Why your health insurance medical appeal was rejected

One thing that many residents do not know is that there are more benefits to becoming a board certified physician than just that plaque on the wall.   One of these benefits is that ability to pick up a few extra hours of work here and there doing consulting for the multitude of companies that would like the opinion or expertise of a physician.

In some cases this consulting can be about products under development.  Sometimes it is reviewing the work that another physician has done, perhaps for a hospital quality care committee.  There is also work for some reviewing legal cases.   But probably the biggest area of this work is insurance work – usually in the area of appeals.

When I became board certified, I did a few Google searches and ended up signing up with a number of insurance companies to become a third party peer reviewer.  Through this work, I have learned a huge amount about how insurance companies work, and actually developed a far greater respect for what they do than I had previously.   I have also learned the ins and outs of the insurance appeal system, which a third party reviewer is invariably involved in, and in doing so have gained a skill set that allows my insurance appeals to be invariably accepted.  For that reason, I recommend that every young physician review charts – if not for the money, for the education.

But for those who don’t, let me pass on some of the pearls I have gained from this work, that perhaps when your patients are being denied services you think they should have, you will have a better idea of how to have a successful appeal.

In this post, I am going to talk about how the system works and why things get rejected. In the next post, I will discuss a few things you can do to win appeals.

Any time an insurance company receives a claim, it goes through an automated process that determines if it will be automatically approved.  This is typically based on a comparison between what was requested and the ICD9 codes used to justify that request.  As long as these codes match and the service is not major, approval will likely happen right there.  In some cases, likely with more costly or rare services, the case will be manually compared with the written coverage guidelines for the patient’s plan.  In some cases records will have to be provided, which will be reviewed against plan guidelines.   If the case meets guidelines, based on the review of a (potentially non-physician) employee of the insurance or review company, it will be approved right away.

If something is rejected, there is now an opportunity for an appeal, initiated either by physician or patient.   In this process, the appealing provider provides notes that clearly document what was done (or is proposed to be done), usually with intention to prove that it was needed.  This is different than the initial gathering of documents, where usually one just provides medical records but doesn’t really do anything to otherwise justify the request.  These documents are now again compared to plan coverage provisions, to see if the case meets guidelines.  Usually this comparison will be done by a physician working for the insurance company, or third party reviewer at a contracted review company (like me.)  At this level of appeal, the question is whether or not the case meets the guidelines, not whether an exception to guideline should be made.  If the case does not meet guidelines, it will again get rejected.

If this second rejection occurs, the appealing party now has a opportunity for a second appeal.  In the second appeal, documents are again provided (or are re-reviewed), but now the possibility exists that the case might be considered outside of the standard guidelines.  This level of appeal is almost always done by a third party physician with expertise in the specific field at hand.   It is at this level of review that a therapy that is still experimental might be evaluated as still being medically necessary, and thus being covered despite a policy against coverage of experimental procedures and treatments (ie a novel chemotherapeutic regimen after traditional therapy has failed.) These reviews are usually done based on industry standard definitions of medical necessity or experimental/investigational.  In this stage, the appeal documentation of the appealing physician is crucial, particularly if they provide a thoughtful letter justifying the request.

To some, this process seems ungainly and complicated, or even downright evil.  Physicians bristle at the idea that an insurance company would ever deign to tell them how to practice medicine, even with the help of a unbiased third party (like me.)  I have had these feelings myself at times – but these feelings are unjustified.

There is a near-unlimited amount of medical care that could potentially be delivered for patients in this country, but the amount of funds is relatively fixed.  As such, it is absolutely imperative that there is some system of rationing involved that will work towards using those limited funds where they will be most useful.  Weeding out requests for therapies that are medically unnecessary or unproven is part of that.  While it can be frustrating, we have given insurance companies this job.  We can argue that they shouldn’t make so much money doing it, but its hard to argue that it doesn’t need to be done.

