THE VIEW FROM HERE - Back in 1968, I fortuitously had a private meeting with a senior vice-president of Aetna Insurance Company in San Francisco. I had heard that one could gauge an executive’s power by the size of his office and the number of papers on his desk. I was ushered into the largest corner office I have ever seen with a panoramic view of San Francisco and its harbor area. I saw no papers on his desk. What this VP shared with me is still relevant.
“There Is No Such Thing as Health Insurance”
He said that health, like food, was a constant essential of a decent life; hence, it was uninsurable. The sole issue was how to pay for health, but neither the government nor business will admit the truth. At best, there is only prepayment of large medical bills, and this was true whoever paid. That is what “health insurance” attempted to do – gather together enough cash to pay for people’s large medical bills. Private insurers and the government had to follow the same approach, i.e., set aside now enough cash to pay future bills.
This approach to health, however, concealed the underlying nature of health care by focusing on accidents and major crises like cancer. Health, he pointed out, is not limited to those isolated events. What was lurking and unspoken was that health required preventative measures which were omitted from health insurance. The best they could do was to partially pay for health checkups and some minor medical bills, but first one had to be sick. That is one reason government and corporations focused attention on “insuring” against accidents and major later in life illnesses, while actual the social need was to provide for health for everyone from birth onward. (See minor & major insurance below)
Aetna and Other Health Insurance Companies Saw the Government as the Greatest Threat to the Public
Aetna and other insurers believed that once the government controlled “health insurance,” its quality would sink to the lowest common denominator. Health insurers have done an incompetent job explaining the situation, but instead they use non-analytical buzz word like “socialized medicine.” They knew that from an actuarial standpoint, their approach was a financial disaster.
I am not debating whether their fear is accurate. I note, however, Sept 3, 2015, CNN Politics, 307,000 Veterans May Have Died Awaiting Veterans Affairs Health Care, Report Says. Years afterwards, John Stewart had to publicly embarrass Congress to fund healthcare for 9/11 first responders. Thousands of LA homeless die on LA streets every night. How does a 72 old man, who has to self-catheterize three times a day to urinate, have the sterile setting which self-catheterization requires?
More about the Actuarial Nightmare - Minor & Major Med
Each health insurance company sold policies which committed them to pay far more in medical bills than their premiums and income from investment on premiums could cover. Back in the 1960's, when far fewer people had health insurance, the VP told me that Aetna had been subsidizing health insurance from the profits on Life Insurance, but that was not a sustainable model. In those days, the standard formula was two-tiered insurance: Minor Med up to about $10,000.00 with a annual deductible and co-pays and Major Med afer $10,000 in bills. Claims were reimbursed according to UCR, that is the Usual, Reasonable and Customary charges for that geographic area, usually with a 20% patient copay with insurer paying 80% of UCR. If doctors charged higher than the UCR, the patient was liable.
As long as not too many people were insured and insurance was limited to the healthier segment of the population (wealthier people, e.g., businessmen) and in a “tough it out culture,” the health insurance companies were surviving.
Health Insurance Did Not Remain Confined
Unions were demanding better benefit packages. (I shall skip over the massive frauds these benefit packages entailed.) In 1974 Congress passed ERISA, The Employee Retirement Income Security Act, which regulated corporate, and union sponsored health plans. As one federal judge later commented, ERISA was the most complicated, convoluted, and incomprehensible law worse even than the IRS code. For our purposes, the salient fact is that after the 1960's the number of Americans who had health insurance claims far exceeded what Life Insurance could subsidize. This shortfall of insurers’ assets over their obligations to pay health care bills resulted in massive frauds.
The UCR Frauds
Because health insurers were stuck with paying the Usual, Customary and Reasonable fees, as medical costs increased and their number of insureds skyrocketed, many insurance companies took to not paying UCR costs. To be blunt, they lied about the UCR costs. If the standard charge in an area was $100, they would claim in was only $60. One company, Northwestern, claimed the UCR was the outdated fee schedule for Worker Compensation payments on the statewide basis. Worker Comp payments were lower than the prevailing costs as they guaranteed to doctors prompt payment and a steady supply of patients. When Northwestern was sued in one state in the early 1980's, it was guestimated that it owed about $600 Million per year for that state.
Doctors retaliated by raising their fees to off set the insurers’ reducing UCR payments. Then, insurers counted by claiming medical treatments were not medically necessary. 20/20, Nightline, 60 Minutes, etc. did documentaries about people who were falsely denied medically necessary treatment on the false grounds the procedures were not medically necessary.
Bad Faith Insurance Laws
Many states, such as California, had Bad Faith Insurance laws and when sued under the state laws, the jury awards could be in the millions for Bad Faith denial of benefits. Both the health insurance industry and the government were still doing what the VP said – not admitting that health could not be insured, and health care had to be paid. Certain things like terrible accidents and old age diseases could be “insured” as they did not happen to everyone or there was time to accumulate the cash to pay the benefit, similar of Life Insurance. With Life Insurance, however, the company knows the exact death benefit but with health care, the benefits were open-ended and increasing each year. With new expensive procedures and new drugs along with the expansion of health insurance to hundreds of millions of people, financial collapse looked likely.
