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OPINION: Vermont law illuminates claims statistics

Consumers will benefit from understanding disparities among insurers

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When you’re shopping for health insurance, wouldn’t it be great if you could find out every insurer’s claim denial rate? And how much each one spent on lobbying and advertising — and how much they paid their CEO?

You can now find all of that information and more if you live in Vermont, thanks to a law that was enacted last year at the urging of the Vermont Public Interest Research Group.

In compliance with that law, the insurers that do business in Vermont have just disclosed data they’ve been able to keep secret for years. And that information should come in handy when Vermonters begin shopping for coverage at the state’s online health insurance exchange in October.

With just 626,000 residents, Vermont is the second smallest state in terms of population (only Wyoming has fewer people), and it has only three major health insurers — Blue Cross Blue Shield of Vermont, MVP Health Care and Cigna, the company I used to work for.

Blue Cross Blue Shield of Vermont is by far the biggest and the only one based in the Green Mountain State. MVP is headquartered in New York, and Cigna, the for-profit company among the three, is based in Connecticut. 

Which of the trio do you think denied the most claims on a percentage basis in 2012?

If you guessed the for-profit company, as I did, you would be right. But even I was shocked to see how Cigna compared with its competitors, especially Blue Cross.

Of all the claims submitted to it last year by health care providers and policyholders, Blue Cross denied 7.6 percent. Cigna denied 21 percent. MVP was in the middle at 15.5 percent.

Since Vermont is a pretty small state,  chances are pretty high that all three companies have the same doctors and hospitals in their provider networks. One would have to wonder why Cigna felt it necessary to deny more than one of every five claims submitted by those doctors and hospitals while Blue Cross denied only one of every 13. 

Most of the claims denied by all three companies were categorized as “administrative,” meaning they were denied because a provider presumably used an incorrect procedure code or made some other clerical error when submitting their claims for payment. It defies reason to think that the doctors and hospitals in Vermont submitted inaccurate claims to Cigna at almost three times the rate they did to Blue Cross.

One of the things you need to know about the private health insurance business is that insurers make a lot of money when they delay paying a claim. I would be willing to bet that many — if not most — of the claims the Vermont insurers denied were eventually paid. When an insurance company delays paying a claim by days, weeks or months, it can take advantage of “float.”

The longer you can delay paying a claim, the more investment income you can make on the premiums you take in from your policyholders. And investment income is especially important to for-profit insurance companies because it contributes significantly to the bottom line.  Shareholders and Wall Street financial analysts like that, even though much of the money on which the investment gains were made should have been paid to health care providers.

The data reported by the insurers is consistent with recent claim denial rates in California. A California Nurses Association analysis of 2010 data submitted by insurers to the California Department of Managed Care showed that Cigna’s claim denial rate was 39.6 percent. Aetna’s denial rate, by contrast, was 5.9 percent. 

The Vermont disclosures showed that Blue Cross and MVP spent far more money lobbying state officials last year — $258,347 and $55,366, respectively, than Cigna, which spent only $9,141. But Cigna spent much more lobbying federal officials: $1.59 million. MVP spent $160,000 lobbying in Washington. Blue Cross of Vermont spent nothing, although the Chicago-based Blue Cross Blue Shield Association, which represents all of the country’s Blues plans, spends a lot on lobbying every year, as does America’s Health Insurance Plans, of which Cigna and MVP are members.

Cigna, a much bigger company than the other two, reported paying its CEO $3,970,833 in total compensation last year, compared to $1,250,000 for the CEO at MVP and $587,184 at Blue Cross. And Cigna was especially generous in paying its nine board members: $3,199,855. Board members at Blue Cross earned a combined $246,632. MVP did not pay its board members anything.

The one area in which Blue Cross Blue Shield of Vermont spent much more than the others was advertising and PR. The company spent $743,968 for marketing last year in Vermont, compared to $516,358 for MVP and $66,849 for Cigna.

Cigna notified the state earlier this year that it would not seek to sell policies to individuals and small businesses on Vermont’s exchange, leaving that part of the marketplace to Blue Cross and MVP.  But Cigna will still have at least one big client in Vermont — the state of Vermont. Cigna has had a contract for several years with the state to provide coverage to state employees. If I were one of them, I would ask for an explanation of those high claim denial rates.