Health insurers agree to out-of-network billing changes

Jan 20, 2009 4:36 PM

Have you ever been charged too much for out-of-network health care? A new report from New York’s attorney general suggests that insurers may not be covering their fair share of the bill when patients use out-of-network providers. But new reforms may make such practices a thing of the past.

New York Attorney General Andrew Cuomo announced on Jan. 13 that a nearly yearlong investigation of the health care industry’s out-of-network billing practices had led to an agreement with the country’s second-largest health insurer, UnitedHealth Group, which would result in nationwide reforms to out-of-network billing practices.

Cuomo alleges that a database run by Ingenix, a subsidiary of UnitedHealth, systematically understated rates for out-of-network care, which may have cost consumers nationwide hundreds of millions of dollars over the past decade. In an agreement with the attorney general, UnitedHealth announced it would stop using the Ingenix database and contribute $50 million to establish a new independent database to be run by a qualified nonprofit organization. Just two days later Aetna, the country’s third largest insurer, followed suit announcing that it would contribute $20 million to the new database.

The agreement also promises to establish a Web site that allows consumers to review and compare rates for common out-of-network medical services in their area. In prepared remarks Cuomo said, “Our agreement with United removes the conflicts of interest that have been inherent in the consumer reimbursement system. This has been an industry-wide problem and it demands an industry-wide reform.” Consumers Union’s Programs Director Chuck Bell applauded the agreement in a statement, calling it “an extremely sensible, fair solution, which will be of great benefit for consumers nationwide.”

The allegations of conflict-of-interest and billing fraud are detailed in a paper titled “Health Care Report: The Consumer Reimbursement System is Code Blue.” In it, the attorney general's office describes a system rife with conflict-of-interest and systematic undercompensation for out-of-network charges, potentially affecting one in three Americans.

Seventy percent of working Americans opt for health-care plans that allow them to use an out-of-network provider, according to the report. Insurers pay less of the total cost when consumers opt for these providers because insurers don’t have a contract dictating the cost of services. Instead, insurers typically pay a percentage of the “usual and customary rate” of the service provided by an out-of-network provider. But the New York attorney general’s analysis of the Ingenix database, used by UnitedHealth and other major insurers including Aetna, CIGNA, and WellPoint, found that the industry database understated the market rate by up to 28 percent across New York state.

Further, the databases are not accessible to consumers, and none of the insurers disclosed to consumers that the database used to calculate out-of-network rates was operated by a major health insurer.

In related news, UnitedHealth announced on Jan. 15 that it reached a $350 million settlement in a class-action lawsuit related to out-of-network reimbursements. The proposed settlement would cover procedures dating from 1994, and is subject to court approval. However, at least one of the law firms for the plaintiffs opposes the settlement, warning that $350 million would not be enough to cover all the outstanding claims, and argues that UnitedHealth should not be able to pay for the administration of the settlement fund with the $350 million meant for consumers. So the final settlement remains unresolved.

The New York attorney general’s investigation is industrywide, and ongoing. If you believe your insurer underpaid for out-of-network care, track down your records and contact your insurer. Check out the Consumers Union Guide for Handling Disputes for more assistance. If you’re not satisfied with the results, contact your state attorney general or state insurance department. New Yorkers can file complaints about billing problems here. For more, see our full coverage on How to Avoid Expensive Health-Insurance Errors, and more insurance coverage in our Health Insurance section.

—Kevin McCarthy, associate editor

For more on out-of-network health care, visit our section "Make Sense of Your Hospital Bills," read our blog "Medical Insurance Booby Traps," and learn how to negotiate your medical bills and check for errors.