Washington State law generally prohibits unfair discrimination by insurance companies. But everyone knows that some degree of discrimination is part and parcel of the insurance business.
For example, auto insurers discriminate against young people by charging them higher premiums to reflect the risk presented by young drivers. Life insurers discriminate against smokers by charging them higher rates to reflect the health hazards of smoking. Homeowners insurers discriminate against folks in wildfire-prone areas by charging them higher premiums to reflect the increased risk of fire.
For that reason, the Washington Law Against Discrimination, which generally bars insurance companies from discriminating against policyholders, has an exception for so-called “fair discrimination” (which you could be forgiven for thinking is an oxymoron).
So when does the insurance company hedging against the increased risk presented by certain demographics of policyholders cross the line from reasonable underwriting practices to unlawful discrimination?
The Washington Court of Appeals’ recent decision in Herzog v. Kaiser Foundation Health Plan of Washington is an interesting example. Herzog sued his health insurer, Kaiser, for denying coverage for drugs his doctor prescribed to combat his obesity.
Nobody disputed that Kaiser’s insurance policy contained an exclusion for any kind of drug treatment for obesity, unless it was necessary to treat a secondary diagnosis such as diabetes.
But Herzog alleged that the exclusion violated the Washington Law Against Discrimination and Consumer Protection Act. Herzog claimed that obesity is a disability. Washington law generally prohibits insurers and other companies from discriminating against disabled persons.
Kaiser argued that its obesity treatment exclusion was expressly permitted under Washington’s insurance regulations. Basically, Kaiser pointed to rules showing that health insurance plans are not required to include services for obesity or weight loss in their general essential health benefits that benchmark health plans are required to offer.
Herzog pointed out that those rules have the narrow purpose of establishing benefit minimums. They did not, according to Herzog, act as an exception from general rules against disability discrimination.
The Court of Appeals agreed. It emphasized that the law permits insurers to exclude treatments for disabilities for valid reasons, like that they are not medically effective, not cost-effective compared to other treatment, etc. But insurers cannot exclude treatments for disabilities simply because they treat disabilities.
Nor did the fact that the Kaiser plan met the Affordable Care Act’s requirements for minimum essential health benefits permit the discriminatory exclusion. According to the appellate court, the regulations Kaiser relied on were intended to ensure that health plans that do not meet the requirements for essential health benefit coverage received a lower actuarial rating. They were not intended to immunize insurers who offer more than the minimum essential health benefits against claims their benefit plans contain discriminatory exclusions.
The ruling is “unpublished”, meaning it’s not precedent that binds courts in future decisions. But it is an interesting example that Washington courts are unwilling to find insurers’ compliance with minimum health plan regulations is a get-out-of-jail-free card when their health plans violate the law.
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