Denials

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.