Coca-Cola, Nike, Levi’s
Love them or hate them, brand names are a psychological shortcut we use to make decisions more easily since we trust companies / names we’re familiar with and perceive them to be higher quality. You are not immune to this phenomenon and nor are your clients. So when you’re building a self-funded health plan, it’s tempting to include a well known healthcare brand. Big carriers have enormous marketing budgets to achieve slick branding and name recognition, but are they always the best fit for your client? The evidence put forward in the case of Peterson v UnitedHealth shows that big names can expose your client to unnecessary costs. At the heart of this recent lawsuit is the practice of “cross plan offsetting” that really demonstrates clearly how one big carrier is taking advantage of their position.
What is “cross plan offsetting” anyway?
When a large carrier / ASO pays a provider, overpaying the provider is (strangely) a very common mistake. Once the carrier realizes the error, if the provider disagrees that the there was an overpayment the carrier can try to sue the provider to get the money back, but that is a costly path. It can be a hassle to recoup these overpayments, therefore many carriers used their large customer volumes to come up with an alternate solution: cross-plan offsetting.
Here’s how it works: the carrier waits for a provider they overpaid for Plan A to submit another bill to the same health plan or to an unrelated health plan (Plan B). With a high volume of customers, the carrier is more likely to have a member from an unrelated plan (Plan B) see the same provider before another member from the same plan (Plan A). The carrier then underpays the provider on Plan B to offset the overpayment from Plan A. If this happens within the same plan that’s not a big deal, but if it’s taking funds from Plan B to offset overpayments on Plan A that is a problem for the following reasons:
- A reduced payment from Plan B to the provider puts the Plan B member at high risk of receiving a balance bill for the unpaid amount, even though Plan B already paid the full amount.
- If Plan A is fully insured and Plan B is self insured, then the carrier benefits since it is subsidizing fully insured claims payments with the claims funds of self insured customers.
The case of Petersen v. UnitedHealthcare, litigants found all of the plans that made overpayments were fully-insured, while the majority of plans which they used to recoup the overpayments were self-insured. The Department of Labour, in a brief filed in the U.S. Court of Appeals for the Eighth Circuit, said that cross-plan offsetting violates ERISA law, and when quoting the district judge’s opinion in this case said it’s a practice that “puts more money in United’s pockets”.
Carriers that offer fully insured products have an inherent incentive to have the price of healthcare and total claims actually go up and not down. They must meet a legally mandated Medical Loss Ratio (MLR) that requires carriers to pay 80% of premiums on medical care (85% in large group). The capped margin means the best way carriers can increase profits is to increase overall premiums. And, as advisors well know, the best justification for increased premiums is higher claims costs. By fully insured groups overpaying for services, they increased costs and improved their case for raising fully-insured rates. If this sounds unethical to you, you can at least be happy that you’re not alone and the courts agree.
If you’re not using a strong independent TPA, your clients’ health plans may be losing money. Talk to us if you’re interested to learn more about high performing TPAs and cost containment partners with a track record of putting their clients first.