Among insurance professionals, it is common knowledge that health insurers are denying claims for coverage with increasing frequency. Not a few of these rejected claims are valid and should be paid promptly by the insurers. Unfortunately, our current system allows health insurers to refuse coverage as a matter of course without threat of penalty.
This is not the case when it comes to auto and property insurance. In Maryland, insurers who deny valid claims for coverage under auto or homeowners' policies can be fined by state regulators for acting in bad faith. Current statutes do not allow for such fines in the case of health insurance.
In fact, health insurers are incentivized to refuse claims even when they clearly fall within the bounds of the policy in question. Faced with a denial, many patients will accept the insurer's decision and pay the bills themselves, saving the insurer money. If the patient does fight back, he or she will often emerge victorious, but not without paying a price.
A case in point: I recently received a call from someone who, following a terrible car accident, had received a prosthetic knee costing $160,000. When the insurer denied the claim for the knee, the patient appealed. The appeal was rejected, so the patient retained me to assist with a complaint to the Maryland Insurance Administration, a state regulatory agency.
As soon as I submitted a letter arguing that the prosthetic knee was medically necessary, the insurer abruptly reversed its stance and agreed to pay for the device. The Maryland Insurance Administration closed its file, and the insurer faced no fine, reprimand or cost of any kind. It simply paid what it had been contractually obligated to pay from the start.
While my client technically "won" the case, the ordeal took a toll. As everyone knows, fighting with insurance companies can be time-consuming and emotionally draining, especially when one is coping with a traumatic injury or catastrophic illness. Furthermore, my client had to pay legal fees for representation before state regulators.
Meanwhile, the real bad actor in the case, the insurer, walked away from the dispute without penalty.
Given that health insurers face no consequences when they refuse coverage in bad faith, we can expect more cases like this in the future. While no good data yet exist on the number of claims denied by health insurers in recent years, anecdotal evidence indicates that such denials are on the rise.
As a former senior counsel to the Maryland Insurance Administration and now an attorney in private practice, I have been receiving an increasing number of calls from individuals facing personal financial crises caused by health insurance claim denials.
The Maryland General Assembly could help fix this problem by passing a statute that truly penalizes insurers who deny valid claims.
Section 27-1001 of the Maryland Insurance Article creates special penalties for insurers when they fail to exercise good faith in adjusting "property and casualty" insurance claims — such as auto and homeowner claims. If this provision also applied to health insurance, insurers would face claims for punitive damages and attorneys' fees for failing to exercise good faith in the first instance.
The General Assembly should enact a statute that at least allows patients to recover legal fees when they prevail in such cases. Without a deterrent against bad-faith denials in place, health insurers will likely deny more and more claims as a matter of course, irrespective of the scope of the policy agreement.
One reason such an outcome is likely is that the Affordable Care Act has placed health insurers, as well as health care providers, under considerable financial pressure. Faced with this pressure, insurers will do all they can to limit payments for medical care.
But patients deserve fair treatment from their insurance companies. The General Assembly can help ensure that they receive it by amending Maryland law to deter bad-faith medical claim denials.
Alex J. Brown, a partner at Shapiro Sher and chair of the firm's Insurance Law Practice Group, can be reached at email@example.com.