Health insurance has become necessary, with large and unpredictable health care costs always looming before each of us. Unfortunately, the majority of people have experienced problems when using their health insurance to pay for their medical care. Health insurance serves as the buffer between patients and the medical care system, using population pooling to mitigate the risk exposure on any one individual.
Claim denial by a health insurer is always a looming risk when receiving medical care. This is particularly true when health care services are needed to address an unexpected health event or accident and the cost of the needed services is large.
Credit: Handout
Credit: Handout
Every health insurance company handles claims differently. When a claim is denied, some states provide a mechanism to ensure that the process used to deny the claim follows state laws. This provides some checks and balances on the insurance claims process.
Despite such safeguards, claim denial rates can be perplexingly high. For example, UnitedHealthcare has the highest claim denial rate among the major health insurance companies. At 32%, or just under 1 in 3 claims denied, its denial rate is more than four times higher than Kaiser Permanente, with a 7% claim denial rate, or around 1 in 14 claims denied.
This means that for a random set of 100 claims, UnitedHealthcare will deny around 32 of them on average, and Kaiser will deny around seven. Everything else being equal, 25 of the 100 claims that Kaiser approves would be denied by UnitedHealthcare.
Though every claim is different, these statistics provide a general picture of how two large health insurers approach claims and the outcomes of their internal claims review process. It is worth noting that UnitedHealthcare is a for-profit entity, beholden to its shareholders, and Kaiser Permanent is a not-for profit, beholden to its members.
Regrettably, claim denials can be used as a weapon by health insurance companies. Any time a claim is denied, physicians and health care providers are forced to battle the health insurer to do nothing more than justify the medical services they deem necessary and appropriate.
Even if the battle is won, it takes time and resources from the health care system to fight such denials. Patients are also put at risk for medical issues not getting resolved in a timely manner, leading to medical complications and, in extreme cases, deaths.
The issue with for-profit health insurance companies is that they are beholden to shareholders who expect returns on their investments. Yet who are these shareholders?
Ironically, this includes anyone who owns shares in S&P 500 or Total Stock Market index funds, which includes people with 401(k) (around 70 million people) or IRA (around 65 million people) accounts. Indeed, of the 900 million shares issued by the United Health Group that trade on the New York Stock Exchange, less than one-quarter of 1% are held by company insiders, including the companies’ chief executives and other high-ranking executives. The vast majority (more than 90%) of United Health Group shares are held by institutions in their portfolios, including the Vanguard Group and BlackRock, that many people with retirement or investment accounts own. United Health Group has become one of the largest companies in the United States, standing among the top 20 largest weighted components in the S&P 500, and the second largest health company in the index (after Eli Lily).
This means that many of the very people hurt by health insurance claim denials are also benefiting in their investment portfolios from the money saved by health insurance companies in making such denials. It takes some time to wrap one’s head around this seeming circle of contradiction.
The point of highlighting such data is that no one person, including the CEO of United Health Group, is personally responsible for health insurance claim denials that many of us will face at some point in our lives. Decisions in any large and complex system have both desirable and undesirable consequences. Concerns at a granular level (like life-and-death decisions for patients) can be misplaced when the issue is on a coarser plane (like corporate profits).
This raises the questions: Is there a mismatch between the profit objectives of health insurance companies and the needs of patients in securing necessary health care services? If all health insurers transformed into not-for-profit corporations, would the claim denial rate drop across the industry? Perhaps.
Health care is a public good. The nation’s health care system works reasonably well for the majority of people. What does not work well is the system used to pay for such services. The distributed system in use today leaves multiple financial rabbit holes that people are at risk of falling through when faced with an unexpected health episode that is costly to treat.
No person can indefinitely avoid the health care system. At some point, our bodies betray us, simply by the fact that we are getting older every day.
When it comes to health insurance and our nation’s health care system, everyone has an opinion, yet no one has a solution. The reason is that with such a diverse set of needs across the population based on age and demographics, there is no single solution that can work for everyone. This explains why the current distributed system has become the norm, and any changes to it, including a single-payer system or the mandates in the Affordable Care Act, are met with resistance by those who have the most to lose with changes.
Ironically, the very people who can effect change — our elected officials — are among those who have an excellent array of health insurance options and, hence, have no incentive to make changes that would compromise their coverage.
Getting sick is a burden we will all bear at some point in our life. Dealing with health insurance claims, and their denials, is not something we need to manage at such times. Something clearly needs to change.
Sheldon H. Jacobson is a professor in computer science in the Grainger College of Engineering and the Carle Illinois College of Medicine at the University of Illinois Urbana-Champaign. He used his expertise in risk-based analytics to address problems in public policy and public health.
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