Before I started doing this type of reviewing, I generally thought that insurance companies rejected payment for sport (and profit), with little justification or reason.   Now I realize that the system is actually quite just.  Basically, all that is required for something to get approved is that the therapy requested is reasonably within the standard of care and can be supported by current evidence.  In other words, it should be good medicine.   Occasionally appropriate therapy will have to go through the appeals process to get approved, but if what one is doing is appropriate, it will almost always get through.

I have been consistently impressed with the thoroughness and timeliness of insurance company guidelines, which read like well sourced peer reviewed review articles.  They are generally very up to date, and very well thought out, and often were written by experts in the field.

So why do things get rejected?  Here’s an ordered list.

1. Poor documentation. Of every 10 charts I review, 6 were rejected because the physician did not document what they were doing and why they were doing it.   When we are residents, we are taught to thoroughly document what we do, and the thought process involved.   Some doctors in private practice have gotten so far from this that their charts have almost no useful information in them.   If that chart is being used to justify an expensive therapy, there is almost certainly going to be a problem.  Physicians have to expect that someone else may read their chart in an effort to justify their actions.  If it doesn’t tell the story or is illegible, rejection is on the way.

2. Bad medicine. Of every 10 charts I review, in at least 3 the physician is asking for something that shouldn’t be done, such as a hysterectomy in a  30 year old woman with a normal uterus, without any real attempt to treat her conservatively.  The physician may  get mad about the case getting rejected, but in truth they are practicing bad medicine.  The insurance company is right to reject them.  My experience is that the level of anger that physicians experience in these cases is directly proportional to the bogosity of the treatment they are recommending.  Sometimes a physician requests something that he/she knows is bad, but the patient is requesting, and even writes “we’ll see if insurance will approve this”.  These almost always get rejected (for good reason), and the physician is usually happy to tell the patient that the evil insurance company won’t pay for what they want.  Insurance companies are happy to be the bad cop in these situations.  I have spoken to docs in this situation and heard a sigh of relief when I said that the case doesn’t meet the guidelines.

3. Industry acceptance of something that cannot be supported in the literature. Breast MRI is a great example.  Radiologists love to recommend a breast MRI when they have an ‘indeterminate’ mammogram, but this use of breast MRI cannot be supported in the literature, and may actually be harmful.  Doctors freak when the insurance company rejects these, but in truth these doctors are not familiar enough with the literature to realize that what they are asking for is experimental, and possibly harmful.  Another example would be something like compounded bioidentical hormones or salivary hormone testing.  Lots of people believe in them, yet there is no real literature to support their efficacy, safety, and usefulness.   This leads to appropriate insurance rejection, and failed appeals.

4. Industry introduction of new technology that has yet to be adequately studied. It is common for industry to try to get their new technology into the standard of care before a study can prove it to lack efficacy.  Short armed retropubic/obturator slings are a great example.  They were on the market for years before any data proved their efficacy, and we are now finding that they aren’t as good as longer ones (what a surprise!).  This is the kind of thing that an insurance company might reject, and rightly so.  MRI guided focused ultrasound for fibroids is another good example of this.  Its a new technology, and data to show comparable efficacy to traditional therapies just isn’t there, nor for cost effectiveness.

5. Failure to attempt reasonable treatments that are less expensive prior to going to expensive treatments. Docs hate this, but they really should try less expensive things first.  In most cases, generic drugs are as good as brand, and it does behoove use to spend less money when we can.  Trying some birth control pills for dysfunctional uterine bleeding prior to going to hysterectomy is not only cost effective, it is good medicine.  As docs in general are often not worrying too much about cost, insurance companies worry about it for us.  It is the job we have asked them to do when we decided to create the insurance system about 30 years ago (blame Nixon.)

In my time working with this stuff, I have been genuinely impressed with a consistent desire to cover evidence based and efficacious care from every insurance official I have spoken to.  While the company as a whole may be profit driven, the guidelines they use to ration care seem completely appropriate and up to date.  As physicians, there will be times that we are forced to justify what we do, but this should not be an undue burden.  Throughout residency we are forced to justify what we do, and it makes us better doctors.   Applying the same skills to creating a rational and well sourced argument for our actions continues to be necessary, and helps us to stay thoughtful and current.  Embrace the opportunity to put real words on paper that really describes the course of care.  It will make you a better doctor, and will get your therapies approved along the way.

