As more small and mid-sized employers consider their options for self-funding group benefits, good communication is more important than ever. With health care costs taking up larger portions of employers' budgets, explaining the factors that drive premium increases can help clients and prospects see the value of changing their current strategy.
One of these factors is the auto-adjudication of insurance claims. Most brokers understand the impact auto-adjudication can have on employer health care costs, but this isn't something most employers spend a lot of time thinking about.
Making sure clients and prospects understand how auto-adjudication affects their costs can lead to more groups willing to pursue alternative strategies that provide more transparency.
|What is auto-adjudication?
When an employee has a medical claim, the provider sends it to the insurance company for adjudication, meaning the carrier decides whether it is approved and paid or denied. Carriers will sometimes agree to auto-adjudicate, meaning the claims are subject to less review. One potential result is that bills with errors may be auto-approved, including claims that are over-billed. As a result, the employer's costs can go up.
|Why would carriers agree to auto-adjudicate?
The answer to this question goes back to the pricing negotiations that take place between hospitals and insurers. Hospital pricing starts with what's called a “chargemaster” price. Insurers negotiate down from that price in order to include the hospital in their network.
In other words, if the hospital grants the insurer a 40 percent discount on the chargemaster rates, the insurer will include the hospital and direct members to that hospital in its network, ensuring patient volume for the providers.
However, sometimes a hospital will offer an even better discount — let's say 42 percent — off of the chargemaster rate if the insurer will agree to auto-adjudicate a percentage of claims.
|Why would hospitals want claims to be auto-adjudicated?
The short answer is because it means they get paid faster. The adjudication process slows down the billing cycle for hospitals and adds more cash flow pressure to their operations. If an insurer auto-adjudicates a percentage of claims that are generally thought to be correct, this reduces some of this pressure.
|Does this benefit employers?
Whether or not auto-adjudication benefits employers may depend. If insurers were only auto-adjudicating correct claims, then employees would be accessing a greater chargemaster discount at the hospital in their network.
However, medical bills often have errors. Industry groups estimate up to 80 percent of medical bills contain mistakes, and inevitably, some of these billing errors wind up auto-adjudicated.
In these circumstances, it can turn out that the reduction on the chargemaster rate ends up costing the employer more in incorrect or overbilled claims.
If employees are being overbilled and insurers are auto-approving these claims, their costs rise. Insurers can then use the higher rate of claims to defend premium increases for the group. After all, if more claims are paid, the group's medical loss ratio will be higher.
This is why some think it can be worth the investment for a self-insured employer to audit claims more carefully and ensure that employees are billed, and providers are paid, correctly.
Focusing on explaining this process to employers for whom self-insuring makes sense can result in more buy-in. As a result, these groups may be able to access significant cost-savings and better benefits.
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Alex Tolbert is the author of “Online Benefits Technology: The Strategic Broker's Guide” and leads BerniePortal, an all-in-one HR platform built for brokers by brokers. Before he started the BerniePortal, he worked primarily as a group health insurance broker.
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