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A guide to insurance company denials and medical loss ratios

Posted by nyceve on July 7, 2008 - 2:33pm

It looks like 2008 is going to be a tough year for the for-profit insurance industry.

The crooks bean counters at UnitedHealth are circling the wagon.  Their bottom line is under assault.  This is not good news for you and me.

 

Let me take you on a quick stroll through the world of insurance denials and what happens when things take a turn for the worse. Worse means that profits are declining and medical costs are on an upswing.  

 

The for-profit insurance industry serves investors--not you and not me. That's why it's called for-profit. Investors pay money to buy their stock. Investors invest to make money. Last time I checked, the way a company makes investors happy, is to increase earnings and control costs.

Think of our monthly premiums as earnings or revenue. Our bodies are costs. When our bodies get sick they become big costs.

Costs are bad. Costs must be crushed and defeated.

Here's the ugly story. The financial success of the for-profit insurance industry is due to their business model that must limit their medical losses. We, that means you and I, are medical losses.

Dear friends, this is called the medical loss ratio. You and I (and our health needs), are known in insurance lingo as "losses".

Every dollar they spend our our healthcare needs goes against the bottom line.



 

The medical loss ratio is going in the wrong direction at UnitedHealth.

Medical cost trends for corporate customers remain within its previously projected range of 7.5 percent, plus or minus 50 basis points for 2008. For the full year, UnitedHealth Group is projecting a higher total medical care ratio in the range of 82.5 percent, with a commercial medical care ratio in the range of 83.3 percent.

This is above previous medical loss ratio estimates of 81.3 percent and 82.3 percent, plus or minus 50 basis points. A medical loss ratio indicates how many premium dollars are being paid out on benefit claims.

Now, God help you if you happen to have insurance through UnitedHealth because you'll note that their loss ratio inched up.

In order for UnitedHealth to be fully graced by its Wall Street masters, it will have to demonstrate that it is cracking the whip against its policy holders.

So, you can expect UnitedHealth to go into battle mode. In the days ahead, denials will flow fast and furious.

 

So what does all this mean for us?

Imagine for a moment that you're a senior executive with UnitedHealth and you're seeing these medical cost ratios creep up. This means you're not doing your job. Your job is to crack down on costs.  

You're scared, you're just waiting for the banker on Wall Street to call. So what does an insurance executive to do?

Number one, you know you have a fiduciary responsibility to Wall Street. You also know you're in business to produce $$$$$$ for your investors, not be the guardian of the health of your subscribers.

So you  issue an edict. Word will come forth from the executive suite that the medical loss ratio must be controlled. This means our healthcare needs must be curbed by any means necessary.

UnitedHealth has a long and ugly history of using devious and illegal methods to avoid paying for health care and meeting its obligations to its policyholders. UnitedHealth is paying a fine of $895,000,000 to settle a class action lawsuit. Read some of the comments from former UnitedHealth employees about what an unscrupulous and unethical company it is.

Sadly I'll end by saying God help you if you are insured by UnitedHealth. There are some dark storm clouds on the horizon. They're going into battle mode, so should you.

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Holy Incomplete Analysis...

Submitted by Paul (not verified) on July 7, 2008 - 9:16pm.

If an insurer wanted to improve the bottom line it could reduce it's administrative expense, reduce medical claims costs, or increase its prices. You've ingnored two of these three major factors. If it does any of these not to the satisfaction of it's customers then it will go out of business and others who do a better job take it's place. Besides, a single payer system would face the same challenge only without any actual accountability (no risk of going out of business) unless you give it free reign to set prices and dicate what nurses and doctors earn, regardless of wether it's deserved or not. That's a recipe for lower quality professionals and hence poorer quality of care options since the best and the brightest will surely use their efforts for something that will offer greater rewards. Be careful what you wish for...

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Single payer -- the best and brighest would be with us

Submitted by Donna Smith - S... on July 8, 2008 - 8:27am.

Paul,

Thanks for commenting but this scare tactic that the best and brightest health professionals would work elsewhere rather than within a single payer system is just not reality. Your view would assume that our best and brightest MDs and RNs do so for "greater rewards" financially and not for other deeper types of rewards... most of the RNs I know have deeper aspirations and motivations and you sell them short.

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Reality

Submitted by Paul (not verified) on July 8, 2008 - 10:09pm.