Nicholas Fogelson is an obstetrician-gynecologist who blogs at Academic OB/GYN, where this article originally appeared.

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  • http://mttoolsonline.com Kathy Nicholls

    Great post. I wonder how you see the trends of check box systems and the use of scribes instead of transcription impacting the actually “telling of the story”?

  • http://drpullen.com medical blog

    All this said, the biggest issues I have are formulary and medication issues. Despite making every attempt to use generics, preferred branded meds, etc. I am overwhelmed by prior auth. requests about prescriptions. These are almost uniformly approved, and seem like a delay tactic, or done in hopes I’ll be too lazy to appeal. Overall they seem to me that they just can’t save much money

    • gzuckier

      formularies have two very divergent bases. one is therapeutic/cost efficiency; an MD shouldn’t be jumping straight to Cipro for every routine ear infection that drops by, thus the “step” therapy, as described, which specifies the order in which drugs need to be tried for certain specific diagnoses (of course, exceptions are made for real reasons, such as a history of drug resistance in the patient); similarly, an MD shouldn’t be prescribing antibiotics for every cold that drops by, nor should patients be routinely bringing home buckets of oxycontin.

      But secondly is the bargaining the insurer does with the drug manufacturers, which fluctuate from year to year. and to some extent, that trumps “small” variations in efficacy.

  • pcp

    Makes the whole process sound quite reasonable and professional. Why not make it a “loser pays” system, where, if the request is approved, the insurer reimburses the doc for his and his staff’s time (and vice versa). I say this as one who has a 100% rate of ultimately getting everything approved, but wastes hours doing so every month.

  • Keegan

    Thanks for the interesting post. If a young doctor, say, wanted to get experience with this sort of thing (doing peer review), where should they start?

  • L.

    Interesting that your post appears today – when the NY Times has a review of Wendell Potter’s book, “Deadly Spin.” Is this, perhaps, some of that very spin of which he writes? It’s an interesting coincidence, at least. The article and book speak of the “friendly third party reporters” engaged to “disabuse the media, politicians and the public” of any notion that insurance companies deny services to enhance their profits. Very, very interesting coincidence.

  • Chad

    You have an Interesting take on a process aimed at limiting health care expenditures – oft regardless of merit. This process does have consequences. Take the case of Chanel Bunce (http://www.king5.com/news/local/60684197.html) who was prescribed kineret to treat her Still’s disease and was declined. This is a rare disease and the treatment expensive. The delay in her treatment related to this process that you are so impressed with likely lead to her demise. I would like to hear her parents take on this process.

    My take is quite different than yours. Coming from the perspective of getting patients with rare disorders standard of care, this process in direct opposition of providing high quality efficient care. I find the reviewers that I have worked with ignorant of current research and literature surrounding the treatment of these diseases (even when they are supposed to have experience in the area.) Ultimately, a physician declining a patient’s treatment based off the review of a paper chart and not talking with the patient or examining them seems a breach of the patient-physician relationship and unethical. I highly advocate the reporting of physicians who do this in a way not consistent with ethical standards to their respective states medical liscensing board for investigation. In an era of such concern over conflicts of interest (particullarly when financial in nature – i.e. getting paid by the insurance company that stands to profit by denying care), I am amazed that this problem hasn’t gathered much attention from patient advocacy groups, the media, or our professional societies.

    • MIS Prof

      Agreed, especially about whether an anonymous reviewer is current on research. Fogelson makes great comments about documentation and what the health insurance contracts do and do not cover. And while there is some truth in insurance companies and their reviewers limiting quack treatments and bad medicine, doctors and patients who have a legitimate treatment option denied bear a heavier burden than they should have to take on.

