Potter, the former chief of corporate communications for insurance giant Cigna, where he worked for 15 years. Since May 2009, Potter has worked as a senior fellow on health care at the Center for Media and Democracy.

What is your reaction to hearing those figures?

Wendell Potter: I'm somewhat surprised because I had always been told when I was in the industry that the vast majority of claims were paid routinely. But on the other hand, I also know that insurance companies that are publicly owned "“ as most of the big ones are these days "“ are under pressure from investors to reduce expenses. This is coming on the heels of other things that we've heard about that insurers do, like giving bonuses to employees for rescinding or canceling coverage of people when they get sick. So knowing the things that they do to avoid paying claims, including dumping the sick, it doesn't shock me.

The nurses' union says this represents care that was denied, whereas the insurance companies are saying that it's just a bookkeeping matter. What is your belief based on your own experience at Cigna?

Wendell Potter: Well, I know the insurance industry will always say that they don't deny care; they deny coverage, and that is their distinction. The distinction from the insurance company's perspective is if they deny coverage, then the person has the possibility of paying for the medical treatment out of their own pocket, or finding someone to pay for it. The reality, of course, is that when people are denied coverage, that is the equivalent of denying care because most people just don't have the financial resources to pay for care, particularly, if it's a big medical claim.

What is the discussion around these kinds of issues in these companies? Do these sets of data get reported to people at the executive level?

Wendell Potter: Yes. The executives always need to know how much is being paid out in claims because it affects what's called the "medical loss ratio," which is reported when the companies report their quarterly earnings. Investors are always looking to the insurers to keep that medical loss ratio down. That is the measure of how much of the premium dollars are being paid out in claims. If it's 80 percent, for example, it means that 80 cents out of every dollar is paid out in claims. As recently as 1993, 95 percent of every premium dollar was paid out in claims. Now it's down to about 80, so insurance companies are doing a lot of things to avoid paying those claims.

Did you have a target amount you wanted to pay out over a particular period of time?

Wendell Potter: Well, it depends. Several years ago, the medical loss ratio at Aetna was something like 77.9 percent, and then the next year, the medical loss ratio had gone up to 79.5 percent. Investors were very upset with that kind of increased medical loss ratio and the stock for that company declined sharply. I've seen the stock values for companies that disappoint Wall Street in the medical loss ratio declining 20 percent in a single day. So you look at the benchmarks of what the medical loss ratio was for the same period a year ago, and for the previous three months.

Did you feel that Wall Street pressure on a daily basis?

Wendell Potter: Absolutely. In corporate communications, I didn't feel it as much as some of the line employees who have a direct ability to influence the medical loss ratio like the medical directors and the people who handle the claims. And the pressure is on all employees. It's always in the back of your mind: "I need to make sure that I don't do something that causes the company to miss Wall Street's expectations."

Were you involved at all in the public-relations debacle around the 2008 death of 17-year-old Nataline Sarkisyan of Northridge, Calif. who passed away after being denied a liver transplant by Cigna?

Wendell Potter: Yes, I was. At that time, I was the chief spokesperson for the company. I was the person who was responsible for putting out the company's statements and answering questions from reporters when they called about it.

Her request for a liver transplant was denied, and then Cigna reversed itself under pressure, but she ended up dying because the transplant came too late.

Yes, that's right. The transplant had been requested by her doctors weeks before her death. Her doctors felt that it was her last resort and had recommended it. Cigna felt that the transplant in her case would have been experimental and on those grounds chose to deny coverage for it. The family sought the assistance of the California Nurses Association and reached out to the media and it became a very, very highly publicized case. And I can't tell you how many calls I got from all over the world regarding that. Then, in the midst of all that publicity, Cigna decided to reverse itself and decided to cover the procedure. But you're right. She died just about two hours after the family was told that Cigna changed its mind.

At the time, some people argued that it was just an isolated incident. But now there is data showing that Cigna denied 33 percent of claims and PacificCare denied up to 40 percent. Does this data cause you to speak about that experience in a new way?

Wendell Potter: Well it does. One of the talking points that I used when reporters called was that 90 percent of requests for a transplant are approved by Cigna. I haven't seen data to know whether that is still accurate.

At the time that you were fielding all these media calls for Nataline, did you feel like you were standing up for a reasonable argument?

Wendell Potter: I was troubled. My main responsibility was to communicate the company's point of view, but you know, I have a daughter myself. When you start thinking about the actual family involved, even if you are convinced 100 percent that your company is in the right, you can't completely disassociate yourself from what's going on and that this is a life or death situation.

Looking back, do you think Cigna was in the right?

Wendell Potter: I can't comment on that. I was not among the group that reviewed the claim when it first came in. What I do know is that I think the California Nurses Association was right in pointing out that this is not an isolated case. People need to realize that there is a corporate executive who often stands between a patient and his or her doctor. That's the reality. And I think the insurance industry is now fear-mongering during this debate on health-care reform, saying that a government bureaucrat could stand between someone and his or her doctor. But the current situation is just as bad, if not worse, because you have people doing that now who are denying care to meet Wall Street's expectations. Copyright New America Media 2009