Pilot Life Ins. Co. vs. Dedeaux, 481 U. S. 41 (1987)
This Supreme Court Case probably killed more Americans than we lost in all our wars. Millions more suffered terribly. It turned ERISA upside down. Health insurers did not have to pay medical bills unless their non-payment practices were “arbitrary and capricious.” Fraud is not arbitrary and capricious; it is calculated for a specific goal - to reduce the amount paid for medical procedures. It applied to all employer sponsored health plans and then Pilot vs Dedeaux pre-empted into federal court most, but not all, state level health insurance plans, so that they did not have to follow strict state insurance regulations and were not subject to bad faith laws. If a patient sued under ERISA, he could get no damages for pain and suffering, but he could be awarded attorney fees in the judges’ discretion. As a result, few attorneys would take ERISA cases.
Judicial Corruption Becomes Pandemic
Despite Pilot vs Dedeaux, there were some class action claims against health insurers and the insurers under ERISA. Judges such as US Central District Court Judge Pamela Ann Rymer were alleged to call up senior partners in the insurance defense firms like former Jones, Day, Pogue and former Gibson and Crutcher, and agree how to kill the cases. In return, they would secure her a seat in the Ninth Circuit Court of Appeals. Starting in the 1980's presiding District Court Judge Manny Real had a policy to never allow a class action to be certified against an insurance company. When a newly appointed judge from the highly reputable law firm Rosenfeld, Meyer & Susman LLP, certified a class action, he had to retract his certification explaining he was unaware of Manny Real’s policy. In brief, the health insurance industry had purchased the judicial system from the US Supreme Court down.
Corruption Spread Rapidly
Once judges were clearly for sale, the corruption spread to other areas of the law. One scam was to force plaintiffs into mandatory binding arbitration, especially claims against banks for predatory practices, etc. Soon plaintiff attorneys noticed that they were being cheated in both large and smaller mandatory arbitrations. They tried to fight back, but the California Supreme retaliated with Moncharsh vs Heily & Blase (1992) 3 Cal.4th 1, which held that courts had to enforce arbitration decision which were wrong on their face and worked a substantial injustice. Some of the judges, like State Chief Justice Malcolm Lucas, who authored the decision, soon left the Supreme Court and joined arbitration firms like JAMS/ENDISPUTE. They had written the law so that they could make a fortune by rendering non-appealable arbitration decisions which were false on their face and worked a substantial injustice.
Sitting judges started forcing consumer cases to mandatory, binding arbitration where Plaintiffs were losing with no right to appeal. As result, businesses became much bolder in cheating customers; everything from bank, credit card company, major auto repair shops, were adopting predatory business practices. Judges, who wanted to retire to charge $650.hr for corrupt arbitration awards had to prove themselves while on the bench by trashing consumer cases, e.g., the old Judge Rymer practice.
The Rise of Attorney Thomas Girardi et Alia
Plaintiff attorneys fought back in a number of ways, but one which has come to light only in the last few years was a gaggle attorneys who fall under the rubric “Thomas Girardi.” Girardi is the famous attorney from Erin Brockovich fame, and he is married to Erkia Jayne of Real House Wives of Beverly Hills. Girardi was caught in theft of clients’ funds by a Chicago federal judge and reported to the federal authorities in that district. It turns out that Girardi had 205 California State Bar complaints for theft of client funds and every one of them had been dismissed.
While the Girardi cases are on-going, many in the legal community know the background that Girardi’s et alia had a retreat, Yellowstone, where they hosted many male judges with extra-curricular activities which were allegedly videotaped unbeknownst to the fun-loving judges. If one takes longer perspective of the situation, one can see the shape of the overall forest. Since the insurance companies and large corporations had purchased the judicial system, The Girardi Clique was buying it back. How many judges were made offers which they could not refuse due to the video tapes? For less the rambunctious judges, who didn’t want to ride bare back, there was the practice of paying judges’ mortgages. Girardi eta alia also used their influence with the top of the judicial system to have their friends hired and promoted within the State Bar and selected to be judges.
Go Along To Get Along
Under former California Chief Justice Tani Gorre Cantil-Sakauye, attorneys soon learned that in certain courts especially probate/conservatorship, the over-riding rule was “Go Along, to Get Along,” which required attorneys to kowtow to whatever the judge wanted with no concern for how much it harmed their clients. The pattern was simple, the judge would order the wealthy senior into mandatory binding arbitration where she would be coerced to sign settlement agreements often with no knowledge of the contents. The rule under Chief Justice Tani was that after the “settlement agreement “was signed, no one could dispute its terms nor disclose how the elder had been abused into signing. As Judge Paul T. Suzuki stated, “All that matters is that it had been signed.” What happened to Britney Spears was formalized in Mozer vs Augustine, 2019, B288162.
As the Girardi Scandal is slowly revealing, the attorneys were using their clients’ funds to pay off the judges. No doubt this is why that Chief Justice Tani Gorre Cantil-Sakauye never found anything wrong with 205 State Bar complaints, i.e., the path of missing funds would lead the judges. Attorneys who complained about corruption were summarily disbarred.
Nothing Has Been Resolved
The situation which the Aetna vice-president described back in 1968 is unresolved as neither private insurers or the government will admit the truth that health care has enormous costs and that as a society we need a way to pay for health care for everyone. This refusal to face reality resulted in massive frauds reaching the US Supreme court, and then the corruption spread to all sorts of other cases so that presently the California judicial system is corrupt from the top to the bottom, with hundreds of billions of dollars in losses for innocent people, while judges live high on the hog.
(Richard Lee Abrams has been an attorney, a Realtor and community relations consultant as well as a CityWatch contributor. You may email him at [email protected]. The opinions expressed are those of the author and not those of CityWatchLA.com.)