New York -- Americans who have health insurance may complacently ignore the terrors of the people without. But there's a mounting risk your health insurer will fail, leaving you with unpayable bills. The toll is cutting across every kind of medical-payment group.
* According to Standard & Poor's, 121 life and health insurance companies went broke in the past three years.
* Blue Cross and Blue Shield of Charleston, W. Va., collapsed in 1990, leaving some $41 million in unpaid bills.
* At least 131 health maintenance organizations failed between 1986 and 1990, says Jon Christianson, a professor in the School of Public Health, University of Minnesota.
* Unknown numbers of Multiple Employer Welfare Arrangements have gone broke, often through fraud. MEWAs sign up small companies that can't afford coverage from the major insurers. Some MEWAs are legitimate, but others collect premiums and then skip.
So serious is the carnage that, in some states, doctors and hospitals require their patients to agree, in writing, to pay any bill that their insurer defaults on.
When looking for a sound insurance company, all you can go by is its safety rating. You want an A+ from A.M. Best and AAA from at least one of the other major rating firms -- Moody's, Standard & Poor's or Duff and Phelps. S&P also passes out "q" ratings for insurers it hasn't examined in full -- the highest being BBBq. Such a company might be an AAA, had S&P examined its books.
No rating system covers HMOs. A.M. Best doesn't rate the Blues, either, although a few are rated by S&P. To get the current financial statement of any Blue plan, call its public information department or your state's insurance commission. Look to see if it's making or losing money.
With MEWAs, the sign of a high-risk plan is lower monthly premiums than the competition offers. Employers shouldn't buy into a MEWA without asking their state insurance commission if the plan is licensed for sale there and whether there have been any complaints. Avoid new MEWAs.
If you're insurer fails, leaving you with unpaid bills, you might be caught by one of the following safety nets:
(1) "Hold-harmless" clauses. These stop doctors and hospitals from dunning individuals for bills that should have been paid by medical-service plans. All federally qualified HMOs have them, as do HMOs in 33 states. Some states also require them of the Blues and of regular insurance plans. Some doctors ignore hold-harmless clauses and bill their patients anyway (ask your state insurance department if you have to pay). If you sign an agreement to pay when you enter a hospital you might, in some states, lose the protection of a hold-harmless clause.
(2) State guaranty funds. All the states -- the only exception being the District of Columbia -- now provide guaranty funds for individual policies. They cover up to $100,000 of medical expenses (more in some states) for insurers licensed to sell in the state. Most group-health plans aren't included, however, nor are MEWAs. Eighteen funds now cover the Blues; seven cover HMOs.
In general, the funds guarantee (up to the limits of state law) all your back bills, all your current bills, and all future bills until you find another insurer or your policy comes up for renewal, which may be any time from tomorrow to 12 months. Starting from the time your insurer failed, you have to pay premiums to the guaranty fund, perhaps at a higher rate than you paid before.
(3) Insurance-agent liability. If your agent sold you a policy from a company not licensed in your state, the agent may be liable for any bills the company defaults on.
If you work for a big company whose insurer fails, the chances are good that your employer will cover your bills. Smaller companies, however, may not be able to afford it.