Sept. 11 (Bloomberg) -- Robin Beaton found out in a phone call from a member of her cancer support group that President Barack Obama cited her insurance ordeal as a reason to overhaul the U.S. health-care system.

“I cried when I finally watched him talk about my case in his speech” to Congress, said Beaton, 59, of Waxahachie, Texas, who is battling breast cancer. She saw a rerun of Obama’s Sept. 9 speech to Congress on cable television.

“If he’s able to bring this fight back to what it’s really about, I’ll feel so honored, like my story made a difference,” said Beaton, who runs a booth at an antique mart. “Every day I live in fear of them canceling my insurance.”

Beaton said she had her health insurance canceled once before in 2008, days before she was scheduled to undergo a double mastectomy. “She forgot to declare a case of acne,” Obama said in his speech. “By the time she had her insurance case reinstated, her breast cancer more than doubled in size.”

“Pure and simple, I had pimples,” Beaton said in an interview yesterday, the morning after Obama discussed her case, without mentioning her name. “The hospital suddenly wanted a $30,000 deposit, and nobody on this earth has $30,000 unless you are really rich.”

Fighting back after critics said his proposals would result in “death panels” and a government takeover of medicine, the president used his speech to portray the worst of the existing system, said Robert Blendon, a Harvard University health-policy professor. The president’s horror stories were of insurers that find reasons to drop coverage once people get costly illnesses.

Real, Not Dominant

“These stories are real, but they are not necessarily the dominant stories, since this is really a problem in the individual insurance market, not the group insurance market,” Blendon said in an interview yesterday. Most Americans with private health coverage get it through their employers and aren’t subject to being dropped.

Blue Cross Blue Shield of Texas, the company that Beaton said dropped her health insurance, supports changing the health system so that people with pre-existing medical conditions are covered, as long as all Americans are required to carry health insurance coverage, spokeswoman Margaret Jarvis said. She declined to discuss Beaton’s case, citing privacy laws.

Under a deal with the Obama administration, the insurance industry supports efforts to end the denial of health coverage because of pre-existing conditions. In return, insurers would gain millions of new customers as Obama’s plan would require that almost everyone get insurance.

Past Gallstones

Obama cited a second person with cancer to make his case. The president said a man from Illinois lost his health coverage when his insurer found he hadn’t reported a past case of gallstones that he never knew about.

“They delayed his treatment, and he died because of it,” Obama said in his speech.

In fact, the insurer reversed its decision to rescind coverage, and the planned treatment went ahead as scheduled, according to testimony to a congressional panel in June by Peggy Raddatz, the sister of Otto Raddatz, the man who later died.

“He was reinstated without any lapse” in coverage after she appealed the cancellation to the Illinois Attorney General’s Office, Raddatz testified. She called the original decision by the insurer, Fortis Insurance Co., unethical.

Denial ‘Cruel’

“To deny a dying person necessary medical treatment based upon medical conditions a patient has never had knowledge of, never complained about or never been treated for is cruel,” she said.

The White House didn’t return a call seeking comment, and Raddatz didn’t return a message left with her Illinois law office yesterday.

Peter Duckler, a spokesman with a public relations firm representing New York-based Assurant Inc., which owns Fortis, declined to comment, citing confidentiality issues.

Obama also used anecdotes to make his case for a “public option” that he said would introduce competition. Consumers sometimes have little choice and insurers lack incentives to keep quality high and prices low, he said.

“Unfortunately, in 34 states, 75 percent of the insurance market is controlled by five or fewer companies,” he said. “In Alabama, almost 90 percent is controlled by just one company.”

That company, Blue Cross Blue Shield of Alabama, was “disappointed” at being cited by the president, spokeswoman Koko Mackin said yesterday.

“We have been really proud of our market share,” said Mackin. The company controls about 75 percent of the state’s insurance market, not 90 percent as Obama stated, she said.

“We also have some of the lowest health insurance premiums and lowest administrative costs,” she said. “We hope his speech won’t have any detrimental effects on our state.”

To contact the reporters on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net

Last Updated: September 11, 2009 00:00 EDT