      And sometimes it takes quite a bit of effort for a new, effective treatment to become accepted in the medical community (disregarding conflict-of-interest situations in journal editors/reviewers/researchers). I’ll never forget the poor fellow who discovered that most ulcers were being caused by bacterial infections and how long it took him to prove his case and how much ridicule he was subjected to. Treating an ulcer with antibiotics would have been rejected back then. Now, 30 years later, that treatment is part of the standard of care. Too bad for patients in the meantime.

      And Fogelson’s comment about hormones indicates he may not have read the relevant European research articles. He may have just read the journals with pharmaceutical company gate-keepers.

      It’s just too bad if a patient and doctor are more current on the research than the *anonymous* insurance reviewer or are among the first to use a new, effective treatment. The negative aspects of a bad review decision have an unbalanced impact. The reviewer experiences **no** penalty for an inappropriate denial (and possibly the reward of more review work). The patient and his or her doctor, on the other hand, bear **all** of the burden of a bad decision. The doctor is out the money and time the appeal has taken. The patient bears the impact on his or her health if the treatment is foregone or finances if the treatment proceeds but the patient personally pays the bill.

      Oh, well. Such is life. I do wonder whether the outside review requirement in the new federal healthcare legislation will survive upcoming challenges.

      • gzuckier

        from my experience, the insurance companies are much more up on the literature than most of the MDs they have beefs with. as observed by other posters, they have MDs who get paid well to stay up on the literature, whereas it’s an unpaid pastime for practicing MDs. but they draw a pretty firm line between cutting edge science and promising experimental therapy.

  • John Ryan

    As with much of the news we read, global companies plant suggestive tidbits in willing news outlets, quietly manipulating the public.

    Have you have been outed, Dr. Fogelson?

    • pj

      “There is a near-unlimited amount of medical care that could potentially be delivered for patients in this country, but the amount of funds is relatively fixed. As such, it is absolutely imperative that there is some system of rationing involved that will work towards using those limited funds where they will be most useful. ”

      Maybe he’s been outed, but by gosh, at least he admits that those backward EU nations arent the only ones that ration care!

  • Med Student

    Unfortunately, the problem comes when insurance companies underinsure and don’t cover necessary procedures. My current medical insurance for students does not cover solid organ transplants. This is crazy, and I am sure there are plenty of these insurance plans out there that do not cover treatments that are clearly effective. Hopefully my medical insurance in residency will cover more.

    • gzuckier

      yeah, there are many “bargain” plans that leave the insured holding the bag for a lot of things. thus the not always well known phenomenon of medical bankruptcy among people who do have insurance. and thus the drive for federal regulation of minimum standards for insurance coverage, or, as oft described here, the first step to slaughtering millions in the Gulag. state regulations and allowing plans to sell out of state, as beloved by the states’ rights “pro business” crowd just means a race to the bottom, where employers will chase the bottom line by signing up in states with the least coverage; see the comment above about medical bankruptcy among people who do have insurance.

      In fact, insurers themselves are quite happy to see federal regulation of minimal standards for coverage, as long as there is a level playing field for everybody.

  • rswatkins

    Dr. Fogelson ignores the elephant in the room. He is paid for every step in the process. The doc at the other end is working for free (wwhile continuing to pay for staff and overhead). As insurers don’t work after 5 or on weekends, this means that income-generating patient care time is reduced. If he’s not willing to discuss the economic implications of this system, his arguments are useless.

  • Marc Gorayeb, MD

    Dr. Fogelson’s exposition is “lucid, intelligent and well thought-out.” Some of the responses amount to judge Chamberlain Haller responding with “overruled.” Unsupported commentary and anecdotes are insufficient to convince anyone that this system is so corrupt as to require a new approach. We need objective data.

    And for all of the current system’s flaws, what other system would you rather have? A politically and patronage-driven government agency lording over these issues and following even more bureaucratic rules? One that would be even more immune to legal challenge? Has anyone glanced at how well the SSDI system operates? Explain to me how politicians and bureaucrats have devised a better or more efficient system — one that looks at each individual case in depth on its merits, with input from physicians in the appropriate field of expertise.

