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What if a bank told half their highest net worth clients ‘sorry, you misspelled your address when you opened your account, we’re confiscating your balance’

In his Congressional testimony, the CEO of a health insurance company said:

Rescission is rare. It affects less than one-half of one percent of people we cover.

As you probably already have learned, rescission is the insurance company practice of refusing to pay for health care because they found an (even unrelated) mistake on your original health insurance application.

But in claiming that this practice is rare, the insurance companies, whose very business depends on understanding statistics and probability, are betting that you don’t understand probability enough to catch the lie. Indeed, “Figures never lie, but liars always figure.”

For starters, even if you take the insurance company’s statement at face value — that it only affects one-half of one percent — this is a huge number of people. The population of the US is greater than 300 million people. Even if you assume that insurance companies only insure two-thirds of all Americans, one-half of one percent of that is over one million people. They are depending on the fact that “one-half of one percent” sounds small.

But the much bigger lie is carefully documented in a brilliant article in Taunter Media, which points out that calling rescission rare is, shall we say, misleading at best. Yes, the insurance company may only cancel the policies of one-half of one percent of the total people they cover, but the more significant statistic would be what percentage of the people who have very expensive medical care claims do the insurance companies cancel? After all, the insurance companies only try to use rescission on people who have expensive claims. The insurance companies do not provide this data, of course, but based on other hard data, Taunter calculates it to be somewhat higher than fifty percent.

Let me clarify that. If you are one of the lucky people who has adequate health insurance, but you are unlucky enough to contract a disease or have an accident that is very expensive to treat, you have a greater than 50% chance that the insurance company will find some reason to cancel your policy, and not pay for your treatment (likely forcing you into bankruptcy at the same time that you are trying to deal with a serious health problem). And of course, the health insurance company will keep all the money you paid to them in premiums.

One more time. If you ever really need your health insurance policy, you have less than even odds that the insurance company will actually pay for your health care.

Would you put up with a bank that confiscated your life savings when you tried to withdraw it, because of a trivial mistake you made on your original application form? The insurance companies have even cancelled policies for omissions on application forms that the applicant had absolutely no knowledge of.

No wonder we have so many people in the US who don’t have health insurance. It is a ripoff. No wonder the health insurance industry is spending millions of dollars in misleading ads and campaign contributions to defeat a public option. Who wouldn’t choose a public option over such a ripoff?



  1. Dan3 wrote:

    On a related note, I saw a Media Matters clip of a woman screaming that if the government couldn’t even run “cash for clunkers” how could they run health care.
    I don’t know, as a member of the military I thought my socialized health care was pretty good, as a retiree I think the insurance coverage I have is better then anyone who has to buy their own.
    Another point…does the fact that the “clunker” program ran out of money so fast mean that the economy is actually better then Congress thought it was?would be when they passed the bill?
    I would say the program is a success.

    Wednesday, August 5, 2009 at 8:48 pm | Permalink
  2. @ Iron Knee. First, you know I’m a fan and that we have very similar beliefs.

    But I’m going to have to comment about the manipulation of numbers here. Yes, the health insurance companies are using the “big numbers” fallacy in reverse–“one half of one percent” does sound ridiculously small, until one knows how many people that really is. But then you give the number for what “one half of one percent” is for the entire US population… which is not the appropriate number to use to point out that the health insurance companies are making it sound small when it is big. The “one half of one percent” that you should have used is the “one half of one percent” number from the total number of people that these health insurance companies insure, which is a much smaller number than all of the US population. Reading the paragraph as you have it, it feels a little like you’re using their sort of logical fallacy against them. But two fallacies don’t make it right…

    Otherwise, yes, agreed, love it, as usual. And the more important point you nail well–they are far more likely to cancel the insurance of people who really need it. A lot of people think they are insured, when they really aren’t, because their insurance company will cancel their insurance when these people need it most.

    Now wouldn’t that be a good number to figure out–the number of people who are likely *not* really insured if they need catastrophic care or something similarly expensive. Not just the percent, but the number…

    Thursday, August 6, 2009 at 3:54 am | Permalink
  3. starluna wrote:

    Dan3 – The Boston Globe posted the guidelines distributed to those nutcases instructing them on how to disrupt the community meetings held by members of Congress. It’s easier to read in the print edition, but you can see them in all their multi-media glory here:

    The accompanying article can be read (as news was intended to be read – in prose) here:

    Thursday, August 6, 2009 at 8:10 am | Permalink
  4. Iron Knee wrote:

    Thought Dancer — OK, I updated the post so the number is “only” one million people. The original number was just trying to give a feeling for the actual size of “one-half of one percent” if you extrapolated it to all Americans. Besides, the fact that so many people in the US do not have insurance is itself an embarrassment. And I felt that including people who currently have Medicare was fair, since conservatives have often tried to get rid of Medicare.

