The Sells allege in their lawsuit that CIGNA entered into secret discount agreements with hospitals and other health-care providers in order to expand the company's market share.

CIGNA, Jim Sell says, could attract more members by offering lower monthly premiums to potential customers than many of its competitors. CIGNA then makes up for any losses it may suffer from lower premiums by negotiating discounts with health-care providers. But it is the company, not its customers, that benefits from those discounts.

In 1985, Sell says he was considering switching from CIGNA to other plans, but after researching the market and comparing premiums, he concluded that CIGNA offered the best rates for the services provided.

That was before he learned of CIGNA's discount pricing practices.
"If I would have known they had this type of discounting deal, I would have taken another look at how the actual billing practice was structured, because it completely changes the basis for evaluating the plan," he says.

The Sells and their attorney, Leon Silver, believe that CIGNA's customers are entitled to the same pricing discounts from health-care providers that CIGNA receives.

"If CIGNA did what we believe they are obligated by law to do, which is when they negotiate, to negotiate on behalf of their insured and not themselves, then Jim is entitled to the benefit of that discount," Silver says.

It is impossible to know how many other CIGNA policyholders are in the same situation as the Sells. The only members of the class-action suit so far are the Sells. But Silver is confident more policyholders--perhaps tens of thousands more--have been hurt by CIGNA's secret side agreements. They just don't know it yet, because they haven't been as aggressive as Jim Sell when it comes to dealing with hospital bills.

"People don't know that they are being ripped off," Silver says.

Tens of thousands of people already have been victimized by discount agreements between hospitals and another major national insurance company.

The Florida Attorney General's Office reached a settlement agreement on June 10 with Humana Inc. calling for the health insurance company to pay $6.25 million to settle allegations that the company overcharged 37,000 Florida health-care consumers.

In a case that is nearly identical to the Sells' suit against CIGNA, Florida state officials alleged that customers of Humana Health Insurance Company of Florida were required to pay greater shares of their hospital bills than called for by their health insurance policies.

Florida officials say patient co-insurance charges were based on the full amounts of hospital bills--even though Humana's health insurance company was granted discounts as high as 89 percent by Humana-run hospitals.

"Patients who should have paid only a fraction of the hospital costs sometimes wound up paying most, or, in the worst cases, all of the amount actually collected by the hospital," says Florida Insurance Commissioner Tom Gallagher.

The settlement, in which Humana admitted no wrongdoing, came after a two-year investigation by the Florida insurance department and attorney general. While the settlement was restricted to Florida residents, state investigators believe that Humana was doing the same thing in other states.

"From our review, it would appear it was a nationwide policy on the part of the company," says Florida assistant attorney general Steve Parton.

The Florida investigation also clearly revealed that hospital bills based on so-called "usual and customary charges" are literally pulled out of thin air and have nothing to do with economic reality, Parton says.

"Humana charges huge rates to patients, but then discounts it back up to 89 percent for the insurance company," he says. "Is there, then, any reality to this 'usual and customary' charge?"

The answer to that question is obviously no, says Nevada state senator Joseph Neil.

Neil single-handedly conducted a legislative investigation into Humana's insurance and pricing policies in Nevada and found the same problems discovered in Florida.

"They rigged the pricing system where they could rip off a huge amount of money," Neil says. "They had gotten about $17 million before anybody realized what in the hell was going on."

But so far, Humana has avoided any significant legal action from Nevada state officials, other than being subjected to a series of public hearings held by Neil.

The company is the target of a federal class-action lawsuit filed by Humana customers claiming they didn't benefit in the hospital discounts offered to their insurance company. The suit is nearing a settlement.

Humana's ability to avoid state prosecution in Nevada is not happenstance, Neil says.

"Humana Hospital surreptitiously moved in and captured a lot of regulators and a lot of politicians through big campaign contributions," Neil claims.

A Nevada criminal investigation into Humana's activities was terminated prior to completion, even though the probe was finding evidence later used by Humana customers in their federal civil suit, Neil says.

Gregory Barlow, the chief criminal investigator in the case, says he was ordered to terminate the investigation case by Nevada's former insurance director, an assertion the former director, David Gates, denies.

Neil's public hearings also showed that several key state employees, including former attorney general Brian McKay, left state government soon after the close of the criminal probe and took jobs at a law firm that represented Humana.

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