Heil was a victim of a common insurance-industry practice called a "death spiral," or "skimming," in which companies establish pools of private health insurance policies. Though the original policy may have been sold at a reasonable rate, after a year or two, when they can no longer contest claims as pre-existing conditions, the companies methodically raise premium rates. The healthy policyholders jump to new policies or new insurance companies, and the pool shrinks until it consists of people who are otherwise uninsurable because they have become ill. Those who are left pay astronomical rates until the policy is canceled altogether.
Heil's attorney, Fred Creasy, filed suit against Mutual Service Life Insurance Company last February and hopes that the case will finally come to trial in April. It rests on the wording of a clause in Heil's insurance policy, which says that her insurance can be "nonrenewed" only if "we refuse to renew all policies like this one in your state of residence."
What constitutes "all policies like this one" is up for interpretation. MSI claims it covers only those policies with the same form numbers--the lot number, so to speak--as Heil's pool; Creasy maintains it includes two nearly identical policies sold under different form numbers.
At the beginning of February, the Arizona Department of Insurance provided MSI with an affidavit stating that the insurer acted within the law in canceling Heil's policy.
"The Insurance Department should not have become involved in the fray," says Creasy. "But they did, and they've given no weight to the interests of the consumer. We think it's inappropriate for them to take the side of the insurance company."
The story began in January of 1988, when a healthy Wilda Heil and several of her colleagues at the real estate agency where she worked decided to replace their health insurance coverage with new policies from MSI that they purchased through a local insurance brokerage. Three weeks later, Heil began having severe abdominal pain, went to the doctor and learned she had ovarian cancer.
She had no history of cancer or precancerous conditions, but she did have an initial fight with MSI on her claim because the insurance agent had not yet turned in her application to the insurance company. To its credit, MSI did honor the contract she signed with the insurance broker. Over the next four years, MSI paid claims totaling $143,367 to cover her surgeries and other treatment.
Heil's monthly premiums, as might be expected, rose from $102 to $291, and then, in January of 1992, Heil and 270 other MSI policyholders in Arizona were told that their policies would not be renewed.
A memo from the company to local agents explained that "MSI has sustained considerable losses on long-term medical form 4450 in the state of Arizona. Continued action to correct these losses have proved ineffective. As a result, we are forced to cancel this policy form in the state of Arizona." In other words, too many people, like Wilda Heil, actually had to use their insurance policies for what they thought they were intended: to pay for unforeseen catastrophic medical expenses. "This is an old, well-respected Midwestern insurance company, not some fly-by-night operation," says Bill Hayden, who owned the brokerage that sold the policy. "We were assured that they were going into the major medical business and they were going to be major players in the states they had chosen to go into." Hayden has since left his insurance business and started Western Health Foundation, a nonprofit corporation to aid those who cannot get or afford health insurance, and he put Heil in touch with Fred Creasy, the attorney.
Though Heil's ovarian cancer is in remission, she has since developed arthritis, lupus and diabetes. Last year she had a massive heart attack and spent four days in intensive care. She is not well enough to work. She has had to borrow from her children and grandchildren to meet expenses, and had to sell her house to qualify for coverage from the Arizona Health Care Cost Containment System. She is uninsurable. Nowadays, recurring ear infections in children, asthma, high blood pressure or past psychological counseling, however minor, are reason enough for denying insurance coverage, let alone full-blown cancer.
The suit that Creasy filed on Wilda Heil's behalf alleges breach of contract and bad faith on the part of MSI and asks for punitive and compensatory damages totaling $25 million. It centers on the claim by MSI that it could only cancel her policy if it canceled "all policies like this one."
Form 4450, which Heil held, was sold until mid-1988; over the next two years, MSI followed with two new forms--4585 and 4610--which were nearly identical policies. When it canceled Heil's form, it did not cancel the other two.
In a sworn deposition, Michael Henderson, an executive at MSI, confirmed that the three policies were basically the same. In a September 1991 memo, Henderson had assured brokers that only 4450 and not the other two were being discontinued. Creasy claims that was a breach of contract, that all of them should have been discontinued at the same time or none of them. Despite the assurances, incidentally, the other two policies were eventually canceled, as well, as the death spirals ran their course.
On February 1 of this year, Mary Butterfield, who is supervisor of the Life and Health section of the Arizona Department of Insurance, issued an affidavit stating that the nonrenewal of Heil's policy did not violate any laws. Though Butterfield refused to be interviewed, GayAnn Williams, a spokeswoman for the Department of Insurance, said that the affidavit was issued in lieu of a sworn deposition. "We did not have a choice," she says, and she stands by Butterfield's evaluation.
Hayden questions her expertise, however. "Why would they let a nonlawyer draw a legal decision in a private dispute and then give the full force of the insurance department behind the insurance company?" he asks. "And why would they take a position at all in a private civil matter?"
Creasy calls the affidavit "guerilla tactics" on the part of the insurance company and detrimental to Heil's case. "The Insurance Department is allowing itself to be used by MSI as a hammer," he says. "They went behind our backs and behind the backs of consumers like Wilda Heil and jumped on the bandwagon of the insurance companies. I'm asking that they stay out of it or look at both sides."
Joseph Hennelly, deputy director of the Insurance Department, claims that he, in fact, made Mary Butterfield available for deposition; Creasy declined and instead asked Butterfield to sign another affidavit, which she would not do, because, as Hennelly says, "It was not factual." Henceforth, he continues, all such requests will require a subpoena for a formal deposition before the department will get involved in another civil lawsuit. Williams did express her department's opinion that the skimming practices are unethical.
"It certainly is deceptive and has harmed consumers and I can assure you that the Insurance Department agrees with those concerns," she says. "But we work within the confines of the law," and therefore broad opinions on skimming have no place in the affidavit. Unless the judge and jury decide otherwise, MSI can do what it wants.
That's not good enough for Creasy. "Let's make the Insurance Department a watchdog for the consumer or get rid of it," he says.
Meanwhile, Wilda Heil is caught in the crossfire with a simple enough request. "People pay their premiums in good faith and expect the coverage to be there," she says. "Then all of a sudden, it can be taken away from them. I'd like to know I'm going to be taken care of.