    • Chad

      Marc, I wish we had more data regarding the impact of the current prior authorization system to give you. I am sure that type of data would be diffiuclt to obtain. Regardless, to answer the question of what type of system I would propose to fix this, I have a suggestion. Perhaps having an independent review panel of physician experts with no financial ties to the insurance company would be a good way to start. I do believe working as a reviewer for such an independent group could be ethically done. The main problem I have with physicians being directly paid by insurers to review and deny claims is the inherent conflict of interest it imposes. When we demonize the acceptence of a pen from a drug company, yet turn around and get paid by an insurance company to save them costs, I find that a bit hipocritical.

      • Marc Gorayeb, MD

        I’m down with that. Who pays for the independent panel? There are certain types of financial arrangements that increase the risk of conflicts of interest, but how do you finance the alternative? Consider, for example, arbitration with your securities broker, your medmal insurer paying for your defense (interests may diverge), Ken Feinberg disbursing BP’s money to injured parties.
        We should check with Dr. Fogelson, but I suspect that he doesn’t receive a bonus for the number of successful denials he processes. He probably also does not experience any pressure to increase his number of denials. There may be one or more layers of management between him and the financial executives who actually are motivated to minimize expenditures. I am speculating, but it is entirely possible that his performance is measured against that of his colleagues, and any performance review could be based on whether he deviates significantly from the normal curve.

        • Chad

          Another interesting thought, is that an independent review might be more accountable for decisions being made. It is difficult to sue an insruance company when an anonymous reviewer denies care because a treatment is considered “experimental.” But if an independent medical group declines it, it would likely be easier to hold them responsible for the medical decisions they are making and the patient-physician relationship they are entering when they review the case.

    • Primary Care Internist

      “And for all of the current system’s flaws, what other system would you rather have?”

      How about a system where the patient deals with the prior auth stuff? For medication approvals, the questions generally are ones that patients can answer (have you tried an OTC equivalent? How long have you had symptoms of… etc.)

      Since pharma and our gov’t thinks patients are savvy and informed enough to be blitzed with DTC ads, then surely they can deal with their drug plan once the rx is in their hands.

    • gzuckier

      well, which would you rather have, more choice in insurance plan, or more choice in MD/hospital? Because Americans of course have to utilize providers who contract with their plan or suffer a serious financial penalty; and their own assessment of who would best fit their needs is trumped by the insurer’s assessment.

      whereas Canadians are entitled to see any doctor or hospital anywhere in canada without financial penalty, with no limitation on which physicians or how many they may see; may be assessed by any specialist without referral (as distinct from a “consultation” which does require a referral), may be referred to specialists from emergency rooms; have no prior authorizations (although I see quebec has started experimenting with prior authorization for asthma meds), and no retrospective utilization review of claims, it’s just between the patient and the doctor. (and of course no preexisting conditions, no surprisingly high post-treatment bills etc. etc.)

      of course, the question “which would you rather have, more choice in insurance plan, or more choice in MD/hospital” is fatuous; most Americans have no choice in insurance carrier, unless they wish to change jobs. their choice basically boils down to paying more for 90% coverage or paying less for 80% coverage of the services authorized by the insurer to be dispensed by the physicians and institutions contracted with by the insurer.

      • http://Www.twitter.com/alicearobertson Alice

        G….i think your assumption is wrong, and it is not as easy as you imply when you need more than routine care (I live a few hours from Canada and hear firsthand accounts). Many employers offer a few plans….some plans are better for the young and healthy…some better for those who know they need a lot of office visits. I’ll take dealing with insurance companies over the Canadian system that lacks research and innovation. It has it’s perks, but I am at Cleveland Clinic a lot and Canadians love the place. They flee your system if they can afford it or find a way around it. I think this article gave you a rare viewpoint into what is happening with your claim or appeal…..but doctors hate paperwork and accountability, patients often hate doctors and insurance companies. The article could help a doctor process a claim more quickly amd help the patient. It was a call to clean up your own sloppy work and quit the blame game. Some doctors will listen…some will just continue their sloppiness and give insurers a reason to blame you. But as the article states some doctors are responsible and do their jobs well.

