Back in August, Paul Krugman accused me of living in “an alternative universe in which insurance companies would never, never treat their clients badly, because that would hurt their reputations.”  Of course, what I really said is that even when insurers deal with big, lumpy liabilities, reputation continues to work well.  I never said “never.” 

Still, a month later I started wondering if Krugman had set me up for an episode of Punk’d.

Here’s what happened.  About a month after I defended the power of reputation in health insurance, my baby was born.  A day later, doctors rushed little Simon Caplan over to the neonate intensive care unit (NICU) because he had an ugly rash.  (Don’t worry, my baby’s fine now).   He stayed in the NICU for five days while a series of doctors solemnly told me one statistical fallacy after another.  The doctors never figured out the problem, but the patient got better.

No sooner was my baby home from the hospital when we got a letter from our health insurance company.  The letter explained that the insurance company was denying coverage for the NICU, because according to their standards of care, he didn’t need to be there.  The letter cryptically added that if our hospital was in the insurer’s network, the Caplan family might not be financially liable.

At this point I looked around for Ashton Kutchner, Paul Krugman, and a bunch of hidden cameras.  The satanically evil health insurance industry was devouring its own apologist!  We capitalist running dogs expect a little more gratitude.

After I caught my breath, personal strategy and impersonal analysis interwove.  My thoughts:

1. Since I was extremely unimpressed with the doctors, I was willing to entertain the possibility that my health insurer was in the right.  Maybe it was inappropriate to put a baby in the NICU for a rash.

2. When my baby was in the NICU, I vaguely wondered how much it cost.  Now I suddenly cared.  A lot.  Could it be $5000 a day?  I remembered that two days earlier, I seriously considered taking my baby home against doctors’ advice.  But when the care was free, I held my tongue.  Was my reticence going to cost me $10k?

3. The insurer and the hospital were going to start pointing fingers at each other.  Even if it was resolved in our favor, I foresaw massive headaches.  And frankly, I’m the kind of person who’d rather lose money than endure headaches.
4. Should my wife talk to her benefits rep at work to lean on the insurer?  I knew that had worked for my dad when he had a problem with his retirement account.

5. I was never deeply worried.  My wife is a shark of lawyer, and if worse came to worst, we could pay out of pocket.  But lest you think I’m a bigger jerk than I really am, I repeatedly reflected, “For most people, this would be scary, not annoying.”

6. It often occurred to me that I might be morally obliged to pay the hospital out of pocket.  Wasn’t there some point where I promised to pay any charges that weren’t covered by insurance? 

When I told my tale to Alex and Robin, they said it was 80% likely that matters would eventually be resolved in our favor.  But we’d have to make a big stink about it, loudly refuse to pay no matter what, etc.

OK, so what happened?  A day after my inner dialogue, my wife felt well enough to actually call the insurance company.  They explained that they were denying coverage because there was a double billing.  When they checked their records, they realized that they had accidentally entered our baby’s charges twice.  Their computer then automatically generated the letter denying coverage for the second set of NICU bills.  The insurer apologized, fixed the problem, and paid the hospital.  Despite all my mental gymnastics, everything hinged on a clerical error.  The end.

A couple days ago, we got the financial statement that shows how much the insurance company actually paid.  The hospital’s official charge for our baby’s stay was $16k total; the insurance company had a 50% discount, so it had to pay $8k.  I would guess that about $5k of that was for the NICU. 

Question for Krugman: If our insurer wasn’t extremely concerned about its reputation, why would they let a low-level functionary fix a $5k error in the company’s favor after a single phone call?

P.S. Would I be sharing this story if things had worked out differently?  Yes.  My conscience wouldn’t allow anything else.  However, if there were litigation, I probably wouldn’t have said anything until the case was resolved.