Unbiased Analysis of Today's Healthcare Issues

Medicare more likely to deny claims than commerical health insurers

Written By: Jason Shafrin - Jun• 30•08

According to an article on TheHill.com, Medicare denies more claims than commercial insurers.

Medicare was the most likely to deny any part of a claim, with a 6.9 percent rate. Aetna was a close second at 6.8 percent while the others ranged from 2.7 percent to 4.6 percent.

Coventry Health had the fastest median turnaround between receiving a claim and responding, at four days, according to the AMA. Medicare and CIGNA took a median 14 days; Humana and Aetna, 13 days; Health Net, 11; United Healthcare, 10 and Anthem, seven.

Why is this? It could be the case that commercial health insurers have more efficient claims processing centers. While economists generally believe that the private sector is more efficient, in the case of health insurance claims firms make more money when they deny more claims. Thus, I am not sure that the profit motive is leading to more private-sector claims approvals.

Competition between insurers may increase claims approvals. Most physicians and hospitals must take Medicare because it represents so large a share of the helathcare spending. On the other hand, physicians may only accept patients whose insurance companies have prompt payment with fewer denials. This leads to some incentive for insurance companies to decrease claims denials.

Another reason for the differential claims denial rates is the demographics of Medicare and commercial insurance enrollees. Almost all Medicare enrollees are over 65, while commercial insurers have enrollees who are of varying ages. Since older individuals are more likely to demand high cost medical procedures, if high cost medical procedures are the ones that are more likely to be denied then Medicare’s higher denial rate may simply be due to the composition of its enrollees.

Whatever the reason, the fact that Medicare denies more claims than commercial insurers should dispel the myth that the government is simply a benevolent entity, while commercial insurers are ruthless, profit-hungry wolves. The truth–as always–lies not in the black nor the white but in the gray.

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14 Comments

  1. For the AMA report card:
    http://www.ama-assn.org/ama1/pub/upload/mm/368/reportcard-short.pdf

    Regarding the 14 day delay, that is required by law. It was enacted as a budgeting gimmick to move two weeks worth of Medicare billings into the next fiscal year. It also illustrates the dishonesty of the administration’s offer to hold payments for ten days to allow Congress to act on the physician compensation reductions when they return; they have to hold them for 14 days anyway.

    If you look at the reasons for claims denial in the AMA charts, most of them are for errors (incomplete form, wrong carrier, not enrolled in program, etc.), and some are for non-covered services (routine exam, etc.). To me, it looks like the numbers confirm that Medicare does a better job of requiring compliance in order to receive payment. Obviously, one set of rules (single payer) would improve compliance.

  2. The implication that Medicare is not providing efficient claims processing is misleading. The 14 day delay is required by law. It has served as a budgeting gimmick to move two weeks of Medicare payments into the next fiscal year. (This is a criticism of governmental budgeting processes, but not of the administration of Medicare. The private sector uses similar measures such as shifting the completion and recording of sales between quarters to embellish their financial statements.)

    If you look at the AMA report cards, you’ll see that most claims denied by Medicare were due to billing errors (inadequate data on billing forms, wrong carrier, not enrolled in program, etc.). Also, some denials are for non-covered services such as routine physical exams. Medicare has been more effective in requiring compliance with the program, which is entirely appropriate considering that these are our taxpayer dollars that they are spending.

    In contrast, the relaxation of compliance standards by the private health plans has wasted funds that we have paid in as premiums. Charging us higher premiums so that they can pay dubious claims does not represent private sector efficiency. We are paying the private plans far more in administrative costs than we do for Medicare, yet they are not providing the claims processing efficiency that we deserve. As an example, Medicare pays the contracted rate 98% of the time, whereas the private insurers do so only 66% to 84% of the time. The fact that they can’t get right the rates that they contracted for demonstrates the profound incompetence of the private insurance industry.

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