• Administrative costs

    My post now up on the JAMA Forum is about Medicare and private insurance administrative costs. Enjoy!

    @afrakt

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    • Studies of the difference in administrative costs between private and public insurers ignore another important cost difference: the costs to providers and hospitals for administration of insurance systems.

      I worked for many years in medical practices that dealt with very high numbers of claims. In all cases, the costs of billing and collecting from private insurers were several times greater than the cost of dealing with public insurers — from three to five times as high. In one practice, our third party billing agent actually lost money in administering claims for private insurers, but made a profit overall because of low costs in dealing with the public insurers.

      If this cost difference is added in, it widens the cost advantage for overhead in the public programs by as much again as the costs of overhead in the programs themselves.

      • I wonder what the rates of refused payments are? If a private insurer refuses a claim, the hospital/provider has to try to collect from the patient. Is my assumption Medicare essentially never refuses a claim correct? Is the number of cases where the provider expected an insurance payment and didn’t get it significant? (And then what percentage of those is the provider unable to collect on?)

        • As the president of a medical group I can relate our experience. Medicare rarely denies payment. It is common with private insurers. Private insurers are also more likely to deny payment on clean claims, even with laws against it. However, they usually pay on appeals.

          Steve

    • Don’t forget the cost to the individual. I spent 8 months trying to get a clinic to bill my insurance correctly. My guess that pressure on clerks to process bills quickly meant that no one applied any thought to the claim, so it the error didn’t get fixed. Then the clinic sold it to a bill collector. Finally, we got the bill collector to send it back to the clinic and the clinic managed to bill correctly. Since the bill was submitted well over a year after the service, the insurance rejected it for untimely billing.
      I’ve spent hours on this stupid $200 claim.

      • SAO – All that for a $200 bill? Sounds like a good example of why it’s best to leave relatively low-cost medical care to be paid for with cash (either straight out-of-pocket, or with an HRA/HSA/FSA) and leave insurance for the big stuff.

    • Not so fast. There’s a pretty fundamental flaw in the method used to compare Medicare to private administrative costs. Medicare claims are on average higher than the claims in the private sector, for the obvious reason that the population is older. If it costs $10 to process a $100 claim (10%) and $20 to process a $500 claim (4%), is it really accurate to say it’s less expensive to process the large bill because it represents a smaller percentage of the claim?

      Now, there are good reasons why a larger bill might cost more to process – anti-fraud measures may require a closer look at larger bills, and they might also be more complex (more billing codes) and therefore justify a higher administrative cost. But just comparing the percentages is hardly conclusive regarding administrative costs.

      • “Not so fast…”

        In one of the practices where I worked, the billing agent charged a flat fee to process any single claim. In discussing her profit levels, she reported that her PER CLAIM costs for private insurance were about $3.85 a claim, while her per claim costs for Medicare were about 71 cents.

        It is also incorrect to say that Medicare does not reject claims. Medicare frequently rejects claims for failure to comply with proper coding, and also for billing for charges not allowed under Medicare — for example some applications of CT and MR not supported by evidence.

        The main reasons for the lower costs in dealing with Medicare are that IF you are operating correctly they will pay the claims rapidly, that they go tape to tape in collecting claims information, and that they have very clearly defined protocols and rules for what and how they pay. None of those things are true, in my experience in practice, for private insurers. My personal opinion, following their operations over several decades, is that private insurers appear to have gotten into policies to delay and complicate payment dating from the time when the cost of money was much higher than it is now, making delay very profitable,pol actually generating income as high as their general operations. They seem to have just left those protocols in place despite the current much lower cost of money, although I will grant that with the relatively low profit margins in private health insurance that a fairly small savings on cost of money does add up.