    Thursday, August 6, 2009 at 10:06 am | Permalink
  5. Sammy wrote:

    Iron Knee, I do not pretend to know what the answer to this health insurance dilemma is, so I’m still riding the fence between the “solutions” that have been proposed. However, I’m having a real problem with one assumption made in your thesis here (aside from using the total population of the country for your statistical starting point, as stated above).

    To quote, “…Taunter calculates it to be somewhat higher than fifty percent…” You then go on to state that if one’s needed medical treatment is expensive, one’s chances of having their insurance policy canceled is “greater than 50%”. Where is the proof that insurance companies (who I am not here to defend) rescind 50%+ of all policies where there is expensive treatment? What is the definition of “expensive”?

    The problem I’m having with this whole debate is that the left uses distorted stats and isolated horror stories as scare tactics to push their agenda, and the right uses distorted stats and isolated horror stories as scare tactics to maintain the status quo. Add to that Obama’s push to pass a 2000 page health care bill in a time frame that gives no one the ability to actually read it, and it scares the beJesus out of me.

    I’m not someone who believes we need to keep pushing this subject out and out and out until nothing is accomplished, but I have zero faith in our legislators to write thousands of pages of law, review it, make sure it’s sound and then pass it in a mere few weeks.

    Thursday, August 6, 2009 at 11:05 am | Permalink
  6. Iron Knee wrote:

    Sammy, I’ve of two minds about this. On one hand (mind?) I strongly agree that just having reform is not enough — like the medicare prescription benefit, we could end up with really bad reform. And there are significant differences even between countries that have single payer insurance and some are much better than others.

    On the other hand, we have been studying health care reform for a VERY long time, and it isn’t rocket science. And delaying it is mainly a tactic to kill it, or at the very least rip anything good out of it. So I think that delay will make things worse, not better.

    Thursday, August 6, 2009 at 11:12 am | Permalink
  7. Sammy wrote:

    And by the way, in my field of expertise, business finance, if I make an error 1/2 of 1% of the time, yes I’d call that a “rare” occurrence. But if 1/2 of 1% of all automobile engine starts caused the cars to explode, then I’d say that’s a catastrophe.

    The point being, even the definition of “rare” is a moving target. I don’t trust the insurance industry to provide reliable information regarding this subject, but I also don’t trust “Taunter Media”, which is a blog site that provides little information as to who he/she/they are.

    Thursday, August 6, 2009 at 11:15 am | Permalink
  8. Daniel Habtemariam wrote:

    @Dan3. The Veterans Health Administration is pure socialized medicine (much more extreme than what Obama is suggesting), and it’s unfortunate that more people don’t share your ability look past the socialism label and rate your care objectively.

    @starluna. Thanks for the articles. I believe they call this astro-turfing. It’s the tea parties all over again.

    @Iron Knee. I can’t remember if you’ve mentioned this before, but Wendell Potter (a former CIGNA executive) gave a great interview to Bill Moyers (on PBS), shedding light on rescission and other shady health insurance industry practices:

    Thursday, August 6, 2009 at 11:30 am | Permalink
  9. @ Iron Knee. Thanks for the change. I do appreciate what you were trying to do, but I didn’t want a solid assertion of position to be easily targeted because of the math. (And yes, I think adding Medicare is valid, though another post on the threat to Medicare as a scare tactic to keep the status quo may be a good idea.)

    At Sammy, I think Iron Knee has it correct about this subject having been studied to death already. I don’t have a link, but NPR had a story a couple of weeks back about how the Hill has easily ten years of studies on ways to improve health care. They already know what the various bits and pieces of the bill could be and what their impact could be, so not reading it isn’t really an issue. Though it does make *me* uncomfortable because there’s no way I can slog through that thing myself. (Just so long they have the copy-editors read it this time, unlike that law they passed a few months back that had a page missing!)

    Thursday, August 6, 2009 at 1:24 pm | Permalink
  10. Dan3 wrote:

    Chuck Grassley is my Senator. I sent him an e-mail asking him to support health care reform with a public option. The response thanked me for supporting the senator’s position- ya, right.
    Is it just me or does anyone else find it ironic that we always seem to have enough money to kill people, even hire mercenaries to do it, but when it comes to saving the lives of Americans, we’re broke? Am I wrong, is the willful neglect of a situation that is killing people morally wrong? If you’re sabotaging efforts to correct the situation, could that be considered criminal? Ironically, the right is claiming that Obama’s health plan will kill you, in the meantime, an estimated 26000 Americans die each year waiting for a national plan to pass.

    Thursday, August 6, 2009 at 11:21 pm | Permalink