creates an incentive for overpayments and a disincentive for fraud prevention.
Or — that top executives of one health insurance
company were convicted in 2013 of recording fraudulent claim payments on their books to satisfy a comparable medical loss ratio imposed by Medicaid.
As we said, think about it.
The practical advice for employers at renewal time is
to look carefully, and in an informed way, at the medical loss ratio on their renewal worksheets. If it shows a
sharp increase in claim payments that makes no sense,
e.g., if enrollment had dropped at the same time, it is
time to ask questions. Request an audit. Request documentation. Do as much as possible to investigate this
type of issue. In some circumstances, merely questioning the representation in an informed way can thwart
a baseless attempt to jack up a premium.
2. The Ever-Rising “Trend”
It’s renewal time, and you sit down with your insurance company and your broker. Shaking their
heads regretfully, they present you with a “trend”
chart, which shows that your employees have had a
bad year, health-wise. Making matters worse, they
advise, there are many claims in the pipeline and
the trend is going up. The result is a substantial,
unavoidable premium increase — one even larger
than is evident from the raw numbers.
Sound familiar? Unfortunately, probably so.
The good news (if it can be called that) is that such
claims as to an ever-rising trend may be as factually
bankrupt as the medical loss ratio representation
discussed above.
Most employers purchase health insurance in order
to gain access to a medical provider network and
claims processing services. The network is supposed
to assure that physicians, hospitals and others who
render health services charge reduced rates. The
health insurer or claims administrator is supposed to
ass ure that the paid claims are only for proper medical
charges and covered medical treatment. The dual roles
could be described as serving a “gatekeeper” role.
But when the most efficient way to increase premiums is to increase medical payments, as discussed
6 Enforce: The Insurance Policy Enforcement Journal
above, the insurance companies have no reason to
be effective in their role. Not only do the increased
costs help the medical loss ratio, they also produce
a rising claim trend that the insurance companies
then use to justify further increases.
Every employer should come to the renewal table
equipped to ask pointed questions about its insurance company’s processing and payment patterns.
Demand an audit of those payments, scrubbed of
any identifying characteristics as to the claimants
themselves. It is an employer’s right, as well as its
obligation, to inquire into whether claims are being
paid properly in its company plan.
3. Unidentified Percentage Premium Increases
The medical loss ratio is not the only example of
how insurance companies misuse percentages to
the policyholder’s disadvantage. Another renewal
number is the percentage increase in premiums.
Some human resource professionals and risk managers describe a premium increase as a percentage,
because insurance companies and brokers often
present price quotes as percentages.
At renewal time, many a diligent employer has
asked percentage of what, and received the wholly
unsatisfactory answer: I’m just not sure. Even when
employers and their representatives come prepared
for the negotiation, with full knowledge of the
actual dollar figures (e.g., the actual per employee,
per month expenses), it is far too easy for insurance
companies to confuse the conversation by tossing
around a series of vaguely defined percentages.
All too often, the backup for a premium quotation
is a complicated chart that has some numbers and
some percentages, with no relationship between the
two. It can require significant work to unpack such
charts, but the work is essential.
First, if an employer does not understand the information on which a proposed premium increase is
based, the employer will necessarily be hampered
in forming an intelligent counteroffer.
Second, employers who undertake to question and
unpack the backup data often are astounded at the
number of mistakes that they unearth. Understanding this information becomes more important
when considering competing offers.