Bloomberg News

Health Insurers’ Anti-Fraud Bid Seeks to Ease Profit-Limit Rule

July 27, 2012

Health insurance executives who met at the White House yesterday to mark their contributions to fighting fraud told the Obama administration that the cost of those efforts shouldn’t be counted toward profit limits that were imposed under the 2010 U.S. health-care overhaul.

Under the Affordable Care Act, insurers can keep 20 percent of revenue from customer premiums for profit and administrative costs. The rest must be spent on medical care or rebated. The government should change the rules so the companies’ anti-fraud efforts can be classed as medical costs, said Richard Migliori, executive vice president of health services at UnitedHealth Group Inc. (UNH:US), the largest publicly traded U.S. health insurer.

Changing the rule “would make it easier for the industry to do the most that they can,” Migliori said in a telephone interview after leaving the meeting in Washington. “Anything we do to prevent fraud counts as administrative costs.”

Activities to fight fraud, such as investigating suspicious billing claims or checking doctors’ address changes to make sure they are legitimate, have become a greater focus of regulators seeking to rein in unnecessary costs. The Obama administration yesterday announced a partnership with the industry in which UnitedHealth, WellPoint Inc. (WLP:US) and other insurers may try to share more billing data with the government to root out fraud.

A White House spokesman, Nick Papas, declined to comment on the industry’s request for a change to the profit limit.

Previous Request

The government shouldn’t change the profit rule, said Ethan Rome, executive director of Health Care for America Now!, an activist group critical of insurers.

Raising the issue at the White House meeting was “classic bad-faith,” he said by phone. “There’s lots of things that insurance companies can do to improve the delivery of care and to reduce the cost of care. But those things should not be counted as medical care.”

Insurers, including UnitedHealth, have previously asked the administration to change the way their anti-fraud efforts are accounted for under the profit rule. Money that insurers recover from fraud that is discovered can be deducted from administrative costs when calculating whether they exceeded the profit limit. The companies can only deduct as much as they spend on their anti-fraud activities.

The rule discourages investment in anti-fraud efforts or attempting innovative fraud programs that risk failing, said Alissa Fox, who oversees lobbying and policy at the Blue Cross Blue Shield Association in Washington. The president and chief executive officer of the association, Scott Serota, attended the White House meeting.

Resource Disincentive

“You don’t want to have a disincentive for people to allocate appropriate resources on fraud,” Fox said in a telephone interview. “You don’t know how much you’re going to recover until you recover it.”

The Justice Department estimates that Medicare, the health program for the elderly and disabled, and Medicaid, the program for the poor, are plagued by at least $60 billion in fraud a year.

“We know that fraud’s taking place across the health care system with many private insurance companies facing the same challenges that we do,” Health and Human Services Secretary Kathleen Sebelius said at the meeting with insurers.

The government recovered about $4.1 billion in 2011 from fraud against federal health programs that was discovered, Attorney General Eric Holder said.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • UNH
    (UnitedHealth Group Inc)
    • $90.95 USD
    • 2.41
    • 2.65%
  • WLP
    (WellPoint Inc)
    • $120.43 USD
    • 4.20
    • 3.49%
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