From pets to beauticians to you: Health insurance doesn't discriminate on who it cheats

A few days ago, I wrote a post in which I discussed the pros and cons of health insurance for pets. I was very quickly hit with numerous e-mails and posted comments, in which readers documented their experiences, both positive and negative, with pet health insurance companies.

Incidentally, the general consensus was that Banfield's Wellness Program, available at PetSmart, is a pretty good deal. Some people, however, seemed to feel that Veterinary Pet Insurance (VPI), was a skeavy, scamming bunch of scuzzballs.

After reading through readers' comments on my blog, I searched the internet and was blown away by the outpouring of anger over dishonest pet insurance companies. According to many writers, some insurance companies, including VPI, regularly cite pre-existing conditions and hereditary health problems as excuses for refusing payment. The basic complaint is that insurance companies manipulate sentimental pet owners then unceremoniously dump them when they actually need help. As the sentimental owner of a wonderful cat, I have to admit that I find this outrageous, but I also find it kind of funny. After all, pet insurance companies are merely copying the tactics of some human insurers. A good example of this is the recent fuss over Health Net.

Based in Woodland Hills, California, Health Net is the United States' largest publicly-traded health care company. It provides health benefits, in one form or another, to more than six million people. It is currently facing a lawsuit from Rocky Delgadillo, the Los Angeles District Attorney, who argues that it has defrauded thousands of consumers.

In a nutshell, Delgadillo asserts that Health Net canceled, or "rescissed" more than 1,600 policies over the past four years when the policy holders submitted claims for costly treatment. Moreover, according to Delgadillo, thousands of other policy holders had their treatments delayed while Health Net conducted rescission investigations. Worst of all, according to internal documents, Health Net offered bonuses to employees in return for canceling policies.

As Delgadillo was pursuing his investigation, Health Net was found guilty of improperly canceling the policy of Patsy Bates, a beautician in Gardena, California who owed more than $129,000 in medical bills for treatments related to breast cancer. According to Bates, Health Net refused to allow her to have a life saving operation until her daughter paid three months of premiums in advance. They also denied Bates' claim for chemotherapy, holding up her treatment for months.

What's particularly interesting is Bates' claim that Health Net aggressively pursued her business. When an insurance broker came calling at her beauty salon in 2003, she was already insured. However, the broker promised to save her money on her premiums, so she relented and bought a policy. The broker filled out the form while she cut hair. A few months later, when the insurer canceled her policy, they claimed that she had misled them with regard to her weight. However, she pointed out that the broker had actually filled out the policy. They also tried to justify the cancellation based on the fact that Bates had used Fen-Phen, a weight-loss drug that has never been linked to cancer.

On the bright side, Judge Sam Cianchetti hit Health Net with the kind of judgment that could inspire massive change. In addition to requiring Health Net to cover Bates' bills, Cianchetti ordered it to pay her $8.4 million in punitive damages and $750,000 for emotional distress. According to a spokesman, Health Net has declared a moratorium on policy cancellations pending the creation of a third-party review board. One can only hope that this will convince the health insurance industry to clean up its act. Truth be told, it seems more likely that pigs will fly.

In the meantime, don't use VPI, be careful about bargain-priced health insurers, and don't take any wooden nickels!

Bruce Watson is a freelance writer, blogger, and co-author of Military Lessons of the Gulf War and A Chronology of the Cold War at Sea.

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