Loss ratio’s unintended consequences
State insurance commissioners voted today on proposed regulations governing medical loss ratios — the new requirements under health care reform to encourage insurers to spend less on overhead and more on patient care. If insurers don’t spend enough on patient care, they could be forced to rebate a portion of premiums back to policyholders.
The medical loss ratio concept is a fine idea, but when it comes to fraud, the requirement could very well result in perverse incentives. An insurer that is out of balance with the required loss ratios could find it more profitable to disinvest in fraud prevention and just pay suspect claims. Reducing or eliminating an anti-fraud program would help reduce overhead expenses (and leave more room for profit) while the extra payout for suspect claims would help the insurer get that side of the equation in balance.
Now, most health insurers are smart enough not to scuttle anti-fraud programs, and none I know would intentionally pay fraudulent claims. However, I could envision scenarios where insurers might take a pass on investigating borderline cases, especially if they are complex and costly investigations, which many are.
With this new requirement, there also will be little incentive for investing in new technology or enhanced training of fraud investigators or funding complex civil litigation to counter criminal fraud enterprises.
One unintended consequence of the medical loss ratio is that it may spur medical inflation. If insurers can only increase profits by increasing the size of the overall pie, there’s little incentive to keep medical costs in check through anti-fraud programs and by other means, especially in markets that aren’t highly competitive. That’s one reason the Coalition and others pressed regulators to consider anti-fraud activities not as overhead, but as programs that address health care quality and help reduce cost, so that more of the health care dollar goes for patient care — and not to the scam artists who seem to be multiplying by the week.
Health care reform contains unprecedented resources for the federal government to detect, investigate and prosecute medical providers who are ripping off Medicare and Medicaid. Results so far are quite impressive. Pressure is on unethical providers and organized crime rings to avoid defrauding the government. The chances of getting caught have never been greater and the penalties never as severe. So guess where many of these fraudsters will look to ply their trade? Private insurers likely will face increased pressure from criminal enterprises that have cut their teeth on scams against Medicare. The next few years will be the wrong time for the private sector to pull back from combating health care fraud. But with the medical loss ratios, the fear is that’s exactly what many will do.
We will invite policymakers to join us in the next few years in monitoring the level of health care fraud and the private sector’s investment in it. If fraud grows like we and others predict, we hope regulators and legislators will have the wisdom to take appropriate action. We’ll see.
Is the life payout scam really a scam?
Bloomberg Markets magazine published an investigative article this week accusing life insurers of duping beneficiaries by sending them a checkbook to access their insurance proceeds rather than just sending a check for the full amount of the life policy.
The magazine breathlessly reported that insurers are “secretly” investing the proceeds and making millions off the widows, orphans and fallen soldiers.
The news media have gone into a feeding frenzy, and the New York AG has launched an investigation. The news release AG Cuomo issued today has a telling headline:
ATTORNEY GENERAL CUOMO LAUNCHES INVESTIGATION OF LIFE INSURANCE INDUSTRY FOR DEFRAUDING MILITARY FAMILIES AND OTHERS OF MILLIONS IN CASH PAYOUTS
I thought investigations are conducted to determine if fraud had occurred, but in this case it appears the outcome is pre-determined — all based on one article.
And speaking of the article, Bloomberg has an unsavory record of trashing the insurance industry. We’ve dealt with their writers on fraud stories in the past, and frankly, their style of journalism is not for us. And that’s too bad because insurers sometimes do unsavory things to consumers that should be exposed. The life payout practice in this case, however, doesn’t appear to be one of them.
I just don’t see the fraud here. As long as insurers fully disclose that beneficiaries can write a check for the full amount of the death benefit and receive the cash quickly, there’s no foul. And as insurers claim, some beneficiaries probably like to earn a little interest while they decide what to do with the money.
Kudos to the National Association of Insurance Commissioners for quickly issuing a rational statement on the issue.
Martin Frankel for insurance commissioner!
Is this another sign that people think committing fraud is no big deal? The guy who headed a company that committed one of the largest health care scams ever is now the leading candidate to win the Republican nomination for governor of Florida. Are voters apathetic when it comes to fraud? Are they this forgiving of serious crime?
Rick Scott, as CEO of the hospital chain HCA/Columbia, oversaw a company that was accused of stealing billions of dollars through Medicare reimbursement. It was a systematic fraud scheme that ended with $1.7 billion in fines and the criminal convictions of HCA executives. Scott left the company soon after the feds launched their investigation, and that may have saved him from indictment. He was never directly tied to the fraud schemes, but it’s hard to believe that a CEO didn’t know, or at least wasn’t guilty of creating a business environment that allowed fraud to flourish.
His current lead in the polls could set up a matchup with Florida CFO Alex Sink, who oversees the state’s insurance fraud bureau. Might make for some interesting debates.
