Tip Sheets

Little-known loophole in health insurance plans leaves some without coverage

By Joseph Burns

At first, this story by Roni Caryn Rabin for The New York Times seemed like another article about a shooting gone wrong. But reading the full story showed there was much more to it, involving a little-known loophole in health insurance plans that leaves some health plan members without coverage or recourse.

The story shows that journalists might find a number of stories if they look into whether health insurers routinely deny coverage to victims of violent crimes if the insurers believe the victims are at fault.

That’s what happened to Monroe Bird III, a 21-year-old resident of Tulsa, Okla., as Rabin explained. In February 2015, Bird was sitting in his car with a girl in the parking lot of an apartment complex where he lived. A security guard approached the car and tried to open the door before Bird locked the doors and started to back up, Rabin reported. When backing up, the car struck the guard, Ricky Leroy Stone, age 56. Stone then fired three shots into the car, striking Bird and paralyzing him from the neck down.

Needing hospitalization and a ventilator to breath, Bird ran up costs of more than $1 million, and his health insurer refused to pay. The young man was insured under coverage his stepfather had through his employer, which hired HealthCare Solutions Group of Muskogee, Okla., to process its claims.

What happened in Bird’s case is not unusual, Rabin reported. “Insurers have long relied on allegations of illegal activity to deny coverage to patients injured in a variety of contexts, from traffic infractions to gun accidents,” she wrote. Insurers claim they do so because they do not want to reward illegal activity.

What’s more, insurers can deny claims even if the police file no criminal charges, and courts have upheld such denials even without convictions for illegal activity, Rabin explained. Many health insurance policies exclude coverage for care needed as a result of a felony, self-inflicted injury, hazardous behavior and drug or alcohol use, she wrote. Essentially, such exclusions allow insurers to avoid paying for high-cost care.

Some state laws prevent insurers from excluding illegal activity, but the federal Employee Retirement Income Security Act of 1974 pre-empts state laws from applying to health plans for self-insured employers. We’ve covered the ERISA pre-emption issue here. America’s Health Insurance Plans, the trade group for health insurers, reports that employer-sponsored health coverage is the most common type of health insurance in the United States, covering about 149 million nonelderly Americans.

So how did ERISA-pre-emption affect the case of Monroe Bird? “Without insurance, Mr. Bird’s family could not move him to a rehabilitation center specializing in spinal cord injuries. He was discharged from the hospital and died at home in June 2015 from a preventable complication often seen in paralyzed patients,” Rabin reported.

Rabin found no data on how often health insurers cite illegal activity when denying coverage, but she quoted Crystal Patterson, chairwoman of the American Bar Association’s committee on fiduciary litigation, saying such cases, “are more common than people think.”

Beyond the health insurance issue, there’s much more to this story, as Oklahoma journalists have reported here, here, and here