Health Insurance Agents: The Claims You Should Protect Against

Although the advent of the Affordable Care Act (ACA) gave millions more Americans access to health insurance, it resulted in dramatic shrinkage in the commissions insurance companies pay to agents. This has resulted in large numbers of agents fleeing the business to sell other forms of health insurance or allied products such as Medicare-related plans or final expense. However, whether you have left the individual health insurance market or have re-focused your efforts on Medicare insurance or some other product, you still need to protect yourself against E&O lawsuits.

It’s no wonder the risk of selling health insurance is still high. According to various experts, the per-capita cost of providing healthcare to America’s citizens is roughly $10,000 per year. Consumers either pay for all of that if they’re uninsured or a portion of it if they’re insured. In either case, purchasing medical services is a common event for them. For those without insurance, it can also be a challenging, even frightening, event. For this reason, buying healthcare—and health insurance—is a high-involvement purchase. People care a lot about the care they receive and pay great attention to its results and costs. As you can imagine, when something goes wrong, either with their healthcare or their bill, they can get extremely upset. If they don’t receive a fair outcome, they may take legal action against their medical providers and their health insurance agents—against you!

For this reason, it makes sense for life and health insurance agents to carry comprehensive E&O insurance to pay for legal fees and for legal judgments or settlements in the event they get sued. What are the claims they should protect themselves against?

One of the most common E&O insurance claims is for misrepresentation. This might occur when you claim a health insurance product has a feature it doesn’t actually have. You don’t have to do this with fraudulent intent. If you mislead a customer through ignorance, you are still on the hook for misrepresentation. Case in point: say you mistakenly tell a prospect she is covered for a year’s worth of skilled nursing care via her Medigap insurance policy. The women ends up getting sick, hospitalized, and then needs six months (or 180 days) of skilled nursing. Unfortunately, 80 days of that care will go unreimbursed since Medigap policies limit coverage to only 100 days of skilled nursing. Given the daily cost of this care—about $250 a day for a private room—the client would need to come up with $20,000 out of pocket to cover her bill. Do you think she will be a satisfied customer or one itching to sue?

Another common cause of health insurance E&O claims is what’s known as “failure to explain.” Unlike misrepresentation, in which you either accidentally or deliberately misstate a policy’s provisions, failing to explain means you overlook a policy detail or explain it poorly. In either event, your client will buy something he or she doesn’t understand. For example, most health insurance policies have complex dynamics of premiums vs. cost sharing. Prospects can either elect to have the lowest initial premium (assuming they never get sick), but with high-cost sharing via deductibles, co-pays, and co-insurance. However, a policy with low premiums may actually generate substantial out-of-pocket costs for a consumer who does get sick. If you stress the attractiveness of the low premiums without discussing the risks of high out-of-pocket costs in case of illness, then you’re creating a potential E&O liability for failure to explain.

A third frequent cause of claims relates to inadequate fact-finding. If you don’t take the time to fully understand a prospect’s needs, the chances of recommending an inappropriate solution increases markedly. For example, imagine trying to help someone fill the gaps in traditional Medicare coverage. As you may know, Medicare does not cover services such as routine eye exams and glasses, dental care and dentures, outpatient prescription drugs, custodial care, and most chiropractic services, among other things. However, there are five potential insurance strategies to fill these gaps, each with underlying options. If you don’t fully understand the prospect’s situation, the odds of recommending the wrong Medicare option are high. Hello, lawsuit!

Finally, the fourth frequent cause of E&O claims are, well, claims. In fact, this is where the rubber meets the road.Whenever a client develops a serious illness likely to generate hundreds of thousands of dollars in medical expenses or more, you are automatically looking at a potential E&O problem. Why? Because if the insurer mishandles the transaction (i.e., delays payment or pays the wrong amount) or denies the claim entirely, your customer may end up suing the insurance company and you for having sold the policy. Whether the insurance company was justified in denying the payment is a moot point. You will still need an attorney to get the case thrown out. Without E&O insurance, that expense will be on you.

In short, selling health insurance (especially Medicare products) can be emotionally and finally rewarding in the ACA era. But it can also be risky if you make a mistake or forget to do something important. If your error or omission results in a substantial financial loss to the client, watch out! You may be on the receiving end of a life and health insurance agent E&O lawsuit. But the good news is, having comprehensive E&O protection in place before you get sued will mitigate most or all of the lawsuit’s financial impact. Protecting yourself in this manner will not only give you  peace of mind, it will also protect your assets against litigious clients. Make sense?