Sunday, February 24, 2008

Attacking Businesses We Need

On Friday February 22, 2008 a California arbitrator awarded Patsy Bates, 51 mother of two, $9.0 million dollars in case against health insurer Health Net.  In his ruling the arbitrator didn’t attempt to hide his disgust with the actions of the insure calling it “reprehensible” among other things.  Apparently, the insurer has a long record of canceling claims that involve large sums of money and actually paid bonuses to underwriters that met cancellation targets.  Ms Bates policy was canceled and she was left with close to $200,000 in medical bills.  Health Net says it cancelled the policy in part because of lies in her applications including Ms Bates lying about her weight.   (Imagine a person lying about their weight.)  I think this case will reverberate beyond Health Net and health insurers.

There are several additional high profile cases against Health Net, which has said it will review and amend some of its business practices.  You have to believe other health insurers are scrambling to address their business practices, too.  In the meantime I think many will make a parallel between this case and what’s going on in the mortgage industry crisis.  Almost as soon as the housing market hit a brick wall the folks that lent money were cast as villains while people that lied on their applications or simply bit off more than they could chew were cast as victims.  Subprime has become a four-letter word and yet for so many years these loans helped people that had no shot at home ownership attaints the American Dream. 

Sure, there were villains in the mortgage industry but to a large degree people that took out these loans have to be held accountable.  Saying “I didn’t read the contract” seems so farfetched in a nation of laws and lawsuits.  During the surge in the real estate boom lenders began asking for less documentation and smaller down payments until there was zero needed for both.   Mortgage industry experts have taken to calling these “liar loans” because the applications were riddled with lies.  The lenders didn’t make the lies although most knew the phenomenon was occurring.  Lenders didn’t mind because they were able to sell the loans off to other suckers, you know those brilliant guys on Wall Street.  This makes lenders action risky or even offensive but doesn’t erase the lying part of the equation. 

The difference between Ms Bates and those folks that lied on their mortgage applications is that she didn’t receive services, folks with liar loans were able to move into their new homes.  Still, in a year when big businesses from oil to drug makers, from mortgage lenders to insurance companies are coming under intense attack as evil corporations that must be reeled in and punished.  I find the actions of Health Net sickening.  It’s unfortunate they not only will harm the ability of their own industry to conduct business but other businesses, too.  It’s unfortunate that when it’s all said and done fewer people will get health insurance, home mortgages and fewer cures for deadly diseases will be discover all while gas prices will increase- All in the name of attacking big businesses.

It’s unfortunate that most likely this in-fighting and finger pointing will make American business less competitive just as the world is charging ahead intent on catching up and eventually passing the US economy.  I hope we make our industries stronger not weaker.  I hope adjustments in business practices occurs without knee jerk reactions that only makes life worse for all concerned.

Charles Payne