Health Insurance Managed Care

UnitedHealth Group Settlement

Marketplace reports that UnitedHealth Group has just reached a large settlement with the State of New York.  What did UnitedHealth Group do wrong?

According to the State of New York, it was overcharging patients who went out of the network.  The N.Y. Times gives a good example:  “The patient might receive a doctor’s bill for $100, for example, and expect the insurer to pay at least $70. But if the insurance database says that doctor bill should have been only $72, based on local rates, the patient might get back less than $55.”

Your gut reaction to this is likely one of two things.  If you are a patient, you may be saying “I can’t believe the insurance company would stick me with this bill!”  On the other hand, if you work in the insurance industry, you may realize that a provider who is out-of-network has an incentive to charge big bucks to the patient since their another insurance company will be paying the bill.

Having insurance companies pay the “customary” amount for medical care received outside of the network seems sensible.  The problem, however, was with the company setting the reimbursement schedule.  The “customary” payment amounts for UnitedHealth Group’s out-of-network reimbursements was calculated by a company that was owned by…UnitedHealth Group.  Thus, the company had an incentive to lower the “customary” payment and shift more of the cost to the consumer.

There is nothing wrong with having an independent company decide on customary payments for out-of-network care.  In fact, this will give patients an incentive to be more frugal with their care levels. UnitedHealth Group’s lack of transparancy with respect to how these fees were set and inherent conflict of interest from owning the fee-setting company, however, does cause concern. 

This is not the first time UnitedHealth Group has made it to the Healthcare Economist for unsavory behavior (see “Options Backdating” post).

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