Court case shows how health insurers rip off you and your employer

Introduction

If you think you’re paying too much for employer-sponsored health coverage, you might want to forward this to the HR department. It’s possible, maybe even likely, that your health insurer has been ripping off both you and your employer—to the tune of several million dollars every year—for decades.

Many Americans, according to various polls, blame Obamacare for every hike in premiums despite the fact that the rate of increase for most folks was actually greater before 2010, the year the law went into effect.

Health insurers are delighted that many folks blame Obamacare for rate increases because it deflects attention away from them and, according to documents made public in a recent lawsuit against a big Blue Cross plan, the questionable activities they’ve been engaging in for years to boost profits.

It turns out that one of the reasons workers have been paying more for their coverage is allegedly a common practice among insurers: charging their employer customers unlawful hidden fees.

The fees came to light when Hi-Lex Controls, an automotive technology company, took Blue Cross Blue Shield of Michigan (BCBSM) to court in 2013 after becoming suspicious that the company had been systematically cheating it over 19 years. After reviewing evidence in the case, a judge ordered that BCBSM stop charging the hidden fees and pay Hi-Lex $6.1 million.

Documents filed in the case showed that in 1993 BCBSM implemented a scheme through which it would collect additional revenue by adding certain mark-ups to hospital claims paid by its self-insured customers. Most of the country’s largest employers self-insure, which means that they are on the hook for medical claims when employees and their dependents get sick or injured. Self-insured companies hire firms like BCBSM to do the paperwork. It is the employer’s money—not the insurance company’s—that is “at risk” in such arrangements.

After suing and getting documentation from BCBSM, attorneys for Hi-Lex were able to show the court that BCBSM marked up hospital claims by as much as 22 percent. BCBSM didn’t disclose the markups, however. As part of the scheme, regardless of the amount BCBSM was required to pay a hospital for a given service, it reported a higher amount to Hi-Lex and pocketed the difference.

The hidden fees were listed in internal BCBSM documents under a variety of names: provider network fees, contingency/risk fees, retiree surcharges, and—my personal favorite—other-than-group subsidy fees. Internal company emails showed that BCBSM knew customers were unaware of the markups and that the company actually trained its employees to downplay the hidden fees should customers suspect they were being gouged.

One of the documents that came to light was a survey BCBSM conducted that found that 83 percent of its self-insured customers were completely unaware of the fees. Other documents revealed a course of conduct designed to conceal evidence of the company’s wrongdoing. For example, after rumors began circulating in the early 2000s that BCBSM was charging hidden fees, the company told insurance brokers, falsely, that its customers got 100 percent of the hospital discounts it negotiated.

In ruling in favor of Hi-Lex, the court said BCBSM committed fraud by knowingly misrepresenting and omitting information about the disputed fees in contract documents. Specifically, the administrative services contract it signed with Hi-Lex, as well as its monthly and quarterly claims reports, misled Hi-Lex into believing that the fees and charges it disclosed to its customers were the only forms of compensation that BCBSM retained for itself.

When the lower court found in favor of H-Lex, BCBSM filed an appeal with the U.S. Court of Appeals for the Sixth Circuit. In essence, the insurer claimed—I’m not making this up—that its customers bore some of the financial responsibility for being ripped off because they weren’t paying close enough attention to what BCBSM was doing. It argued that Hi-Lex and its other employer customers should make a “contribution” to defray the judgment against the company because its customers didn’t act soon enough to put a stop to the scheme.

As you can imagine, attorney’s for Hi-Lex called BCBSM’s “contribution theory” absurd.

“Just as a bank robber cannot keep ill-gotten gains by seeking contribution from the bank’s security guard who failed to thwart the robbery,” attorney’s for Hi-Lex wrote in response to the insurer’s motion, “BCBSM cannot keep the disputed fees by seeking contribution from employers for failing to discover and thwart its illegal taking of millions of dollars form (its self-insured customers’) plans.”

Lest you think this scheme was something BCBSM dreamed up on its own, an actuary from the consulting firm Milliman Inc. testified under oath that many other insurers engaged in the same practices.

The Court of Appeals affirmed the $6.1 million fraud judgment, agreeing with the lower court that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the disputed feeds in contract documents.” This misrepresentation, the court said, “helped sustain the illusion that BCBSM was more cost-competitive” than its competitors.

BCBSM hoped the U.S. Supreme Court would take the case but the high court refused, meaning the lower courts’ rulings stand. As a consequence, as many as 50 of BCBSM’s other customers also filed suit. Rather than risking a similar fate in the courts, the insurer is reportedly settling with at least some of the other companies.

You might want to suggest that your employer look into this. It’s just the most recent evidence that some insurers are more interested in padding their bottom lines than doing the right thing for their customers.

Wendell Potter is the author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans and Obamacare: What’s in It for Me? What Everyone Needs to Know About the Affordable Care Act.