        My daughter needed a very important treatment, but trying to get the specialist to fill in the paperwork properly was teeth grinding. It was a treatment still in research..so it was a long shot. After the fourth time he did it right and we got approval. With all the complaining I thought he was being required to write an essay. No….just fill in the blanks on a few pieces of paper.

        Basically, next time your doctor blames the insurance company just pick up the phone and call the insurance company and ask them what went wrong. Then call your doctor’s office and rely the information. It will help things move along much more quickly than the waiting game. A few times I have been told the appeal was sitting on the doctor’s desk…and a week had gone by. But the suggestion that patient’s do this isn’t realistic. We do not have access to our full medical records…we often forget over half of what was discussed at our visit ….we are naive about codes and dealing with insurance companies…and we are often not feeling well…that’s why we go to see the doctor. I know some doctors want cash paying patients who will take this aspect of their job away….it will also hurt your income. The alternative is government provided healthcare….blech:)

  • http://www.brightonyourhealth.com Mary Brighton

    Interesting article.
    Have had personal experience of a family member’s request being rejected by health insurance company for admission to acute rehab hospital post-brainstem stroke.
    Why health insurance company rejected? They said he was a vegetable that couldn’t take care of himself. I think the term was he only a candidate for custodial care.
    We appealed this decision, twice-and the decision was finally overturned on the independent medical reviewers-nurses-his medical doctor-our family input during a conference call.
    Why was the request denied in the first place? Due to poor documentation by the nursing staff in the sub-acute rehab hospital. These RNs had sometimes 19 (yes-I am not kidding) patients to take of. These RNs were forced to clock out at the end of their shift even if they hadn’t completely finished charting.
    My dad (the family member I speak of) could brush his teeth, get himself dressed with help, eat by himself (with supervision), shave with electric razor etc…
    I don’t call that a vegetable. But the staff had not enough time to adequate document these things-
    As the staff at the subacute rehab never documented his daily abilites, the insurance company saw him erroneously as not suitable candidate for intense rehabilitation.
    For us, we were elated to have the decision overturned… My dad went into the rehabilitation hospital and spent 5 weeks there having intense rehabilitation. He was a good candidate-he did well in rehab.
    However, it has been a constant battle with the health insurance company. And I always tell people in the same situation, don’t give up, appeal decisions.
    Mary Brighton

    • gzuckier

      And that’s part of the problem with healthcare in this country; we actually have two populations, one which is quite happy with arguing with bureaucracies and used to getting their way, and one which is cowed by a lifetime of “learned helplessness” into accepting whatever dictates come their way, even if it’s obvious that a mistake has been made.

      Of course, that problem is not restricted to healthcare.

  • pj

    “There is a near-unlimited amount of medical care that could potentially be delivered for patients in this country, but the amount of funds is relatively fixed. As such, it is absolutely imperative that there is some system of rationing involved that will work towards using those limited funds where they will be most useful. ”

    I’m glad SOMEONE finally owned up to this! It amazes me how few americans seem to realize that rationing occurs daily in the USA!

  • http://www.twitter.com/alicearobertson Alice

    I do believe cost is imperative, but could you give me examples of rationing like we see in Europe or Canada?

    • pj

      Who are you asking to give examples?

      • http://www.twitter.com/alicearobertson Alice

        PJ….I was asking for you to expound. I realize it’s always about cost, but when I see that half of the Medicare claims are rejected…a much higher rate than private insurance companies…..and government waste…..etc. I just wondered if you share more about the current rationing that will only get worse with more government.

  • http://www.twitter.com/alicearobertson Alice

    Gzuckier said: And that’s part of the problem with healthcare in this country; we actually have two populations, one which is quite happy with arguing with bureaucracies and used to getting their way, and one which is cowed by a lifetime of “learned helplessness” into accepting whatever dictates come their way, even if it’s obvious that a mistake has been made. [end quote]

    Entitlement rarely leads to complacency. I think this generic summation isn’t accurate.

