Maryland Should Pass a Lack-of-Good-Faith Statute for Health Insurance

The Affordable Care Act (“Obamacare”) has placed health insurers under substantial financial pressure. This pressure appears to be resulting in an increasing number of healthcare claim denials.

Unfortunately, the increase, if it exists, cannot be documented with hard data; historical data on the number of healthcare claim denials issued by private insurers doesn’t exist. The ACA now requires qualified health plans to report data on denials, but participating insurers only began doing so in 2015.

Anecdotal evidence, however, clearly points to an increase.

As a former Senior Counsel to the Maryland Insurance Administration, and now a private practice attorney concentrating in insurance law, I am receiving more and more calls from people facing financial crises caused by health insurers’ denials of large medical claims.  I have represented a number of clients who had large health insurance claims denied, only to see the insurer reverse the denial once I was hired to fight back. 

In a previous blog post, I wrote about a situation where BlueCross BlueShield of Maryland denied my client’s claim for a $160,000 microprocessor- controlled prosthetic knee.  After I wrote to the Maryland Insurance Administration, describing the weaknesses in BlueCross BlueShield’s position, the company simply withdrew its denial and agreed to pay for the knee.

While this is a good result for the client, insurers should be held accountable for denying claims in bad faith.  A claim is either covered or it isn’t.  There should be a penalty when the insurer changes its mind and agrees to pay a claim only after an insured has filed an appeal, lost the appeal, filed a complaint with the Insurance Administration, and then hired and paid an attorney to draft a letter.

When BlueCross BlueShield agreed with my explanation, it simply withdrew its denial, without penalty, and the Administration closed its file.  If the Administration penalized insurers for putting people through all of this, insurers would get more claims right in the first instance.

Section 27-1001 of the Maryland Insurance Article creates special penalties for insurers when they fail to exercise good faith in adjusting “property and casualty” insurance claims – such as auto and homeowner claims.  There is no Maryland statute, however, creating similar penalties for health insurers.  A “lack of good faith” statute for health insurance would prevent denials of covered claims, or would at least incentivize health insurers to take a closer look before denying claims.

The current system actually disincentives health insurers from paying large claims.  If an insurer denies a claim, and the insured does not have the knowledge, time, and/or resources to challenge the denial, the insurer “saves” the amount it was contractually required to pay for the claim.

On the other hand, if the insured challenges the insurer, through the appeals process, and then at the Insurance Administration, the insurer can simply reverse its position without incurring a penalty.  Although the Insurance Administration invested its time and resources in reviewing the file, no fine was issued. If Section 27-1001 applied to health insurance claims, insurers would face claims for punitive damages and attorneys’ fees for failing to exercise good faith in reviewing claims in the first instance.

Maryland’s General Assembly should enact a statute that at least allows insureds to recover their attorney’s fees when they prevail in such a case.  Without a deterrent against bad-faith denials in place, we can expect health insurers to deny more and more claims as a matter of course, irrespective of the scope of the policy agreement.

In the meantime, if you are facing similar issues and would like assistance, feel free to contact me, Alex J. Brown, Esq. a partner at Shapiro Sher Guinot & Sandler, P.A. and Chairman of the firm’s Insurance Practice Group, at 410-385-4220, or by email at ajb@shapirosher.com.