So, if Florida voters shrug at the prospects of having someone like Scott as the head of their government, what could be next? Master fraudster Martin Frankel will be out of prison in a few years. He has intimate knowledge of insurance regulation. (He avoided detection for several years while looting $200 million from insurance companies he controlled.) Perhaps he could get a commissioner’s gig somewhere?
Discouraging anti-fraud investment?
Could health care reform passed earlier this year unwittingly discourage insurers from tackling fraud? That’s a question that crossed our minds recently when we saw regulations being crafted that will dictate the percentage of premiums insurers must pay out for medical care.
Under a section of the new law, health insurers must pay out at least 80 to 85 percent of premiums on “reimbursement for clinical services” and “activities that improve health care quality.”
The remainder can be used for such things as overhead, administrative costs, marketing — and combating fraud. For some insurers, the margin of that 20 to 25 percent of the premium dollar is rather slim. Costs will be shaved, and you can bet that anti-fraud activities won’t be spared
We argue that combating fraud speaks to health care quality because it helps to keep insurance affordable, thus more people receive coverage. And just as important, It is through fraud investigations that it is often found that medical providers are cutting corners on health services, including performing treatment and services that are medically unnecessary and harmful to the patient. Anti-fraud efforts often are efficient ways to quickly identify and remove bad doctors and clinics from providing health services, whereas regulatory and licensing remedies sometimes take years.
The National Association of Insurance Commissioners (NAIC) is working with the federal government to draft the regulations for this provision. The Coalition and the National Insurance Crime Bureau has recommended that anti-fraud programs should be included in the definition of activities that improve health care quality. This way, health insurers won’t be pressured in cutting back on their anti-fraud programs — activities that address some of the core issues of health care reform.
Stealing health benefits no minor crime
Stealing health insurance benefits is a type of fraud that doesn’t get much attention. It seems innocent to a lot of people. So you list your boyfriend as your husband and get him covered by your employer’s policy. What’s the harm?
People who get divorced often don’t alert their employers that their now-ex isn’t really qualified for health benefits. And then there’s all the people who sign up for Medicaid that really don’t quality, like the doctor and school teacher in Connecticut.
All the same, it’s still cheating. Honest people pay extra for this dishonesty. And it’s dumb to steal insurance benefits because with vast data resources, insurers can easily learn about whether people are really married or whether their income is low enough to qualify for state programs.
The first public outreach effort on the theft of health benefits has been launched by the Insurance Fraud Prevention Authority (IFPA) in Pennsylvania. They’ve created a brochure, TV and radio spots, plus a website describing varied opportunistic frauds committed by consumers and warning people about the consequences. Another fine job by our colleagues in the Keystone State.
Question the company and their plan
Health care reform has helped produce a new wrinkle on an old scam. Crooks are taking advantage of consumer confusion over health care to peddle fake plans and worthless policies or insurance consumers don’t need. Health & Human Secretary Kathleen Sebelius is the latest to jump on the public awareness bandwagon to warn consumers about these scams. During a speech at the National Press Club earlier this week she said scam artists were going door to door telling people there was a limited open-enrollment period to buy coverage and they needed to buy now.
Sebelius, a former state insurance commissioner, said states need to investigate and prosecute these scams.
This new wrinkle comes atop a growing wave of bogus health plans and shady medical discount programs that are defrauding consumers by the thousands. Some states are taking action, such as the recent action in Tennessee where two sham health plans were taken over by regulators. Law enforcement also has ongoing criminal investigations in several states.
This is a good start. But more prevention is needed. That’s where alerts like the one issued by Sebelius and others come in. The best awareness campaign we’ve seen was just launched in Nevada. The campaign is a joint project of the state’s department of insurance, the Nevada Surplus Lines Association and the Nevada Independent Insurance Agents Association.
The campaign features tv and radio spots, a robust website and an interactive system to help consumers verify health insurers and discount plans. The website — NVInsuranceAlert.com — also contains red flags and useful tips on choosing a health plan.
The ads carry a double tagline — “Question the company and their plan” and “Check before you write a check.” Solid advice both.
State regulators have shown up a bit late for this party, partly because many budgets have been cut back for such things as consumer assistance. Perhaps if more took the lead from Nevada and partnered with industry groups, we might find a way to final get ahead of this crime spree.
“Scrap this bill”
The Denver Post seems to be the voice of reason today in calling for sensible changes to workers comp legislation in Colorado. An editorial voiced its support for giving injured workers a greater say in comp policies, but cautioned against reining in anti-fraud activities.
House Bill 1012 is being amended again in the Senate Judiciary Committee, hopefully for the better by removing provisions that would require anyone conducting surveillance to reveal their operation if asked by a claimant (see previous post). The Denver Post has even better advice — scrap the bill altogether:
“The unfortunate truth is that some bad actors do try to cheat the system, and surveillance in the past has caught them doing such things as working construction jobs on the sly or performing other strenuous tasks while claiming they are too injured to work. HB 1012 also would require that evidence collected in investigations be destroyed after five years. Fraud investigators contend that’s too soon, and we agree. We see no harm in allowing investigators to keep what they find.”
