Matt Yglesias

Major Insurers Routinely Underpaying Claims

Nosferatu

Nobody could have predicted that a system in which access to health care is controlled by people who earn a living by not delivering health care to sick people could lead to problems:

Congressional investigators have discovered that large health insurers in every region of the country are relying on faulty databases to underpay millions of valid insurance claims.

In a report released Wednesday, the Senate Commerce Committee said insurance companies nationwide have failed to provide consumers with accurate or understandable information about how they calculate “reasonable” or “customary” charges for out-of-network care.

Now a publicly managed health care alternative would face some bad incentives of its own and might have some problems. It’s difficult to know a priori which would be better, though the empirical experience of other countries suggests that it’s the public alternative. But fortunately, we don’t need to just guess which would be better; we can set up a system in which private plans and a robust public option compete side-by-side and see if the private sector can actually deliver a superior service at a better price.

9 Responses to “Major Insurers Routinely Underpaying Claims”

1. nolo Says:
   June 30th, 2009 at 10:44 am

   I’m so shocked.

2. zic Says:
   June 30th, 2009 at 11:05 am

   In fact, we can already determine which is better — in payment and necessary care — by simply comparing the claims paid by Medicaid/Medicare and private insurance.

   Here’s one study: Medicare vs. Private Insurance: Rhetoric and Reality, done by the Commonwealth Fund.

   In their report, Davis and coauthors find that elderly Medicare beneficiaries are more likely than enrollees in employer-sponsored plans to rate their health insurance as excellent (32% vs. 20%) and less likely to report negative experiences with their insurance plans (43% vs. 61%). Medicare beneficiaries are also less likely than those with private insurance to go without needed care owing to costs (18% vs. 22%). The survey also finds that elderly Medicare beneficiaries are more likely to report being very satisfied with the care they received compared with those with private insurance (62% vs. 51%).

   Perhaps there’s a for-profit interest in not making such research known.

3. Eli Says:
   June 30th, 2009 at 11:31 am

   And this of course being a big rhetorical argument against reform: the horror of government rationing. Have these people never been part of an HMO?!!

4. jlg Says:
   June 30th, 2009 at 11:42 am

   I think one of the major problems is that the right doesn’t argue based on evidence, performance, or outcome. They just stick to market fundamentalism (or, as this post puts it, they cling to their security blanket).

   http://www.ihatewhatyoujustsaid.com/2009/06/30/conservatives-and-their-security-blanket/

5. Max424 Says:
   June 30th, 2009 at 11:43 am

   What is old Nosferatu up to? Is he slinking up the staircase to to feast on and subsume the public option, naked and helpless in its crib?

6. pragmatic idealist Says:
   June 30th, 2009 at 11:52 am

   I selected health insurance plans for a small business for decades and one of the common tricks that Blue Cross in particular used to pull had to do with pooling small groups. Theoretically, small businesses were in a risk pool together so that the high costs of a particular bad year for a single small business would not cause it’s premiers to skyrocket.

   In practice, Blue Cross would create a slightly different plan each year and all the small businesses with low medical costs would switch to the new plan for the lower premium. Small businesses that had high medical costs were individually rated so that the cost of switching was extremely expensive.

   So the old plan premiums would zoom up each year until the “bad” customers were all that were left and were forced to drop the coverage due to cost. In the eighties you could get into a new pool with a different insurer but by the late nineties every insurer required individual health histories for every employee so that a couple bad years eliminated the ability to get decent medical coverage.

7. Rob Mac Says:
   June 30th, 2009 at 12:09 pm

   every insurer required individual health histories for every employee so that a couple bad years eliminated the ability to get decent medical coverage

   Which leads a lot of small businesses to find excuses to fire employees who are making large health insurance claims. What a great system.

   It seems to me the Congress has gone about this all wrong (big surprise). They should have begun with a round of highly publicized and dramatic hearings and investigations into the private insurance market. Before we even began discussing potential new systems, we should have had a full airing of the shortcomings and disasters of the current system. Health insurance CEOs should have been forced to testify about monopolistic practices, about impossible to understand billing practices, about dropping sick people, and so on. And sympathetic individuals who have experienced the dark side of our current system should have been brought forward to give their tearful testimony.

   If Congress actually had any interest in real reform, this is how the process would have begun.

8. Waingro Says:
   June 30th, 2009 at 1:48 pm

   “If Congress actually had any interest in real reform, this is how the process would have begun.”

   If being the most important word.

   It would be amusing watching these centrist senators contort themselves into pretzels simultaneously trying to please the insurance industry while passive aggressively saying that The Votes Aren’t There for the public option.

   However, their bullshitting will cause widespread misery, so it’s all rather infuriating.

9. JonF Says:
   June 30th, 2009 at 7:24 pm

   Re: Which leads a lot of small businesses to find excuses to fire employees who are making large health insurance claims.

   This is flat out illegal, and businesses are in fact not even allowed to know what their employees’ claims cost on an individual level (insurers can get in enormous trouble for telling them). Even in self-funded insurance pools there is a solid wall of separation between the plan administrators and the HR department. I worked for a company that administrered such plans so I know what I am talking about here.