Insurance

7 Secrets of Health Insurers

Source: MSN Money

To really understand your coverage, you need to know about a lot more than just your deductibles and copayments.
By Insure.com

Health insurance can seem impenetrable. For starters, have you tried reading your policy? It's dense. With different regulations in each state, countless varieties of policies and elusive pricing practices, health insurance can seem downright confounding.

And wrapped up in all this are myths about health insurance that were perhaps once true -- or never were. Here's a look at seven things you probably didn't know about your health insurer.

1. Health insurers' profit is about 3%.

Health insurers rack up revenues of $723 billion a year, according to data from the Centers for Medicare & Medicaid Services. So you might think they make money hand over fist.

But with the costs of health care and prescription drugs rising every year, health insurers generally eke out only about a 3% profit. Health insurers would, in fact, make a bigger profit by selling toys to children.

By comparison, here are profit margins for other businesses, according to Hemscott, an independent financial data provider:

* 1.6% for grocery stores.

* 4.3% for toy stores.

* 6.5% for life insurance companies.

* 8.0% for resorts and casinos.

* 8.2% for property and casualty insurers.

* 16.1% for cigarette makers.

* 16.8% for major drug manufacturers.

The federal data show that almost 86 cents of every dollar you pay for health insurance premiums goes to pay for medical services such as doctor visits, prescription drugs and hospital costs.According to a 2006 PricewaterhouseCoopers study conducted for America's Health Insurance Plans, an industry trade group representing about 1,300 companies, the remainder of your premium dollar is spent on the following:

* 5 cents for policyholder services such as prevention, disease management, care coordination and investments in health information technology, plus provider support and marketing.

* About 6 cents for insurers' administrative costs, including claims processing and compliance with government regulations.

* 3 cents for health insurance plan profits.

2. Your health insurer regularly pays for unnecessary medical tests.

The cost of medical liability goes beyond legal costs for health insurance companies: About 10 cents of the nearly 86 cents spent on medical services goes to medical liability and the practice of defensive medicine.

In these litigious times, doctors often feel they must cover all the bases when a patient comes in with a health complaint. That can mean rounds of tests to rule out far-fetched conditions or even prescriptions handed out because patients demand them.

In Pennsylvania, for example, where there is no cap on jury awards, more than 90% of physicians admitted practicing defensive medicine, according to a 2005 study in The Journal of the American Medical Association:

* 43% used imaging technology when it wasn't necessary.

* More than 50% referred patients to other specialists.

* 70% of emergency physicians ordered additional diagnostic tests.

* One-third prescribed more medications than were necessary.

* 60% used unwarranted invasive procedures.

* 42% restricted their practices by eliminating procedures such as trauma surgery and avoiding patients with complex medical issues.

3. Health insurers typically pay a 10% to 20% commission to agents.

If you buy an individual policy from an agent, he or she generally makes that commission on your initial purchase and every year you renew.

4. You can take your health insurance gripe to an external review panel.

All grievances about your health insurance -- such as coverage denials or other claims problems -- start with a formal complaint directly to your insurer. But if you don't receive satisfaction from your insurer's own complaint-resolution process, you can make your case to an external review panel.

Only six states -- Idaho, Mississippi, Nebraska, North Dakota, South Dakota and Wyoming -- lack laws mandating external grievance panels, according to the Kaiser Family Foundation. Even in states without a law, though, health insurers have a grievance process.

HealthClaimsAppeals.org can guide you through the process of resolving an insurance dispute.

5. Your insurer may provide financial incentives to doctors who give you "best practices" treatment.

Health insurers are increasingly looking for ways to ensure patients receive the most effective care possible, which ultimately reduces health care costs and reduces patients' chances of developing chronic conditions.

Your doctor may have a "pay for performance" agreement with your health insurer, in which he or she gets higher reimbursement rates when prescribing treatments that line up with best-practices guidelines.

6. You might not be able to sue your health insurer.

Only 17 states have laws mandating that you can sue your health insurer in civil court in order to hold it accountable for treatment decisions, according to the Kaiser Family Foundation.

Those states are Arizona, California, Georgia, Illinois, Maine, Minnesota, Missouri, New Hampshire, New Jersey, North Carolina, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Washington and West Virginia.

7. Your health insurer may be entitled to take your auto insurance settlement after an accident.

It's legal in most cases for a health insurer to place a lien on any third-party settlement money you get from an auto insurer after an accident if your health insurer has paid for your treatment from an accident. This practice, known as subrogation, simply means "substituting one for another."

Health insurers are allowed to recoup the cost of your medical care from the settlement you receive from the person who injured you. For example, if your auto accident medical expenses total $5,000 and you win a $10,000 settlement, your health insurer can take half -- but only if its "rights of recovery" are spelled out in your plan agreement or summary of benefits.

Published Aug. 28, 2008

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