By Nina Bernstein
The New York Times, April 23, 2012
Despite a landmark settlement that was expected to increase coverage for out-of-network care, the nation’s largest health insurers have been switching to a new payment method that in most cases significantly increases the cost to the patient.
The settlement, reached in 2009, followed New York State’s accusation that the companies manipulated data they used to price such care, shortchanging the nation’s patients by hundreds of millions of dollars.
The agreement required the companies to finance an objective database of doctors’ fees that patients and insurers nationally could rely on. Gov. Andrew M. Cuomo, then the attorney general, said it would increase reimbursements by as much as 28 percent.
It has not turned out that way. Though the settlement required the companies to underwrite the new database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.
In the 2009 settlement, the insurers did not admit wrongdoing. But they paid to set up FAIR Health as a replacement for Ingenix, a database owned by the insurance giant United Healthcare. Mr. Cuomo said Ingenix had consistently understated local “usual and customary” rates — so-called U.C.R.’s — that were used nationally to determine how much of a bill was paid when a patient used an out-of-network doctor.
FAIR Health collects billions of bills from insurers to calculate a usual fee for each medical procedure in a given locality. But increasingly, reimbursement is not based on such prevailing rates.
“This shift is mirrored across the country, and the implications in terms of declines in reimbursement are similar,” said Rob Parke, a benefits expert at Milliman, an international actuarial and consulting firm.
The level of reimbursement varies by plan, pegged to benchmarks unknown or misunderstood by many consumers. The traditional benchmark was 80 percent of the U.C.R., while newer ones mostly range from 140 percent to 250 percent of Medicare rates. That sounds like more, but typically amounts to less, and is drastically below charges in large, emergency out-of-network bills.
Depending on the plan, insurers may cover 60 percent to 80 percent of the benchmark sum; the patient is not only responsible for the rest but also for any outstanding balance, to which out-of-pocket maximums do not apply. The average emergency bill that insurers reported to state investigators, for example, totaled $7,006, or 1,421 percent of the Medicare rate, and left patients owing an average of $3,778.
By Don McCanne, MD
One of the many reasons that private insurers lost their credibility as being a fair arbiter of our health care dollars is the story of Ingenix.
An acquired subsidiary of health insurance giant UnitedHealth but used by other major insurers, Ingenix established an elaborate method of calculating “usual and customary” fees that would be paid by the insurers for out-of-network care. As it turned out, they cheated. They used innovative calculations that resulted in lower payments than fees that were truly usual and customary. In many instances, the patients were responsible not only for the deductibles, coinsurance and co-payments, but also for the higher balances resulting from these dishonest calculations.
In a settlement, the insurers agreed to set up a new program called FAIR Health as a replacement for Ingenix. We now learn that the settlement did not require the insurers to use this program. Instead many switched to Medicare as the benchmark for usual and customary fees, though the Medicare rates are usually lower, especially for specialized services.
Under Medicare, physicians and hospitals are not allowed to bill the patients for more than the Medicare-allowed balances, but in many states there is no such limitation for privately insured patients. Thus privately-insured patients may face much larger out-of-pocket costs than they would if they were covered by Medicare.
In those instances where balance billing for privately insured patients is prohibited, as is often the case with emergency care, then the providers are forced to accept less than usual and customary fees even though they have no contract with the private insurers requiring them to do so. In these instances, the state is enforcing contract provisions that do not even exist – placing the state in a position of siding with the private insurers and against the providers.
There are two sides to this story. One is that private commercial insurers cannot be relied upon to play fair. They will always game the system to protect their products and benefit their investors. The other is that insured patients must be protected from excessive out-of-pocket costs, which Medicare theoretically does by prohibiting health care providers from billing more then the Medicare-authorized amounts. The private insurers are merely following Medicare’s lead. The obvious problem is that private insurers do not have the ability to enforce prohibition of balance billing, thus patients are heavily penalized.
For many patients, even the more modest Medicare-allowed balances are an excessive burden that can impair access to care because of lack of affordability. An improved Medicare would prohibit any cost sharing for essential health care services. Yet the private insurers would never be able to produce a product that covered all essential services while eliminating patient cost sharing. Especially when adding in the costs of their administrative excesses, the premiums that would have to be charged would have a market only for the 1 percent – obviously not a viable product.
The conclusion is obvious. We need an improved Medicare that covers everyone, reduces administrative waste, eliminates the financial barriers of cost sharing, and is equitably funded. We certainly don’t need an industry forced on us that is required to establish “FAIR Health” but then uses loopholes to skirt fairness.