Don't Buy Your Insurance from This Man

Fear is the best friend of insurance hustlers, especially those targeting senior citizens afraid of the gap between their hospital bills and the amount Medicare pays. In five articles and three charts on December 28, 1986, David Davis revealed the distortions of "medigap" tele-salesmen like comedian Danny Thomas, the inadequacy of state regulation, and the truth about the gaps in Medicare coverage. Three months after his work appeared in the Sunday Charleston Gazette-Mail, the legislature and governor enacted a law making West Virginia one of only a few states to regulate health and life insurance sold over television or through the mail. 

 

Charleston — West Virginia's senior citizens are paying an estimated $40 million to $50 million a year for "medigap" insurance to supplement their Medicare coverage and probably one-fourth of this outlay was worthless, according to national findings. 

The coverage was either inadequate or it duplicated insurance the elderly already possessed. Some of it was sold by companies which have licensed agents in the state and which are cursorily regulated by the insurance commissioner. However, most medigap insurance is sold by companies not regulated at all. 

This year many of West Virginia's 273,000 citizens over 65 years of age bought medigap insurance advertised through the mail or on television, where glossy ads and trusted personalities talked them out of their money. 

"The elderly are susceptible to scare tactics," said Tom Marchio, who handles medigap complaints for the state insurance commissioner. "They're just afraid they're not going to have enough insurance if they get sick." 

Rep. Claude Pepper (D-Fla.) agrees. Pepper, chairman of the House Select Committee on Aging, said some insurance companies have capitalized on the anxiety about ever-increasing health costs, selling senior citizens essentially worthless insurance policies. 

For most senior citizens, who spend about 17 percent of their income on health insurance, the buying of medigap insurance is a reflex action. Motivated by fear, Pepper said, they buy hope. A government study says at least one of the four billion dollars senior citizens spend nationally on medigap insurance is wasted. 

Consider the case of 81-year-old Matilda Sutphin of Lincoln County. Sutphin lives with her son, Melvin, and granddaughter, Corinna, in a four-room house in rural Snowden Hollow. The family ekes out a living on her Social Security benefits of $633 a month. 

Sitting by the gas floor heater in her living room, surrounded by hundreds of porcelain figurines and plates, she remembers the commercial that sold her one medigap policy, and later four others. 

"After my husband died I just thought I was going to die any day," she said. "But I just kept on living." 

As she grew older, Sutphin said, she began to worry about getting sick. She feared hospital bills. She feared dying destitute. "Danny Thomas kept writing me about his insurance. I'd see him on TV all the time. I wish I could talk like that. He had to tell me how good it was and how I needed it. How Medicare wouldn't pay all my hospital bills. How his insurance would. 

"He said it [a hospital stay] would take all the savings I had and then I would have nothing. I wouldn't have nothing and being a burden on the kids and everything. He said I needed the insurance." 

For 10 years, Sutphin said she faithfully mailed monthly premium checks to the Union Fidelity Life Insurance Company, the insurer Danny Thomas represents, paying on some of the five policies she had taken out. Sutphin thought she had purchased hospitalization insurance that would cover everything not paid for by Medicare. She was wrong. 

In February of 1985, she fell and was taken to Thomas Memorial Hospital's emergency room for treatment. After having pumped an estimated $2,400 into the company, according to canceled checks, Sutphin called on her insurance. 

The hospital billed the elderly woman $100. Medicare paid $80, and Sutphin paid $20, according to Medicare records. Her Medicare supplement paid nothing. 

Sutphin said she tried to collect on that bill and others that followed. Union Fidelity did not answer her letters. When she phoned the company with her complaint, it tried to sell her more insurance, she said. 

Thirteen months later, Sutphin needed her insurance again. Altogether, Sutphin paid $1,043.30 for health care in 1985 and 1986, according to Medicare records and canceled checks. Her medigap insurance paid $135.71. 

In a letter to the insurance commissioner dated Jan. 15, a Union Fidelity claims representative upheld the firm's position in not paying most of Sutphin's medical expenses. The representative explained the fine print of Sutphin's coverage, a courtesy which Sutphin said was not extended to her by Danny Thomas when he was selling the insurance on the commercial. 

This policy does pay what Medicare doesn't pay, as Thomas said, but only on Medicare-eligible charges, which include about half of an elderly person's health care costs, according to government statistics. It does not pay other health care costs, among them outpatient care and certain physician charges. 

 

Danny Thomas is not the only celebrity selling insurance over television. Senior citizens across West Virginia sat watching cable television one recent afternoon, when the Ponderosa's Little Joe Cartwright, Michael Landon, materialized on their screens. 

Little Joe wasn't wooing cowgirls or knocking around with his older brother Hoss or even standing up for the rights of neighboring cattle ranchers. He was selling health insurance. 

Representing Veterans Life Insurance, Landon offered war veterans a "unique opportunity," the chance to buy hospitalization insurance. The insurance, Landon said, will pay up to $1,500 a month, or $50 a day. Veterans and their families cannot be turned down. 

Landon introduced a retired Veterans Administration official who he said lost both legs fighting for his country. This veteran, too, recommended the coverage. 

The Veterans Life coverage pays above Medicare and other insurance policies, Landon said, reminding viewers, just before he faded off the screen, that one person in every two families will be hospitalized this year. But what Landon neglected to tell his audience, and what few people discover until they file claims, is that Veterans Life pays benefits far below the level deemed fair by West Virginia law. 

Landon doesn't mention in the advertisement that less than one percent of all patients hospitalized stay longer than one month, according to a recent report by the House Select Committee on Aging. That figure includes elderly patients. Hospital administrators at eight West Virginia hospitals said the average Medicare patient stayed about eight days in 1985. 

Since the Veterans Life Insurance hospitalization insurance doesn't pay for home or nursing home care, few people ever receive extended benefit checks. So few, in fact, that if the company tried to license agents to sell the insurance instead of advertising it on television, the 46 states which have adopted minimum benefit payment levels would turn it away. 

Veterans Life does not stand alone. 

Of those insurance companies selling health insurance in the state of West Virginia, the Sunday Gazette-Mail has found that more than half did not pay out the minimum level of benefits. In other states, the figure is about the same, a General Accounting Office audit determined. 

In West Virginia, companies whose agents sell individual policies must return 60 cents worth of benefits for every premium dollar collected, said William Midkiff, a rate analyst for the insurance commissioner. Those companies offering in-state group health insurance policies must pay benefits of 75 cents on every premium dollar. 

Midkiff said his office refuses premium rate increases to companies whose loss ratios fall below these minimum standards, although it has made exceptions. 

Some insurers, because of the type of policy they sell or the way they sell it, are exempt from state regulation. Many dread-disease policies, such as cancer insurance, are beyond the authority of most states. 

Insurance sold on television is not required to fulfill loss ratio standards or submit the coverage for state review. The Charleston Gazette-Mail identified 30 companies with ratios below 60 percent, including 13 with loss ratios below 50 percent. Midkiff said his office doesn't follow the loss ratios of television advertisers, since it has no jurisdiction over them. 

"They will up front tell you, 'We don't have to file our policy with you and we don't need your approval,'" said Wanda Smith, director of the insurance commissioner's consumer division. "I've heard that many times." 

Midkiff said companies using television promotion get around tough state laws by setting up group trusts in places where policies are not strictly regulated. "If they don't like the way we do business, they go elsewhere, set up the trust, and come back and sell insurance, going behind the curtain, so to speak." 

Of the dozen insurers which use stars to promote their coverage on television, records show only four would be permitted to sell in West Virginia, if they were required to meet the state's benefit payment standards.