I do not doubt that there are many motivations for our chosen professions, and less pay of course would not make everyone quit his or her job or necessarily look elsewhere. But in aggregate it would be wrong to expect no change in the talent pool as average pay is reduced for medical professionals. This is not a scare tactic - it's just economic fact in a society where we have freedom to pursue our own desires. I'm guessing you might consider a change in profession if your pay was cut by 50% by matter of legislative statute. And if this is true, then surely you must agree that someone would start thinking about a change if their pay was cut by 10% or 20%. Consider the current news about medicare payments and the firestorm that it generated from the AMA. It is true that the less professionals are reimbursed for treating Medicare patients, the less they will see those patients at all. That's not me selling them short - that just happens. Can you imagine what would happen when medical professionals have no choice but to accept what is handed to them? Today, they are highly capable, well educated, motivated, independent, problem solvers (at least most of them). In a single payer system, they will be receiving less for the same amount of work, and will have to abide by the rules imposed on them with few other options. This will disturb many, and they will leave. *That* is reality.

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$350 Billion

Submitted by Anonymous (not verified) on July 11, 2008 - 12:46am.

That's the amount of money estimated to be lost to the care of patients because the insurance companies use it as their 'profit.'

Your scenario must leave that fact out.

I am a nurse. I cannot wait for Single Payer! I suggest you read SB 840 and HR 676. And don't be so doom and gloomy.

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profit vs. admin expense

Submitted by Paul (not verified) on July 15, 2008 - 8:00pm.

$350B.. are you talking about administrative costs or pure profit? Most of what gets quoted by the anti-insurance crowd is actually administrative expense, which I would argue is generating a far better return than what the government offers. Private health insurers are better at reducing fraud, better at keep utilization increases at manageable levels, and are generally better at controlling costs. in addition, the value received to consumers is in product choices that develop to meet our needs and most importantly in clinical support from disease management and case management programs. These things actually make peoples lives better by educating members in ways that the provider community might not have time to do, follow up with patients, coordinate care among various providers, ensure there is adequate family support post treatment, and on and on and on. These are things that MUST be considered when advocating to eradicate the the industry that provides them. I do not disagree that the actual profite made to owners of insurance companies are costs that would not exist in a completely public single payer system, but once you eliminate that industry (and all those jobs) you have saved yourself some money once, without addressing the long term increase in costs that is the real problem. if healthcare inflation was on par with general inflation there wouldn't be a problem. But it is not, and that's why it is so costly and that's why the federal government simply dictates what price it will pay to doctors and hospitals. And if you think that medicare is truly that much more efficient than the private industry then you need to study this more. First off, as I explained above, medicare patient are more sick and costly, so the medicare admin expense is a very low percentage because admin expense for medicare doesn't really matter how sick the patients are. if those patient were less sick, the admin expense percentage would be much higher. This is case when you compare to private sector, with younger more healthy patients. you have to age/risk adjust the different populations to get a sense of what it truly costs to adminster the plans. moreover, a LOT of federal admin expense is not quoted in those rates. Go research how much medicare processing is done by the private sector and not the government. The whole point is this... by socializing healthcare across the board, the government will have a larger bill then you might imagine. people will seek more treatment and you still have the basic problem of healthcare inflation which is far above general inflation. At that point the federal government will need to restrict unit costs (what it pays the doctors) and utilization (what kinds of services we're allowed to get) even more. Consider the projections of the medicare trust fund. it will go bankrupt unless they reduce benefits, raise more tax revenue, or increase the age of eligibility. Changing to a fully public program wont' change that. And i for one am not looking forward to the day when the government starts deciding that we're going to have less MRIs per person (like in other countries) or that non life threatening needed procedures puts me in line behind the person who doesn't take care of their own health like I do. I can see it now.. submitting my BMI along with my tax return. Then a phone call to tell me that I'm not healthy enough and costing the govt too much money... only I can't change my govt at that point with serious personal risk...

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If the private insurers are

Submitted by Anonymous (not verified) on July 16, 2008 - 8:40pm.

If the private insurers are 'better at controlling costs' why are insurance premiums skyrocketing?

Private insurers have costs that the government wouldn't need--bloated CEO salaries, advertising, PR campaigns. The government has an already-in-place collection apparatus-taxes. All of this makes it possible to divert BILLIONS of dollars to patient care, not private insurance bureaucrat care. To my mind that's where I prefer my health care dollars go---to patient care.

