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The Health Insurance Industry’s Unnecessary Expenses

I have described how the healthcare insurance industry loads its expenses into direct patient care expenses to increase their profits.

The Medical-Loss Ratio calculation is not reported by the traditional media. The healthcare insurance industry spends less healthcare dollars on direct patient care after it is permitted by federal and local agencies to load its expenses into the direct patient care column.

Simply put, the healthcare insurance industry cooks the books to increase its net profit.

Another way to increase profits is to shortchange physicians on medical claims. In fact, 20% of medical claims payments are inaccurate according to the American Medical Association’s (AMA) fourth annual National Health Insurer Report Card. Claims-processing errors by health insurance companies waste billions of dollars and frustrate patients and physicians.

This is one of the reasons the RAND report about physicians controlling waste is so absurd to me. The healthcare insurance industry creates waste in order to increase net profit.

The AMA released its annual report card on insurers saying, “Eliminating mistakes would save doctors and insurers $17 billion a year.”

The AMA said, “Commercial health insurance companies have an error rate of 19.3 percent, up two percentage points from last year’s report.”

The healthcare insurance industry’s computer systems become better each year. At the same time, the healthcare industry has a higher error rate each year.

The healthcare insurance industry’s explanation of benefits becomes less comprehensible to patients and physicians every year.

When physicians discover insurers’ mistakes in reimbursement they fight the healthcare insurer for their patients or themselves. It is costly to fight and it distracts physicians from their job of diagnosing and treating patients.

I think the error rate in reimbursement is even higher than reported. A significant percentage of physicians or their billing services do not pick up many of the errors.

The 2011 report card is based on a random sampling of about 2.4 million electronic claims for approximately four million medical services submitted in February and March 2011 to Aetna, Anthem Blue Cross Blue Shield, Cigna, Health Care Service Corp., Humana, the Regence Group, UnitedHealthcare and, for comparison, Medicare, according to the AMA.

The claims were gathered from more than 400 physician practice groups in 80 medical specialties in 42 states.

It must be recognized that the random sample is a small percentage of the total number of claims processed. The results can have a large margin of error and result in a higher percentage of mistakes.

“The increase in overall inaccuracy represents an extra 3.6 million in erroneous claims payments compared to last year, and added an estimated $1.5 billion in unnecessary administrative costs to the health system.”

The additional administrative costs have an insurance industry’s profit component added on to reprocessing the errors.

Why hasn’t President Obama recognized this and gone after this abuse of the healthcare system?

“Robert Zirkelbach, spokesman for America’s Health Insurance Plans, said in an e-mailed response that insurers and providers share the responsibility of improving claims payment accuracy and efficiency.”

The response is lame. The response gets worse.

“CIGNA maintained its industry leading low denial rate of 68 percent.” Notably, “lack of patient eligibility for medical services continues to be the most frequent reason for denials.”

UnitedHealthcare was the only commercial health insurer included in this year’s report card to demonstrate an improvement in claims-processing accuracy.

UnitedHealthcare came out on top of seven leading commercial health insurers with an accuracy rating of 90.23 percent. Anthem Blue Cross Blue Shield had scored the worst of those measured with an accuracy rating of 61.05 percent.

Insurer Non-payment.

Physicians’ total non-payment rate for claims submitted to all commercial healthcare insurer was almost 23%. There is no reason insurance claims should not be adjudicated at the point of service.

The insurance industry uses non-payment to hold onto the float. It results in hassling physicians and patients. Physicians are starting to demand full payment for services at the point of service from patients. This leaves adjudication of claims to the insurance company and patients. It can represent a hardship to patients.


Aetna, Anthem Blue Cross Blue Shield, Health Care Service Corporation and UnitedHealthcare cut denial rates in half in one year to 1.05 percent as a result of last year’s AMA report card.

Administrative Requirements.

There is an increase in the rate of claims requiring prior authorization. Physicians have to ask permission before performing services or treatments.

This increased requirement has many effects. It undermines the physician-patient relationship and the patient’s confidence in the physician. It delays or interrupts medical services to patients. It consumes a significant amount of the physician’s time. It complicates medical decisions. It should be patients who question their physician’s decisions and have their physician justify the treatment to them.


The healthcare insurance industry agrees to contracted reimbursement fees. The fees vary depending on how much the healthcare insurance company needs particular physicians in its network. Healthcare insurers have been notorious about not processing claims accuracy.

It seems to me that with the state of the art of information technology being what it is, contracted fee reimbursement should be automatic and accurate. Most insurers have gotten better over the last year.

The exception was Anthem Blue Cross Blue Shield, which scored 14 percent lower on this measure than it did four years ago.”

This is inexcusable. It might be purposeful in communities where Anthem Blue Cross Blue Shield is the dominant insurer.


The AMA report card has been effective in exposing response time for adjudication of claims by physicians to the healthcare insurance company. CIGNA and Humana have cut their median claims response time in half in the last four years.

Response times varied for commercial health insurers from six to 15 median days.

The resulting waste in the healthcare system from all of these tactics is enormous. Total healthcare insurance industry administrative waste (unnecessary expenses) is about $150 billion dollars a year.

If President Obama really wanted the present system of employer sponsored insurance to survive, he would be putting resources toward solving these problems.

*This blog post was originally published at Repairing the Healthcare System*

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