The editorial also points out the obvious conflict of interest by Senate Judiciary Chair Morgan Carroll, an attorney who represents injured workers in workers comp cases. Sen. Carroll has a lot of influence in shaping this bill and in sending it on to the full Senate. Let’s hope she the committee do the right thing and at least delete the remaining onerous provisions.
Col. bill could put investigators in harm’s way
The Judiciary Committee of the Colorado Senate will take up a bill tomorrow aimed at curbing alleged abuse in surveillance of workers comp claimants. The bill — H.B. 10-1012 — already has passed the House and is now working it’s way through the other chamber.
The original bill contained several onerous provisions that would have had a chilling effect on using surveillance. They are mostly gone.
One provision remaining, however, is disturbing. It would require anyone conducting surveillance to reveal their operation if asked by a claimant.
On the surface, this sounds like an innocuous provision. But investigation firms, insurers and employers fear the requirement could put investigators at risk. This requirement sets up potential confrontations that can lead to injury or worse. There already are incidents where investigators have been threatened, attacked, beaten and shot by confrontational claimants.
I’m at a loss at what benefit this requirement would bring, other than to punish fraud fighters for doing their job. Let’s hope legislators in Colorado strike this awful provision.
Update: The hearing scheduled this week was not held because of a snowstorm that hit Colorado. No word yet on when it might be rescheduled.
House bill ups the ante on fraud funds
The health care reform bill passed by the House of Representatives today contains a few enhanced anti-fraud provisions not included in the its Senate counterpart. The most striking provision is an increase in anti-fraud funding from $100 million over ten years to $250 million.
The former figure sounds like a lot of money, but it equates to spending an extra $1 to combat a $1,000 problem. The latter figure should go further, if spent wisely (I know, I know, a big IF) in combating Medicare fraud.
The House provisions will be merged with those already passed by the Senate. Here’s a list of the anti-fraud provisions enacted today:
Subtitle D – Reducing Fraud, Waste, and Abuse
Sec. 1301. Community Mental Health Centers. Establishes new requirements for community mental health centers that provide Medicare partial hospitalization services in order to prevent fraud and abuse.
Sec. 1302. Medicare prepayment medical review limitations. Streamlines procedures to conduct Medicare prepayment reviews to facilitate additional reviews designed to reduce fraud and abuse.
Sec. 1303. CMS-IRS data match to identify fraudulent providers. Allows the Secretary of Treasury to share IRS data with HHS employees to help screen and identify fraudulent providers or providers with tax debts, and to help recover such debts. Provides strict controls on the use of such information to protect taxpayer privacy.
Sec. 1304. Funding to fight fraud, waste and abuse. Increases funding for the Health Care Fraud and Abuse Control Fund by $250 million over the next decade. Indexes funds to fight Medicaid fraud based on the increase in the Consumer Price Index.
Sec. 1305. 90-day period of enhanced oversight for initial claims of DME suppliers. Requires a 90-day period to withhold payment and conduct enhanced oversight in cases where the HHS Secretary identifies a significant risk of fraud among DME suppliers.
Getting fraud advice on the Net
You file a phony burglary claim with your insurer and after they balk about paying, where do you turn for help? Well, the Internet, of course. That’s what this poster did this morning:
I am looking for a way to fake out my insurance company and make it look like i really have the items i dont have my appartment was “broken into.” I filled out police report but the insurance company says that i need prooof of ownership of the items that i claimed how do i do this seeing as how i never owned them?
It’s interesting that it was posted on the blog “Fraud Protection & Detection,” so it’s not surprising most replies were less than helpful:
• “I hope they prosecute you…”
• “Let me get this straight. You are asking on a public forum how to commit fraud without it looking like you are attempting fraud? I hope they catch you.”
• “Definite Rhodes Scholar material here…”
• “…You’re one of those horrible people that screw up good things for the rest of us.”
• “You will get in trouble for 2 things – filing a false report with the police – which, if you filed it already, you can’t ‘take it back’ & insurance fraud. Hope they send you to jail & throw away the key.”
• “I hope you like prison orange because insurance fraud is a felony.”
and my favorite:
• “You’re the reason everybody complains about their insurance premiums always increasing. I hope they catch you, you have to spend some quality time with “Bubba”, and end up having to sit on a donut the rest of your life. JACK ASS!!!”
The Coalition monitors blogs, Twitter, Facebook, chat rooms, bulletin boards and wherever people in cyberspace discuss insurance fraud. Some of the information shared is helping to spread scams that likely won’t get detected. That’s disturbing. But more and more, people — like the ones above —are voicing their opposition to committing fraud in the strongest terms. And that’s encouraging.