Republicans have made sure that private companies like Medicare Advantage get a chunk of the health care pie to the detriment of those on Medicare. They should be ashamed of themselves for cheating Seniors. But it seems that they, like all the private health insurers have no conscience, no guiding moral principles.

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Reasons

Submitted by Paul (not verified) on July 17, 2008 - 11:48am.

The reason insurance premiums 'skyrocket' as you say is because of unit cost increase of services and the utilization of more services. and by skyrocket, total costs in the private market go up in the neighborhood of 8-12%, in aggregate. Unit costs go up because 1) general inflation 2) providers perform costly functions like R&D 3) providers need to make up what they don't receive from federal programs in the private market. Utilization goes up because 1) population average age is increasing 2) new technologies emerge 3) we find new ways to expand the use of existing technologies (and drugs).

Some people see higher increases than 8-12% because they are only seeing a portion of the overall cost, with their employer picking up the rest, and the employer pushes some of the cost increase downt to employees, making their increase higher.

For the record, about 85% of the cost does go to direct patient care (reimbursement to providers). the remainder is overhead and profit from taking on the risk and/or administering plans. Note, however, that 'overhead' partly means creating programs that do provide value, like disease management, which involves nurses working with patients and their providers to improve drug compliance, outcomes, avoiding readmissions, education etc.

and seniors are not being cheated. 20% of seniors have voluntarily chosen Medicare Advantage programs (medicare offered through private insurers) because they see better value.. (lower premiums and more services covered). The reason? because private insurers are better at controlling costs.

Now one thing the private insurers are NOT better at, in terms of controlling cost, is fixing prices for providers. This is because they have to negotiate with providers, whereas the government dictates what the price is. That is an advantage for government programs (and also a reason why many doctors will not see Medicare patients). The private sector, however, can still deliver the care at lower overall cost because they have pursued controlling utilization more, through a variety of means, some of which have gone away because people bought those products less. For example, HMOs were very popular but eventually have lost out to more open network plans... even though the open network plans were more costly. This happened because the market preference shifted to choice of provider.

Cost growth is overwhelmingly due to the groth in price and utilization. Growth from administration/profits is roughly general inflation (say 3% per year). it's the price and utilization that are the problem. eliminating overhead and profit gets you savings once but does not address price and utilization growth. price growth is controlled by the feds by dictating what the price will be (which of course creates market inefficiencies) and utilization growth is controlled by... well just look at the rules and restrictions observed in other national systems.

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In Paul's long cost analysis

Submitted by Sue Cannon on July 21, 2008 - 12:41am.

he left out that costs to those who do pay, either out of pocket or via their insurance company are higher than they should be to cover the losses of those treated who cannot pay. In a single payer Health Care for All system, every provider gets paid for every act of care. So the over pricing would not be necessary. The system that we are presently stuck in is the engine of those skyrocketing prices.

And in an odd twist of fate, those who are too poor to have insurance and are therefore 'cash accounts,' are charged the highest prices of all by hospitals. Insurance companies negotiate prices (I say they dictate/set prices much the same way a single payer system would negotiate/set prices with providers) with hospitals systems. Perhaps they agree to pay $2.00 for an aspirin. The cash payer is charged $10.00. Games are played with 'losses' and the hospital ends up looking good as it claims to be a provider of 'charity care.' What a racket you guys are all in.

The application of RICO needs to be thought about here.

As for the increases of premiums in the real world, as in my cost, 2 years ago my cost went up 78%. Last year it went up 12%. That's ridiculous. Especially given that the cost of living increase for those 2 years is in the single digits.

Health care for all. No excuses.
www.nurseconscience.blogspot.com

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For Profit Insurance Industry

Submitted by elpasojeff on July 9, 2008 - 7:08pm.

A major part of the problem is the "hands off" approach the administration has taken to enforcing consumer protection
regulations currently on the books. Insurance agents are earning tens of millions of dollars in hidden and non disclosed fees. In one case the insurance broker disclosed a $24,000 commission to write "renew". Additional investigation revealed and additional $77,000 a year "under the table". This added $200 a year to the healthcare cost
of each employee. The U.S. Attorney in San Diego slapped UNUM
on the wrist for paying non disclosed commissions.

If a kid steals a case of beer he will be prosecuted. If the insurance consultant pockets six figures it won't be prosecuted.

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