Question

Accounting Ethics:

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

Answer 1

Situation 1

If the insurance company, to save money, deliberately selected hospitals that lack the capability of performing heart bypass operations.

If it was deliberate action of the insurance company, the disclosure of just names of the hospitals was not enough. The insurance company should have mentioned the fact that insurance for for highly costly procedures is not a part of the policy and that's why these hospitals have been selected.

Situation 2.

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.

Even if the hospitals have not been deliberately selected but the company had the idea about that the hospitals have not facility for advanced operations, the company should have disclosed the same. Utmost good faith is the principle of insurance. Both parties involved in an insurance contract—the insured (policy holder) and the insurer (the company)—should act in good faith towards each other.The insurer and the insured must provide clear and concise information regarding the terms and conditions of the contract.

Situation 3.

If the insurance company deliberated selected low-cost hospitals that lack certain capabilities and passed these reduced costs along to policyholders.

If this is the situation, the company has acted unethically because the age of customers vary from youngest to the oldest. And most of the customers take insurance to get insured for huge expenses in the future. If the same will not get covered, and the information about the same has not been disseminated, it will be counted as cheating. The information should be given so that the insured.could take informed decisions.