Exposing the American Healthcare Industry
The recent criminal shooting of a UnitedHealthcare CEO in New York City seems to have renewed a national conversation about the state of the American insurance industry. Early reports suggest the killer was not intent on robbing the CEO or otherwise had any personal involvement with the victim that would make this crime in any way “understandable” in the traditional motivation for the crime. The alleged perpetrator appears to have authored writings suggesting he had an intense anger toward the insurance industry. There were bullet casings at the scene stenciled with the words “Deny,” “Delay,” and “Depose.” Authorities believe these words make reference to a book exposing tactics of the big casualty and health insurers in the U.S., further adding to the conclusion that this brutal killing was intended as a “statement.” 
We want to be part of this important conversation, but must first make something clear. As attorneys, we are expected to understand, respect, and uphold the law and are trained in the processes to right a wrong on behalf of a client. At Sussman & Simcox, we have had our own issues with the way the insurance industry is run, and have fought against its many ills for years. The U.S. system of laws/justice is a model for other countries. In that spirit, there is never justification for taking a life to bring public attention to an issue rather than seek justice within our system. Most everyone has a grievance they deem of the utmost importance, but that cannot ever justify an act of violence. To believe otherwise means you would tolerate a violent act toward you by someone who simply had a grievance about you.
In 2010, author Jay Feinman released a book titled “Delay, Deny, Defend.” We have had a copy of that book on our own shelves for over 10 years. The book takes a critical look at the insurance industry, both auto/property and health care, and notes that a great change happened across the industry in the 1990s. Before that, insurers ran as a kind of boring investment operation. Across a year, they might take in 500 million dollars in premiums and pay out 500 million dollars in claims, essentially breaking even. But the company had the use of all that money for the year, and if invested properly, the company turned a nice steady profit.
How McKinsey & Co. Changed the American Healthcare System
But in the 1990's, the thinking of the industry was radically changed by McKinsey & Co., the global consulting company, who signed up many of the national insurance carriers as clients. McKinsey’s experts convinced the insurance carriers that their “claims units” would now become the main profit engine for the company. Instead of paying out all the premiums collected in a year to resolve claims, McKinsey taught the insurers to pay out but keep a portion of the collected premiums. So if a carrier collected a billion dollars in annual premiums but only paid out 600 million in claims, they then retained 400 million in annual profits, plus the investment income they were already making.
So what tactic did McKinsey develop to allow an insurer to keep so much of the annual premiums? “Delay, Deny, Defend.” McKinsey taught all of the insurers to adopt a “get tough” approach to claims resolution. McKinsey presentation materials actually used words like “boxing gloves” when coaching the insurer on how it was to begin treating policyholders. The insurer was now to fight everything submitted on any available ground - an accident was too minor, the bills were too high, the client had pre-existing arthritis, there was inadequate justification for a recommended medical procedure, physical therapy was not necessary, just a home hot pack, and a totaled car was not worth near what the client thought it was worth. They worked to send a “scorched earth” signal to anyone who dared to make a claim. The carriers dragged out claims resolution without explanation. They started using “evaluation software” that was programmed to uniformly crank out offers 20% below their old evaluation models. Victims without attorneys were persuaded to try to manage the claim process without hiring an attorney, resulting in lower payouts. Clients with attorneys were put on the slow track.
The Pathway to Record Profits
Many injury victims walked away from the fight out of frustration. And those claimants that did not give up, but instead filed suit were met with an army of insurance attorneys and a team of “defense” doctors that were eager to come into court and repeatedly testify that the Plaintiff was not hurt, was exaggerating, didn’t need the care that was rendered and so on. At the same time, the carriers waged a successful national P.R. campaign that all of their efforts were designed to “fight fraud” and stop a growing number of “frivolous lawsuits,” which would benefit the public by keeping the cost of insurance at its lowest. The misunderstood McDonald’s Hot Coffee case was waived around as proof the country had gone lawsuit crazy. Their P.R. campaign was so successful that they implanted the secret fear in many jurors that a large verdict, warranted or not, would cause their own insurance rates to go up.
McKinsey assured the industry this was the pathway to record profits, and they were right. All major insurers' profits went through the roof, and company valuations and stock prices went up accordingly. Thirty years after the implementation of the McKinsey model, all of the big insurers are still operating under the “Delay, Deny, Defend” system. Frankly, it has proven too profitable to abandon. However, the public sentiment toward these tactics is beginning to change. The public is finally growing weary of perpetually paying high premiums while never getting the benefits that were promised. In pushing back against this oppressive strategy, knowledge is key, and here are some hard truths the public needs to know and remember.
The Reality of the McKinsey Model
1. It was never about fighting fraud.
The McKinsey model was about massively increasing profitability for their corporate clients. But they couldn’t admit that. So “fighting fraud to keep premiums down” was the talking point that helped convince everyone the carriers were working for the good of the general public, when they really weren’t. Is there fraud in the industry? Yes, but it is a small percentage of all claims submitted. The focus was and remains corporate profits and shareholder satisfaction. Mckinsey’s plan was so much about driving profits, they stressed that the insurance carrier’s “customer” was not the policyholder, it was the shareholder. After implementing McKinsey’s “get tough” methods, one national insurer reported in an internal newsletter “phenomenal, never-seen-before-results in terms of loss/cost management.” In 1990, before McKinsey was involved, State Farm’s annual revenue was $522 million. In 2022, its annual revenue was $89 billion.
