Your sick? Your insurance policy is cancelled

Posted by Marc Hodak on February 26, 2008 under Scandal | Read the First Comment

I believe that most scandals have perverse incentives at their root. In the case of Health Net canceling the policies of ill patients, the incentives had an intended effect, but they couldn’t survive the sunshine rule:

During arbitration, Bates’ attorneys produced internal company documents that showed that Health Net was rewarding employees with bonuses based on the number of cancellations they got.

Employees were asked to meet cancellation quotas and were also rewarded based on the amount of money they saved the company. Bates’ lawyers argued that Health Net had saved more than $35 million by rescinding policyholders between 2002 and 2006.

I don’t know if I agree with those who don’t think $9 million is a sufficient penalty for Health Net. Don’t forget the enduring penalty of bad publicity. For instance, Health Net is our insurer, but probably not for long.