Why is Health Insurance So Difficult?

Filed in Proposed Legislation by on September 22, 2009 2 Comments

A recent collaboration between Kaiser Health News and the LA Times has produced an interesting article on “Insurance Speak.” The article, “Confusing Insurance Jargon Prompts Calls for Reform,” is well worth a quick read. It details the plight of one man attempting to negotiate the terrain between medical provider and insurer while attempting to have his injured knee mended. Perhaps reminiscent of Cool Hand Luke, “a failure to communicate” seems to have been responsible for much of the delay. The man with the busted knee speaks of “an unbelievable number of phone calls” and aggravation that lasted months. The story is not an unfamiliar one; and the actual meaning of insurance terms can be rather difficult to decipher–with or without a painful injury. But the crux of the article goes to a much larger point than that of one more illustrative anecdote: the process of filing and being paid for an insurance claim can be difficult. And the question that begs is: Why?

The Kaiser/LA Times article states

Insurance experts say even they often have trouble figuring out how to select a health plan, use the benefits, choose a doctor, calculate out-of-pocket costs, resolve disputes and find ways to save money. “I have a hard time with this stuff,” said Janet Ohene-Frempong, a Philadelphia consultant who works with health plans on their consumer communications. “It’s daunting at best.”

Wendell Potter, a former health insurance communications executive, told a Senate committee in June, “There are many ways insurers keep their customers in the dark and purposely mislead them.” Insurers, he said, “make it nearly impossible to understand — or even to obtain — information [consumers] need.”

Making matters worse, large numbers of consumers lack sophisticated reading and number skills. Add to that the growing population of immigrants with limited English language ability, and you have a “perfect storm” for healthcare, said Dr. Ruth Parker, a medical professor at Emory University.

This Insurance Speak translator chart in the Kaiser/La Times piece is worth a quick look.

And again, the question is why? Why is it so difficult? The obvious answer, it would seem, is money: to purposely obfuscate: to cloud the process in a shroud of confusion designed to make the process more difficult–to make people give up on claims surrounded by language they don’t understand. And to test this hypothesis, I wanted to gather data and provide links to what percentage of claims are “given up on” by consumers after an initial denial. What is the rate of attrition for claims? Hard as it may be to believe–those numbers do not seem to be available–as the numbers on denials are, for the most part, not available. This article from the Huffington Post, “In Health Care, Number of Claims Denied Remains a Mystery,” reports

“This is one of the dark corners of the black box that is private health insurance,” said Karen Pollitz, a professor at the Georgetown University Health Policy Institute.

Data on how often insurance claims are denied — and for what reasons — is collected and analyzed by the insurance companies themselves. But except in California, the companies aren’t required to provide those records to any state or federal agency. “The number is knowable, but not known by regulators or policy makers or patients,” Pollitz said.

Estimates range from 10 to 15% nationwide for denials. But in California, where denial numbers must be reported, a recent tabulation from 2002 to 2009 calculated the denial rate to be 22%.  That number, however, is said to include doctors’ resubmissions of unpaid claims. California Attorney Jerry Brown is said to have launched an investigation into the denial rates of many of the state’s largest insurers.

The common estimate for consumers challenging (or even questioning) denials is 1% . Of those who do question, appeal to their insurers and are denied, then appeal to state boards, roughly 37% of those external appeals require the insurer to pay according to AHIP.

This recent data from New Mexico via McClatchey (Albuquerque Journal ) affirms the relatively rare occurrence of internal appeals to insurance denials–and even rarer instances of external appeals to state boards. It also makes note of a rather large success rate for those who do appeal. But importantly, because the data for total denials and the reasons proffered for such were not available to New Mexico officials–we are still ultimately left to work with either the estimates of 10 to 15 %  or the California number (including unpaid Doctor resubmissions) of 22% when trying to get a handle on denials and “rates of attrition.” Still, the article proves instructive:

A total of 3,467 internal appeals were reported by New Mexico insurers in 2008, with more than 2,400 involving administrative issues, such as claim reimbursement or payment. The rest pertained to medical necessity or coverage, the state report showed.

There are no state numbers to show how many New Mexicans with private health insurance were denied coverage or benefits to begin with.


Consider the data in a first-ever report compiled by state regulators:

It shows consumers filed more than 1,000 internal appeals in 2008 in New Mexico after health insurance companies concluded that the treatment wasn’t covered by their policies or wasn’t medically necessary.

Compared with the millions of claims submitted to the four major private insurers in New Mexico Presbyterian, Lovelace, Blue Cross and Blue Shield, and United HealthCare that’s a minuscule percentage.

Also, in roughly half of those appeals, the companies reversed the denials after an internal review.

The state Insurance Division where consumers can appeal an insurance company’s final denial held just seven hearings involving appeals of disputed medical care last year. Five of those were decided in the consumers’ favor; two in favor of the health plan.

The division doesn’t keep information on total denials, but Insurance Superintendent Morris “Mo” Chavez said he has seen no systemic problems in New Mexico.

Despite New Mexico Insurance Superintendent Chavez’s observation (or lack thereof) and the inexplicable lack of actual numbers for total denials, lets do some quick and simple math regarding the numbers we do have. Mr. Chavez tells us that there were “millions” of claims in 2008. Let’s use the most conservative configuration of that term–2. And let’s use the more conservative estimate of claim denial–10%.

10% of 2,000,000 claims = 200,000 claims denied in New Mexico in 2008.

Only 3,467 internal appeals were reported in 2008. That means that, conservatively estimated, only 1.7% of the claims denied filed an internal appeal.

That’s a small number by anyone’s standard. Less than 2% of those denied coverage appealed the denial internally to their insurance company. And the number who go on to appeal externally in 2008 was 7. Not 7%, but 7 actual claims.

Now what was the question again? Oh yes, the question was: Why is it so difficult to understand “Insurance Speak?” So difficult to navigate a claim? Resolve a dispute?

Perhaps the answer lies within the numbers– numbers we can’t see but are left to guess at. Numbers like “Less than 2% appeal internally; almost no one appeals externally.”

According to Kaiser/LA Times:

“The Senate health committee bill would require insurers to meet new standards for honesty and transparency in marketing materials, forms and benefits information provided to plan members.”

According to the Huffington Post:

“The main health-care reform bill being considered in the House does seek to address the matter. It would require health insurance companies to report data on claims policies, practices and denials to a central commissioner.”

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  1. Dave says:

    I don’t know we don’t push for universal legal representation. Why should people have to go bankrupt paying for legal representation? I mean the argument is essentially the same. By the way there is an awful lot of partisan propaganda on this website. As attorneys you should at least be interested in hearing the other side of the argument.

  2. Everybody should be able to get health insurance. It is so important to be covered.

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