  • http://www.twitter.com/alicearobertson Alice

    Mary said: However, it has been a constant battle with the health insurance company. And I always tell people in the same situation, don’t give up, appeal decisions. [end quote]

    Alice: Mary it’s great you are posting with information many people need……realizing some won’t heed. It’s really the crux of a lot of the shouting….people give up on getting the help they need. Americans often give up too easily….apparently, research shows we want things NOW (like when we pray for patience!:) Throwing our hands up in the air doesn’t get us well….or bills paid. Thanks for the encouragement!

  • http://healthtrain.blogspot.com Gary Levin

    This was overall an explanation of the process. Nevertheless these reviews are outsourced to other companies and paid for by the insurer. They have to save more than this costs them otherwise they would abandon this process. The wholel process costs them, and the doctors (and the patients) as well. In this age of computers that the insurers speak so highly of, and medicare is willing to fork over billions of dollars a more streamlined automated algorithm could easily seek out information about ‘orphan diseases’ and rarer diseases, and the ones like Still’s Disease, Cystic fibrosis, to prioritize responses.
    The insurers are just too lazy to think this process through to make it work better for everyone.

    • http://Www.twitter.com/alicearobertson Alice

      Will the new legislation that states 85% has to be spent on patient care help? And how? Less profit means things will change.

      It is true that if you are going to get a disease the rarer it is the less money and support you will get from most avenues. This is one area the Internet helped immensely. It gives resources, fellowship…and informs others. With the Internet and patient advocacy we have a very loud voice….yet…….

  • http://Www.twitter.com/alicearobertson Alice

    I was reading Forbes tonight and thought of what Gary said about waste. With the new law insurance companies can be penalized, and there are the usual perks…but like many regulations there are pot holes too. This about MLR’s:

    http://blogs.forbes.com/merrillmatthews/2011/01/18/rolling-back-obamacare-eliminate-the-medical-loss-ratio/

    Snippet:
    As for cracking down on health insurer inefficiency and profits, the MLR provision may actually encourage more.

    Normally, whatever insurers don’t spend on claims and administrative costs is profit.   Thus they have an economic incentive to manage their admin and claims costs to keep both as low as possible.

    For example, paying nurses to monitor at-risk pregnancies, making sure prospective mothers are getting the rest or medications they need, is good for the patient—and avoiding the cost of a premature delivery is good for the bottom line.

    However, under ObamaCare’s medical loss ratio insurers have little reason to care about managing claims costs below the MLR; they will even be financially penalized for doing so.

    If total large-group claims drop below 85 percent of the premiums collected (80 percent for small groups and the individual market), the insurer violates the MLR provision and has to pay rebates to the policyholders.  Of course, managing claims adds to administrative expenses, which could push them above the 15 percent admin limit, also triggering a penalty.

    HHS estimates that health insurers will pay a total of about $3 billion (mid-range) in rebates between 2011 and 2013.

    Think of the irony: Suppose a new preventive care therapy emerges that makes patients very healthy.  Where is the economic incentive for insurers to adopt that therapy if they will be penalized for claims dropping below the MLR?

    Suppose new software becomes available that would lower an insurer’s claims by catching fraud.  But buying the software adds to its limited admin allowance, while reducing fraud lowers the insurer’s claims costs.  Either way, it could be forced to pay the rebate penalty.

    But if an insurer refuses to manage its claims so that they are much higher than they should be, the insurer actually benefits because that means its 15 percent administrative costs (which includes profits) are also larger.

    So while health insurers still have a customer incentive to keep premiums low, the health care bill’s effort to make them more efficient actually—Surprise!—rewards waste and inefficiency.

    Congress should address the MLR’s perverse economic incentives by dropping the provision completely.  Letting insurers—or any company, for that matter—manage their costs and profit if they are successful is the only way to ensure efficiency and lower costs.

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