The case is about Gerald who had a health insurance cover that had an 80/20 copayment arrangement. When Gerald received a surgery bill of $950, he wanted to ascertain that the insurance company actually paid $760 or 80% of the total bill. A copayment plan requires patients to pay a portion of their medical bill in accordance with a pre-agreed ratio (Chang, 2014). Upon investigation, Gerald discovered that the insurance company had negotiated for a discount and their part of the bill was only $374. However, Gerald Copayment of 20% was still based on the original fee and not the discounted rate. Consequently, Gerald copayment of $190 amounted to 33.69% of the total bill of $564.
The ethical issues presented in this case relate to transparency in business practices. Health insurance companies are supposed to be agents for patients and should champion for the interests of their patients (Nguyen, 2011). As a perfect agent Trigon Blue Shield/Blue Cross insurance was under an obligation to pass the benefits of lower charges to their policyholders including Gerald. By refusing to pass the discounts to the patients or at the very least disclose to its patients the discounts they are receiving from the health care providers, Trigon became an imperfect agent that pursued profits without regard to its patients interests (Nguyen, 2011).
Copayments aim at giving the patients more responsibility over their health in terms of both lifestyle choices and financial choices (Chang, 2014). Without copay, patients insulated from the cost of health care may have less incentive to make better lifestyle choices and financial choices. Patients insulated from the cost of medical care may opt for procedures that are more expensive while a cheaper procedure would suffice. For instance, a patient might opt for plastic surgery that is more expensive to remedy a scar while simple stitches would do. Therefore, the copayment acts as a disincentive for patients to engage in moral hazard where they may over consume heath care because they do not bear the cost of the health care.
Insurance companies are strong advocates of the doctrine of utmost good faith. The doctrine requires the contracting parties to enter into the contract with utmost sincerity and honesty. Therefore, Trigon should have lived by what they preach by ensuring that their part of the payment at all times is equivalent to the 80% they promised Gerald when he signed up for the policy. Instead, Trigon hoped to make clandestine profits by taking a tab that was much lower than what they had initially agreed to settle. Trigon had no incentive to pass the discount to the policyholders, as this would have meant reduced profits to the business.
One of the primary objectives of businesses across the world including Trigon is to maximize return to shareholders. One way in which businesses maximize profits is by reducing costs. It was in perfect order for Trigon to maximize its profits by negotiating for discounts with health care providers in order to maximize its profits and return to shareholders. The principal-agent problem arose when Trigon decided to maximize its profits at the expense of its policyholders. Trigon took advantage of the information asymmetry to defraud its policyholders of millions of dollars by refusing to pass on the benefits of cheaper rates they had negotiated with health care providers. While profit maximization is a valid business objective, what is unethical is a bind pursuit of the profits. In this case, Trigon acted unethically when they refused to pass the discounts to the policyholders in pursuit of maximum profits,
Insurance companies hold the information about the rates they pay to health care providers as trade secrets in order to maintain their competitive advantage in the market place (Ubel, 2013). In fact, Ubel (2013) argues that in a society where higher prices are associated with better quality health care, too much price transparency by insurance companies might actually trigger health care providers to increase their prices so that they make their services seem of superior quality. Such a move by the health care providers would drive the cost of health care up. Consequently, insurance premiums would go up and health care would become less affordable.
Ubel (2013) observes that in the commodity market, price transparency drives producers to improve quality and lower prices in a bid to increase sales. However, this is not so in health care where consumers suffer from placebo effect where they falsely believe that there is a positive correlation between price and the quality of the health care (Ubel, 2013). There is a likelihood that patients will not use information obtained from price transparency to put pressure on doctors to lower prices and improve the quality of healthcare (Ubel, 2013). Consequently, doctors and other health care providers are likely to respond to the increase price transparency by hiking the prices for health care (Ubel, 2013). Such a move would not only rob the insurance companies of their competitive advantage, but it would also inhibit the ability of the insurance companies to keep the cost of healthcare affordable.
Trigon acted unethically by refusing to pass the discounts to its policyholders. While it may not be desirable for the insurance companies to disclose too much information about their negotiated prices they should share critical price information with their policyholders in order to resolve ethical issues that may be caused by information asymmetry between the insurance companies and their policyholders. That way, insurance companies will be able to balance between their need to maintain trade secrets and their competitive advantage and the need to give their policyholders sufficient information. At all times, insurance companies must be perfect agents for their policyholders passing any benefit they may obtain to them. The pursuit of profit must take account of the interest of all the stakeholders.
References
Chang, D. (2014). Patients Take On More Health Care Costs But Struggle To Find Prices.
Kaiser Health News. Retrieved 21 June 2016, from http://khn.org/news/patients-take-on-more-health-costs-but-struggle-to-find-prices/
Nguyen, H. (2011). The principal-agent problems in health care: evidence from prescribing
patterns of private providers in Vietnam. Health Policy And Planning, 26(Suppl. 1), i53-i62. http://dx.doi.org/10.1093/heapol/czr028
Ubel, P. (2013). How Price Transparency Could End Up Increasing Health-Care Costs. The
Atlantic. Retrieved 21 June 2016, from http://www.theatlantic.com/health/archive/2013/04/how-price-transparency-could-end-up-increasing-health-care-costs/274534/
