Health Care Claims Processing and Payment
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Last week, economist/columnist Paul Krugman wrote an op-ed for the New York Times about Republican Presidential candidate John McCain’s positions on health care. Suffice it to say that Krugman sees things a bit differently than McCain. I’ll leave it up to Senator McCain to fight his own fight with Krugman over what works and doesn’t in health care policy, but I do feel compelled to respond to at least one of Krugman’s comments about health insurance plans.
Krugman states that, “They (health insurance companies) also deny as many claims as possible, forcing doctors and hospitals to spend large sums fighting to get paid.” For me, this statement of “fact” is right up there with the one about how 40% of health insurance premiums funds health plan administrative expenses and profits. Unfortunately, Krugman isn’t the only one who believes it. Many people would like to believe it, too. Too bad it isn’t supported by the evidence. In fact, I’d say just the opposite. I believe that health insurance plans that don’t pay claims accurately and on a timely basis fare worse financially than the ones that do, and Harvard Pilgrim is Exhibit A to support my argument.
When I joined the plan in 1999, Harvard Pilgrim was in the midst of a financial freefall that would eventually translate into a $227 MM loss for the year, and time spent under a court-ordered temporary state receivership. While many things contributed to the plan’s demise, I would say the fundamental problem was - you guessed it - not paying claims accurately and on time. In Harvard Pilgrim’s case, it wasn’t a deliberate strategy to make money. Instead, it was due to old fashioned incompetence. But in either case, the result would be the same - disaster.
You see, plans build their prices for the next twelve months based on the claims they paid in the last twelve months. Since medical expenses make up 85-90% of total expenses, it’s critical to get this number right. If a plan is doing a bad job of paying claims properly, it underestimates what its prices need to look like going forward to cover its future costs. When it underprices its products, it loses money - not just now, but for the next year as well.
In short, a health plan that does a bad job of paying claims inevitably does a bad job of pricing its products, because the plan doesn’t know what its true costs are. This leads, inevitably, to financial losses. The landscape is littered with plans that hit the skids financially because they did a bad job paying claims - not the other way around. In the insurance business, not paying claims is the surest, fastest way to end up in financial trouble. In Harvard Pilgrim’s case, fixing the broken processes we were using to pay claims - thereby improving claims payment accuracy and timeliness - was probably the single biggest reason our pricing improved, and our financial performance along with it. It also dramatically improved our relationships with providers, and by extension, our members and employer accounts.
Good health insurance plans pay their claims accurately and on time. It might not make good hyperbole, but it’s true.
“It also dramatically improved our relationships with providers, and by extension, our members and employer accounts.”
Exactly. If you don’t please enough customers enough of the time, eventually, you won’t have any customers (or members).
Thanks for explaining your perspective. Very enlightening. I hope that more insurance companies will give up their “old fashioned incompetence” for a streamlined process that improves the payment system.
Wasn’t Krugman highlighting the incentive to permanently reduce expenditures by denying certain claims? A health plan that pays out more than competing plans is surely in peril, so it’s easy to see how a single plan can trigger a race to the bottom.
Anon - denying claims to reduce costs may be a theoretical possibility, but I’ve never seen anything in my time at HPHC to suggest that the plans we compete with deliberately deny claims to see if people will re-submit them a second time for payment, thereby reducing their incurred medical expense. I’ve certainly heard the story, but I don’t see it when I look for it.
Plans do deny claims for non-covered services - which happens more often than you might think - and if the member eligibility information is wrong. We’ve worked over time to solve the member eligibility issue with easy online access to member eligibility information, and have tried to keep our plan design fairly simple (to avoid the non-covered services issue). But it happens - no denying that. My point is simply that it’s very expensive for the plans to process, re-process, and re-process claims. Believe it or not, we’d rather get it right the first time. It’s cheaper.