What Do You Mean It's Not Covered: A Troubling Example of Health Insurance Problems

Fred and Carolyn Mountford were part owners of a Monterey, California, fishing boat charter business. In 1989, after watching their group health insurance premiums rise steadily for several year, the Mountfords decided to shop for new insurance. Their agent recommended a so-called "third-party policy" underwritten by Boston Mutual Life Insurance Co. and administered by Brennco Benefits Administrators Inc. Third-party policies have become fairly common in the rapidly-changing health insurance industry. But few consumers understand how the things work. They sell largely on the reputation of the underwriter, such as the venerable, 102-year-old Boston Mutual. But the administrator makes the critical decisions affecting policyholders -- notably, whom to enroll and when to pay claims. An administrator recruits customers and then persuades an insurance company to fund a group health plan. The more people the administrator signs up, the more money it earns. In March 1989, Carolyn Mountford had had a normal gynecological exam. In May, the Mountfords applied for a Brennco-Boston Mutual policy. The application asked: "Within the past two years, have you... seen or consulted with, or received or been recommended to receive treatment from a physician... or other practitioner of the healing arts; or taken medication or been recommended to take medication?" The Mountfords answered that Carolyn had been to the doctor and received a clean bill of health. Their policy took effect July 1, 1989. One night early in September, Carolyn felt a lump the size of a quarter on her left breast. Within the next few weeks, she underwent tests, saw specialists, had surgery, took drugs and submitted bills to her insurance company. But Brennco didn't pay those bills. Instead, it ordered her gynecologist to send her file. It was looking for reasons to drop her from the policy -- which it shortly did.