Regulating Health Care, Part III

When is an insurance company too small to cover?

The pols and the advocacy groups have told us for months that health reform is supposed to produce tighter regulation of insurance companies and better medical care. But corporate America has never taken kindly to any regulation that would lower profits. So when people die because insurers deny their claims or when patients die because of poor hospital care, regulators too often look the other way. That leads to the real question: Will health reform alter the business of regulation? In recent years, the media haven’t been keen on scrutinizing the regulators and their cozy relationships with the regulated. Health reform gives them a chance to redeem themselves. This is the third post in an occasional series that will look at how news outlets are keeping tabs on the regulators and those they regulate. The entire series is archived here.

Another insurance company got in trouble last week with Medicare, and for the first time the Centers for Medicare and Medicaid (CMS) made a public announcement. The regulator suspended the marketing and enrollment activities of a small insurance carrier, Fox Insurance Company of New York. Before this, the agency had always worked with selected reporters to get the story out, as it did when it cracked down on WellPoint last year for similar offenses.

Fox Insurance isn’t exactly a household name in the insurance biz, but it seems to be a biggie in the world of stand-alone prescription drug plans. That’s one of the private company options that Congress allowed when it gave seniors the Medicare prescription drug benefit known as Part D. Beneficiaries have several choices for covering the gaps in Medicare. They can choose among the now-infamous Medicare Advantage plans, which come in many stripes, or they can buy a traditional supplemental policy and combine it with a stand-alone prescription drug plan, known in government-speak as a PDP.

Fox, according to a company profile on the Web site Manta (an outfit that provides information on small businesses), has revenues of $1.2 million and a staff of fifteen. It has carved quite a niche for itself selling PDPs, and was named “one of the top-growing stand-alone prescription drug plans in the United States” by Mark Farrah Associates, a company that analyzes health care business insurance. A Farrah analysis reported a year ago that Fox had increased its customers by 500 percent from 2008 to 2009. Fox’s own Web site touts its “gold standard in customer service.” Sounds impressive!

But the CMS announcement went on to say that Fox’s newest enrollees, “many of whom qualify for the low-income subsidy under Part D,” might not be getting life-saving medicine for cancer, diabetes, seizure disorders, respiratory disease, and HIV/AIDS. CMS explained that Fox had failed to provide “timely access” to these drugs. Instead, beneficiaries must seek prior approval for their drugs, or participate in a process called step therapy—which requires a patient to try cheaper drugs for their conditions—before the company will let the doctor prescribe more costly medicines that might be more effective for their conditions. Predictably, the company issued its own press release and says it is “fully cooperating” with CMS.

The CMS press release comes at a time of unusual and intense scrutiny of various carriers’ rate hikes—which seem to have more cache with the press than seemingly insignificant regulatory violations, especially those involving the industry’s small fry and Medicare beneficiaries without much money. Even though CMS pointed out that beneficiaries affected by Fox’s practices lived in twenty-one states, including big ones like New York, California, Texas, and Pennsylvania, media pick-up was sparse., an online news source in Mesquite, Nevada, ran a service piece and told seniors they could call the Nevada AG’s office or the state’s health insurance assistance program for help. In North Carolina, the Charlotte News & Observer ran a small story noting that 24,000 people in the state might be affected by the Fox suspension.

The saga of Fox Insurance is noteworthy for two reasons. First, it shows that insurance companies, big and small, get in Dutch with federal regulators when they don’t give seniors their promised benefits. Last year, both WellPoint and Well Care, an aggressive seller of Medicare Advantage plans, had to stop selling them; CMS found that Well Care had been deficient in servicing enrollees. Eventually, the agency lifted the suspensions. But given the history of yo-yo compliance with rules and regulations, the media needs to keep a sharp eye on them even now.

Second, CMS seems to have changed its policy about announcing suspensions. Campaign Desk is pleased to see this new transparency. When WellPoint got in trouble, the agency gave the story to selected reporters. A short while later, when the agency cited WellCare, it didn’t widely promote its actions. Then we urged CMS to circulate its announcements far and wide, because news gathering staffs have shrunk and the story might be missed.

CMS spokesman Peter Ashkenaz said that Medicare beneficiaries “need to know they are not alone” when things go wrong with their insurance: “They need help and they need to know where to go.” Since the media have been AWOL on this one, here’s where they can call for assistance or to complain about shoddy marketing practices: 1-800-633-4227. Media, take note: This is news-you-can-use 101!

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman.