Weapons of Mass Corruption (WMCs) Part II: Perverse Insurance Incentives
If this doesn’t motivate business owners and employers to invest in this cause, I don’t know what will.
In WMCs — Part One, I described an ongoing type of system collusion between insurers and hospitals that characterizes our healthcare system. The result is a deception that most employers and patients don’t even recognize. But hospitals raising their base prices to give insurers bigger “discounts” is only a tiny piece of a much bigger system of financial gamesmanship, which weakens our healthcare system every day. The Weapon of Mass Corruption I would like to detail today is the way insurers can work around caps to the “medical loss ratio” (MLR) to increase both payouts and profits. As usual, the bottom line is increased prices.
An extreme example of this was revealed about six months ago by Chris Vanderveen, an investigative reporter for 9News. He reported a story that has become known as “The $169,600 Check.” A patient named Debra Altman had back surgery, which was mostly covered by her husband’s United Healthcare insurance policy. A year after surgery, long after the related claims had been processed, the Altmans received a $169,600 check from UHC. Almost immediately thereafter, they received a bill from a company, BHLH LLC., for the very same amount. That’s when the Altmans reached out to Chris Vanderveen, who does an ongoing series on outrageous medical bills. The Altmans were obviously not worried about their out-of-pocket costs. But $169,600 is a great deal of money and they were worried about turning it over to a company they had never heard of.
Chris did some investigating and learned that the “neuromonitoring service” for which the Altmans were being billed, and for which UHC was happy to pay, should cost at most $5000 – that Medicare would pay only $2000. I decided to do some investigating for myself.
I thought the deeper story should have been about why United Healthcare paid $169,600 for what, by most estimates, should have been $2,000 to $5,000 at most. I thought the reason United paid the bill — even though they could have told the neurology firm that they were crazy, they were getting $5,000, and they should take it or leave it — had to do with the MLR.
In the most simple terms, the MLR is simply the quotient of claims divided by premiums for an insurance company (the actual formula is slightly more complicated). Under the Affordable Care Act (aka ObamaCare), the MLR is capped at 85% for large insurance carriers. The idea is that at least 85% must go to claims, not profit. It was an awful concept that completely corrupted the typical incentives for businesses in a competitive system.
Under the 15% MLR cap, the problem is that driving down claims could cause the MLR to dip below 85%. In that case, they’d have to reduce premiums or even refund premiums to their customers. This perverted cap makes it so that insurance carriers actually want to see claims go up, not down, since their profits are really a function of the magnitude of claims.
Debra’s husband, Dave Altman, works for a $50 billion company, and the company runs a self-funded insurance plan. That means it wasn’t really United paying the $169,600 — all they were doing was making a decision on behalf of the employer. Keeping the MLR up allows them to essentially pocket 15% (100% – 85%), netting United about $25,000. Pretty unethical, don’t you think? And the employer doesn’t even know it. But if agreeing to pay out $167K more than was necessary to pocket $25K wasn’t bad enough, just wait until you learn what was really going on.
In its contracts with employers, insurance carriers essentially say, “look, sometimes your employees go out of network. We try to help them avoid that, and you should too, but it will happen from time to time.” They go on to say, “but don’t worry, you see we have this other network outside of what your employees know as ‘in-network.’ So while the charge will be an out-of-network charge, we’ll save you money by tapping into our extended network (referred to as a wrapper network) where we get lower rates than the billed charges. When we do that, we keep 1/3rd of the savings. That way we all win.”
To the employer, that’s great news. Their large, national insurance carrier is going to protect them from high out-of-network charges. But they don’t…
It seems that what was really going on, which I’ve confirmed with multiple industry insiders, is that the bill from the neuromonitoring firm was likely closer to $500,000. It’s a fictitious number. Then the insurance company says, “Through our wrapper network, we only pay $169,600.” That’s about a $330,000 savings. United keeps a third, netting $110,000. The employer — well, they paid $169,600 plus $110,000 for a total of $279K — for $2,000 worth of services. But they never know it because it’s buried in the numbers for a large company.
I confirmed with Dave Altman that they were never able to get a copy of an original bill. They were told that was between the neurology firm and the insurance carrier, despite Colorado law clearly stating that they are entitled to an itemized bill. And to make matters even worse, I’m told the contracts between the insurance carriers and employers prevent them from auditing these transactions because they’re outside the “normal process.”
Now, I cannot tell you the numbers above are precise. They’re just close. But the scheme is precise — this is what goes on. We can’t know the exact number because it’s all kept confidential. This is one of the many deep, dark secrets of legalized collusion that goes on. If that doesn’t tell you why employers should be screaming for transparency in all respects, I don’t know what does.
Our comprehensive price transparency will shine a light on these dark weapons of mass corruption.
Please help me put an end to this insanity. Between now and August 5th, we’ll need approximately $1,500 a day to collect 1,000 signatures a day (with what we already have, that will get us to about 150,00 signatures). It’s proving relatively easy to get signatures — we’re only spending $1.50 for each because it’s such an easy message — but it adds up quickly. Please make a small contribution today. And please share this with your company’s CFO, benefits managers, and anyone else and ask them if they’ll make a company contribution. I’m also happy to come talk to them about how they can address these problems and many others.