The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with related issues in a series of articles dealing with insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of the law.  This is the third in a series of articles on How Insurance Companies Deny Claims.  To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at mslawllp.com and complete a free consultation form.

The U.S. Department of Labor estimates that about one claim in seven made under the employer health plans that it oversees is initially denied – about 200 million claims per year.  In our article entitled “The Prevalence of Life, Health and Disability Benefit Claim Denials is Astounding: It’s Worse Than You Thought,” we referenced a recent column in the Los Angeles Times that lends support for the proposition that health insurers frequently deny legitimate claims as a business practice to maximize profits (as do disability insurers and life insurers).  The LA Times column stated this about denied health insurance claims:

Insurance companies are playing the odds . . . They’re counting on people not having the stamina to challenge every denied claim, even when there’s a valid medical reason for a drug or treatment being covered.

(See January 17, 2017 article “How to fight back when an insurer denies your healthcare claim”).  The LA Times column cites a study by the Government Accountability Office which “found that of the relatively small percentage of denied claims that are challenged, about half ended up being reversed.”  That means health insurers routinely make the wrong decision and hope that their insureds do not pursue these claim denials.  Indeed, former Kansas Insurance Commissioner Sandy Praeger says, “We think some companies are probably denying claims, counting on the hassle factor, [so] that people will just go ahead and pay out of their own pockets.”  The LA Times agrees:

“Insurers make money when you pay in through premiums and copays, and they lose money when they pay out,” said Chuck Idelson, a spokesman for the California Nurses Assn., which supports a Medicare-for-all insurance system. “So they do everything possible to deny claims.”

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Try not to lose your cool. The system is designed to wear you down and to weed out the weak from the strong. An insurer has nothing to lose and everything to gain from putting barriers in your path.

Something to keep in mind: Insurers are so unhappy about paying claims that the percentage of premiums received they have to pay back to policyholders is known as the “medical loss ratio.” Seriously. To them, covering your healthcare is considered a financial loss.

Health Insurance Claim Denials

How do insurers deny valid health insurance claims, whether they are governed by federal law, the Employee Retirement Income Security Act (“ERISA”), or state insurance bad faith laws?  One way they do it is by rigidly denying broad categories or types of claims without taking the time to evaluate whether the specific claim is covered under their plan or policy.  For example, an insurer may automatically deny any claim for laser hair removal as cosmetic and medically unnecessary.  But what if the plan participant suffers from a severe case of recurrent folliculitis, an extremely painful condition where one’s hair follicles become infected and inflamed and develop into benign cysts?  The medically accepted treatment for extreme cases is laser hair removal.  When the participant submits a claim for that treatment, the insurer may “rubber-stamp” the claim denied, wrongly assuming to its advantage the treatment is purely cosmetic.  In short, the insurer “buries its head in the sand” and avoids learning the facts hoping the claim will be dropped.  Without a skilled attorney representing the patient, health insurers are incentivized to deny claims even when they clearly fall within the policy’s coverage.  Faced with a denial, many patients will accept the insurer’s decision and pay the bills themselves, increasing their profits.

There are many other tricks that health insurers use to deny valid claims.  For example, they often claim a medical procedure is experimental, even when doctors disagree.  Or, they deny on a technicality simply because your doctor put in the wrong diagnostic or procedure code.  Insurers use auditing software often dubbed “denial engines” because their intent is to lower the amount of money paid to physicians and hospitals.  These auditing programs work by finding technical errors in billing codes that all doctors, hospitals and clinics, among others, submit for payment.

Additionally, health insurers bank on the fact that health insurance contracts are incredibly complex.  They know that patients usually will not take the time to understand them (or cannot even if they read them), leaving them at a distinct disadvantage when appealing a claim denial.  In the words of one commentator, insurance contracts “may as well be written in hieroglyphics.  They are nearly impossible to decipher, [with] one incomprehensible clause after another.”  In trying to make sense of insurance contracts in a South Carolina case, the State Supreme Court concluded, “insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.”  S.C. Ins. Co. v. Fid. & Guar. Ins. Underwriters, Inc., 489 S.E.2d 200, 206 (S.C. 1997).

In addition, many large health insurers have been accused of illegally canceling, retroactively, policies of people whose conditions are expensive to treat, leaving them to pay for crippling medical bills while they face fatal health conditions such as cancer.  In one such case, Los Angeles City attorneys sued Anthem Blue Cross to try to stop the company from this practice.  The City’s attorneys claimed that “[t]he company has engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most.”  Anthem Blue Cross eventually settled for $10 million while maintaining its innocence.

In a somewhat similar situation, our client had a health insurance policy covering her dying child.  The medical expenses were so great that the insurer decided to start denying all claims, asserting it could rescind the policy because our client allegedly committed criminal fraud but refused to state how she committed fraud.  There was no fraud – it was completely made up as an excuse to deny the rest of her claims.

Here are some of the other common reasons that health insurers deny claims:

• Procedure is not medically necessary
• Not covered by the policy
• Untimely claim
• Procedure is experimental
• Lack of prior authorization or referral
• Inaccurate physician coding
• Incomplete or inaccurate insurance information

Our Take

These are just some of the ways health insurers find ways to deny legitimate claims.  If you have a health insurance claim that was improperly denied, you need an experienced ERISA health or bad faith attorney, such as the lawyers at McKennon Law Group PC, on your side.  As mentioned in our last article, after litigating hundreds of life, health and disability claims, it is our experience that many insurers do not get serious about paying these types of claims until they perceive a true threat of their insured being represented by highly effective, experienced lawyers, especially where there is “extra-contractual exposure” (i.e., damages beyond the policy’s benefits such as emotional distress damages, attorney’s fees and punitive damages).  You cannot count on your insurer acting in good faith or doing the right thing.  The Department of Labor statistics and other empirical data show that often they will not pay a claim unless credibly threatened by an insured with a highly effective and experienced lawyer.  Let us try to get your insurer to listen.  We have successfully done it for decades.

The California Insurance and Life, Health, Disability Blog at mslawllp.com/news-blog/ and at mslawllp.com 
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