2. Despite what has been promised, saved money never seems to find its way back to the working policyholders.
Like most adults, you may have noticed that the cost of health, auto, and property insurance always creeps up and never seems to come down in any meaningful way, even for people who are safe drivers, who lead healthy lives, and who rarely make claims. So if the companies are running with this efficient computerized “get tough” strategy in claims handling, reducing payouts and claim costs, where does all the saved money go? In most cases, it flows uphill to the executive boards and the shareholders, and never downhill to significantly reduce insurance premiums for policyholders. Consider this - in 2017, the CEO of Allstate was paid $18.8 million in compensation. In 2020, he was paid over $21 million in compensation. Corporate shareholders are similarly rewarded by record profitability of the company. UnitedHealthcare statistically has the highest claim denial rate in the health insurance industry, thus holding onto more of the premium dollars it collects. When thousands of policyholders annually are given lowball offers on injury claims or the total loss of their cars, or are denied health care benefits because pre-authorization procedures weren’t followed, this is where the saved money goes. The claim that these tactics are designed to save money for policyholders is FALSE.
3. When you make a claim against your own insurer, all bets are off.
It doesn’t matter how long you have been with a particular insurance company for auto, home, or health insurance. As soon as you make a claim for benefits under your policy, you become a potential drag on the carrier’s bottom line and they will likely handle your claim in the same “get tough” manner they have all adopted. Sussman & Simcox has had many clients who are shocked at the treatment they receive from their own insurer after paying premiums for 10 years without any prior claims. The carrier will have no hesitation in pushing back on your claim, even labeling you, their policyholder, a fraud. Do not believe any of the happy Good Hands/Good Neighbor slogans. To them, its only ever about the bottom line, not about your personal situation.
4. In court, insurance is almost always at play.
If you have ever sat as a juror on an auto collision or other injury case in Maryland, the case may be titled “Smith v. Jones,” but in the majority of cases, it’s really “Smith v. XZY Insurance.” The Maryland court rules typically do not allow an action against another driver’s insurance company. But under the contract of insurance, the named defendant, Jones, is actually being represented by his/her insurance company. The insurance carrier hires the attorney or supplies its own staff attorney to defend the driver in court, and foots all the legal bills. The insurance company makes all the decisions about how the defense will be presented. The insurance company may decide to bring in a doctor to give expert testimony in defense of the case and pay thousands in expert fees. Defendant “Jones” typically has no say in these decisions and is not paying for the costly defense. If a settlement happens, it is typically the insurance carrier that pays the money, and if a verdict is rendered against the defendant, the insurance carrier pays the verdict up to the amount of the policy limits. The insurance company’s role is so dominant in civil litigation that many defendants who would rather just have the litigation resolved and get back to their lives have no say in the resolution of their own case. Instead, they become unwitting courtroom props when the insurance carrier determines to take the case all the way to trial. So if you are ever wondering how that little old lady defendant can afford her lawyer and all of those highly paid experts, she can’t. It’s her insurance carrier putting on an expensive bit of theater, and the defendant is just a cast member.
5. Most importantly, YOU may be the last unwitting piece in the Delay, Deny, Defend strategy.
As noted earlier, the carriers continue to work with an established play book in their non-stop efforts to reduce payouts and increase profits. If you sit on a civil jury where you are called to assess and value the injuries claimed by the plaintiff, pay attention to defense strategies deployed in court. “The accident was minor and there was no ambulance.” “The plaintiff had signs of pre-existing arthritis on an x-ray and that is the real cause of their problems.” “Most people recover in 90 days, so the plaintiff should not have treated for more than that.” “The bills by the various doctors are too high.” “The plaintiff is overweight.” Did the defense bring in a medical expert in a lab coat to argue that all the plaintiff’s treating doctors are wrong, and the plaintiff did not sustain the injuries claimed? Note whether the defense doctor has a history of appearing in court almost exclusively for the defense and rarely for his own patients. Does the defense doctor earn 6 or 7 figures in annual income giving testimony for defendants? You may be witnessing first hand the Delay, Deny, Defend strategy that has benefitted the insurance industry for 30 years. If the above arguments sway you as you sit on a jury, YOU have become the final team player in their strategy.
Jurors have traditionally been fed the belief that full verdicts raise premiums. Jurors should counterbalance that concern with the understanding that a low verdict/no verdict doesn’t necessarily benefit the defendant, nor will it mean lower premiums for anyone. Instead it saves the insurance carrier from a payout, all to the benefit of the CEOs and shareholders, and ultimately reinforces the merits of their lucrative “Delay, Deny, Defend” strategy. It is understandable that after 30 years, the public is finally experiencing a growing dissatisfaction at the way health and casualty insurance has become a system of high premiums and no/low benefits. The solution is not to channel that dissatisfaction into acts of violence. But if jurors begin to reject this strategy, it sends a clear message back to home office that the public is no longer tolerant of “Delay, Deny, Defend” tactics. Real change only ever happens at the corporate level when there is an economic consequence in failing to change.
Rejecting the Current Strategy
Unless the public begins to understand and reject this strategy, the same tactics will continue, and then we ought not to complain about the horrible state of our insurance industry.
