Wednesday, May 13, 2015
The Center for Public Integrity
May 11, 2015
Court case shows how health insurers rip off you and your employer
By Wendell Potter
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
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.
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
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.
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.
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
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.
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.
Comment by Don McCanne
Wasteful administrative services are the private insurers' primary
product that they are selling us, and the only product when they
administer the plans of our nation's large, self-insured employers. The
insurers have devised many devious methods of diverting risk pool funds
into their own coffers, but this report shows us that they are truly
nefarious to the core when they are fraudulently padding the bill for
their administrative services alone.
Not only does this report show that the supposedly cleanest of the
insurers - Blue Cross Blue Shield of Michigan - engages in this
thievery, many other insurers engage in the same practices, according to
the sworn testimony of a Milliman actuary.
Had enough? Time for our own publicly-administered single payer program.
at 4:34 PM