Egregious medical overbilling leaves payors and providers haggling over reimbursement for medical services while patients end up with large balance bills they cannot afford to pay. But a captive solution built on indemnification rather than insurance can shield health plan sponsors and members from any financial liability associated with high-cost claims and balance billing.
Providing a legally defensible strategy to reprice individual medical bills and fully absorb that risk, a captive can transfer the risk exposure for excessive claims to a captive “cell” that separates its assets and liabilities from core corporate assets. The captive takes over the bill and is contractually obligated to pay those claims, relieving patients from the harassment of collection agencies.
This novel approach is radically different from a traditional single or group captive program, which creates a big enough risk pool to aggregate large amounts of data and dilute overall risk while insuring risk on claims that haven’t yet occurred. The new approach actually takes steps to understand and manage risk on a bill-by-bill basis. Although it cannot prevent providers from continuing their practice of overbilling, experience shows that when providers learn there is a captive indemnification program in play, they typically back-off from claims collection.
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Learning From Failure
Traditional captives are not set up to indemnify health plan members from balance billing in the event that a large claim becomes problematic and there is no agreement on a fair payment to the provider. Healthcare payors have skirted this issue by hiring attorneys to challenge egregious billing in court, which is no guarantee that they – or their health plan members – will escape financial liability.
Reference-based pricing (RBP) programs in tandem with a medical stop-loss captive also fail to shield payors and patients from balance billing. While RBPs may refer patients to an attorney for negotiating large bills, they cannot erase the responsibility of group health plan sponsors or their participants to pay those charges.
There have been attempts at indemnification against egregious billing practices in the form of a Contractor Liability Insurance Program known as CLIP to help payors absorb risk, much like reinsurance. But there are inherent limitations to this approach. For example, Securities and Exchange Commission filings prevent a public company from taking on risk. CLIPs also charge huge administrative fees for their services.
Much of the blame for continued balance billing falls on the inability of the commercial insurance marketplace to resolve this problem and achieve true healthcare price transparency. While government oversight has intensified, the slow pace of provider compliance with new laws and regulations to fix these issues, and lax federal enforcement over violations, have not resulted in any meaningful solutions. Even in the face of legislative and regulatory remedies, doctors and hospitals continue to send balance bills to collection agencies and harass patients for payment. The remedy must come from disruptive innovation, exemplified by captive indemnification.
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Addressing Escalating Costs of Healthcare Benefits
While healthcare has become more expensive each year, it’s now also increasingly risky to provide these benefits. Plan sponsors face increasing pressure to fulfill their fiduciary responsibilities as stewards of group health plans amid growing government oversight and a litigious atmosphere. A recent employee lawsuit alleging Johnson & Johnson failed in its fiduciary duty to health plan participants may spark a new wave of class-action litigation against health and welfare benefit plan sponsors that mirrors decades of court battles waged against sponsors of defined contribution retirement plans.
Without “true” insurance built on transparent pricing that is clear to consumers before services are rendered and devoid of hidden fees, patients will still receive balance bills. As a result, even many of those with employer-provided health insurance cannot afford important care or medicine, which they delay or forgo. More than 500,000 U.S. households each year file for personal bankruptcy, with unpaid medical bills now the leading cause.
The only way to shield payors and patients from any financial liability from balance bills, and provide them with peace of mind, is through captive indemnification. Coupled with advanced payment integrity technology and medical expertise for reviewing and repricing bills, it fortifies protection against inflated prices.
Using physicians and surgeons, rather than coders or administrative personnel, to manage a technically advanced bill review process bolsters claims payment accuracy, prevents overpayments and eliminates fraud, waste and abuse. The only way to ensure that a medical bill is properly reviewed is to fully understand the medicine behind it. When medical professionals are the ones who scrub bills at the line-item level, they can spot redundancies and items such as durable equipment that should never require separate billing or erroneous billing for unnecessary surgical procedures.
As we have shown at WellRithms, payors now have a viable option to protect themselves and their members in an effort to curtail perverse billing practices.
