Why are health insurers willing to test the limits of the law, risk the wrath of providers and alienate their customers? The answer, of course, is cash flow management, which has become more vital to insurers than administering medical bills.
Provider frustration and consumer complaints have led 43 states to enact prompt-payment laws designed to speed health plans' claims processing. But many of the laws are plagued by loopholes that help insurers skirt the rules. And insurers will continue to drag their feet unless states toughen up the statutes and their enforcement efforts.
Denying or delaying reimbursement is money in the bank for insurers because they can earn big bucks by investing premium dollars before settling medical claims. A look at the 2000 financial performance of Blue Cross and Blue Shield of Michigan yields some light on how the insurance business operates.
The company covers almost 5 million people and controls about half of the Michigan market. It gives patients a broad network of providers and can negotiate stiff discounts from hospitals and physicians. Like other insurers, it is on a rate-raising binge after a few years of stability in the late 1990s. But the higher premiums haven't provided much of a cushion. Last year, the company reported an underwriting loss of $8.8 million after easing off on some managed-care restrictions.
Despite the underwriting woes, the Michigan Blues remains vibrant thanks to investment income of $102.2 million. It even managed to add $133 million to the reserve fund in 2000, giving it a $1 billion nest egg.
To be fair, the company has a reputation for paying its bills in a timely manner. But other insurers have a much poorer track record, and it's time state regulators got serious about enforcing prompt-pay laws. Texas saw the light after establishing a clear definition for a "clean claim." To show they mean business, state insurance officials in the Lone Star State recently levied $9.25 million in fines against seven health plans for slow payments to providers.
Hospital groups should pound away at this issue, as some 33 state legislatures are reviewing prompt-pay policies this year. Meanwhile, hospitals and medical practices need to evaluate their billing systems and continue converting to automated claims filing. Simple, clean claims stand the best chance of being paid promptly.