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Why insurance hassles are only going to get worse

September 07, 2016

The Affordable Care Act mandates that insurers spend a specific portion of their money directly on health services and quality programs. This number is expressed as a percentage of premium revenue—80% (small plans) or 85% (large plans)—and is known as the medical loss ratio.

The remaining premium revenue can be allocated to administration and profits. If an insurer fails to meet the minimum medical loss ratio requirement, refunds must be issued to customers for the difference. In other words, if a large insurance plan only spends 75% of its money on care, enrollees get a check equal to 10%. It’s a bonus for customers and a penalty for insurers.

You won’t be the least bit surprised to learn that medical loss ratio requirements are a fantastic idea in theory but have potentially negative consequences once put into practice.

Please hold

Consider the amount of time you spend wrestling with the claims department when a claim is rejected or the insurer has made a mistake on your reimbursement. That prolonged and sometimes painful exchange isn’t going to improve.

Even if you have a good relationship with the insurer and agree on reasonable rates, there’s a significant administrative process that goes into every money-shuffling move the insurer makes. And that money shuffling has grown exponentially more complex in recent years. Health plan administration is no longer limited to routine, systematic claims processing, and even if it were, the variation in contracts and plan designs has ensured that even the routine is cumbersome these days.

This added complexity will no doubt increase the number of claims that are flagged in the automated processing task and eventually kicked out as rejections, which come back to you for attention. Some claims will survive a secondary attempt but many of them might require an actual human being in claims processing to adjudicate them.

I am pretty confident that even your friendliest payer partners aren’t going to invest in hiring or outsourcing more representatives to help you with your rejected claims. Even if they thought it was a great idea, they might not be in a position to do it if their medical loss ratio is in jeopardy. Remember, they have limits on how much they can spend on administration.

It costs an insurer something like $3 to adjudicate a claim manually compared to pennies for a claim that slides through the automated systems, so clearly your best bet is to submit clean claims with all I’s dotted and T’s crossed. Be sure to keep excellent documentation, including every phone call you make to the insurers, and be sure you know what’s included in your contracts.

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