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Florida appeals court halts American Medical Security's license suspension

A Florida appeals court has halted an order by Florida insurance regulators to suspend the license of American Medical Security (AMS) Group Inc. for one year.

The First District Court of Appeals stayed the order that was issued by the Florida Department of Insurance (DOI) on July 24, 2002, until the court rules on the company's request to overturn the order. According to the Florida DOI, no date has been set for a hearing, but the department has requested an expedited hearing to review the appeal.

Alleging unfair and deceptive underwriting practices, Florida Treasurer and Insurance Commissioner Tom Gallagher had banned AMS from selling new health insurance policies in Florida for one year. Policies marketed by AMS are underwritten by United Wisconsin Life Insurance Co., which is located in Green Bay, Wis.

"Reunderwriting defies the true principle of health insurance."

According to Gallagher, AMS uses the controversial practice of "reunderwriting" to minimize price increases for healthy customers while penalizing those customers who get sick by increasing their health insurance premiums. Insurers that use reunderwriting can move policyholders from a block of business in which they were issued coverage to a tier that is subject to higher renewal rates.

"It is fundamentally unfair to reunderwrite policyholders when they become ill and then raise their rates by as much as 200 percent in one year," says Gallagher. "Reunderwriting defies the true principle of health insurance, which is to spread risk among a group of insureds."

Gallagher's order, which would have allowed AMS to continue serving its existing 30,000 Florida policyholders, reversed a Florida administrative law judge's ruling in April 2002 that tier rating does not violate Florida law.

"This order represents an abuse of regulatory discretion in which the department overstepped its authority," says AMS General Counsel Timothy J. Moore.

Where's the group?

Much of the confusion surrounding the reunderwriting issue in Florida centers on the fact that AMS is an "association group" that markets individual health insurance policies, which is contrary to the understanding most consumers have about the way "group" health plans work.

Unlike group plans, in which the costs and risks associated with health care are spread among many, individual health policies are "medically underwritten" to take into account your personal health history. Any "pre-existing" condition such as heart disease, diabetes, and even pregnancy, can nix your chances of acceptance or boost your premiums. (Read Tips for buying individual health insurance.)

Problems arise when insurers form "association groups" for the express purpose of selling individual health insurance policies. "Consumers think they are joining a group in order to get the benefits of group health insurance and then they are shocked when they get sick and their premiums go way up," says Tami Torres, a spokesperson for the Florida Department of Insurance.

AMS spokesperson Cliff Bowers says consumers should know that they are buying individual health insurance policies through AMS when they go "individually" to meet with an agent or broker and fill out an application.

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