Many private corporations, unions, and local municipalities provide health insurance to their workers through a process known as self-funding. In this arrangement, when a worker needs to see a doctor, get a test, or take a medicine, it is the employer or union who foots the bill – not a health insurance company.
So where does the insurance company fit in?
Your employer may be paying the medical bills, through a fund set up for that purpose. However, employers do not know anything about the administration of health insurance – important things such as underwriting, pre-authorization, claims review and denial, or utilization management. For these things, the employer – who sponsors the self-funded health plan – requires the administrative expertise of an insurance company.
The insurance company steps in to administer the health plan, sponsored by the employer, through an Administrative Services Only (ASO) contract. The insurance company charges a fee for this administrative service, of course. However, very few health plan sponsors fully understand the nature of these fees, and so they are prone to getting bilked.
It works like this: Suppose you go to visit a doctor because of an illness, and the doctor’s bill for that visit is $200. That bill is sent to the insurance company that administers the health plan of your self-funding employer.
But the insurance company will not pay the full bill. If the doctor is part of their network, a lower, contracted rate is paid. If the doctor is out-of-network, the insurance company will arbitrarily decide on an “allowed amount,” and pay a percentage of that instead, leaving you, the patient, to pay the rest.
Either way, the insurance company has “saved” the self-funding employer money by not paying the full, retail charge of $200. Now here is where insurance companies game the system. For that savings, the insurance company charges a commission, typically between 29% and 50%. Every single medical transaction is subjected to this commission. Every doctor visit, every lab test, every XR, every surgery, and even emergency care. In-network or out-of-network.
These commissions get buried within other administrative charges, and in most cases the self-funding sponsor does not even know about them.
So when the insurance company pays, for instance, only $75 of that $200 doctor bill, it can collect a commission for the savings. At 50%, that commission would be $62.5. The insurance company is paying itself almost as much as it pays the doctor! With money taken from your employer’s health fund.
This practice is costing New Jersey employers, unions, and the State Health Benefits Plan up to $1 billion per year.
If we want to save health care dollars in New Jersey, we must end this self-dealing practice of the insurance companies.