Question

A health insurance company sold insurance policies that allow policyholders to obtain services from selected hospitals....

A health insurance company sold insurance policies that allow policyholders to obtain services from selected hospitals. The policies fully disclosed the names of these hospitals. However, the insurance company did not mention that the hospitals did not have the capability to perform certain costly procedures, such as heart bypass operations. As a result, if a policyholder one day developed a severe heart blockage, the patient would not have insurance coverage to pay for such a heart bypass procedure.

a. If the insurance company, to save money, deliberately selected hospitals that lack the capability of performing heart bypass operations, was its disclosure of the names of the hospitals available to patients adequate?

b. If the insurance company did not deliberately select hospitals that lack the capability of performing heart bypass operations, but it knew that these hospitals were smaller regional hospitals that were likely to lack certain advanced capabilities, was its disclosure of the names of the hospitals available to patients adequate?

c. If the insurance company deliberately selected low-cost hospitals that lack certain capabilities and passed these reduced costs along to policyholders, did the insurance companies act unethically?

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Answer #1

Insurance companies are required to disclose relevant, comprehensive and adequate information on a timely basis in
order to give policyholders and market participants a clear view of their business activities, performance and financial position. This is expected to enhance market discipline and understanding of the risks to which an insurer is exposed and the manner in which those risks are managed.

a. The information provided by the Insurer is said to be adequate only when it is complete with regard to all factors.In the given case, Insurance company provided the information regarding the hospitals but not with respect to their facilities.Hence it's disclosure to the patients was not adequate.

b.Even though the company did not deliberately select the hospitals but it should have mention the fact that the hospitals were smaller regional hospitals that were likely to lack certain advanced capabilities. Hence the disclosure is not adequate.

c.Insurance companies are supposed to bear the risk faced by the policyholders in the event of uncertain situations.Insurance companies deliberately selecting the low cost hospitals and passing on the reduced costs to policyholders is said to be ethical only when it discloses the adequate details with respect to facilities provided by the hospitals.

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