Health Insurance companies often deny benefits for health services that they deem medically unnecessary even when there is no other option and even when the option may be cost effective in the long term. This post examines insurance company abuse of the medically necessary determination and potential policy responses.
Background: Insurance company denials of claims based on the view that the procedure is not medically necessary is widespread and can involve serious life-threatening health care cases.
This Kaiser Family Foundation article shows many requests for benefits are denied and the denials for medical necessity are seldom challenged.
A denial based on the view that a procedure is medically unnecessary can occur when a patient is in great pain and faced with a life-threatening condition. This ProPublica article describes a decision by United Heath Group to deny the only viable treatment for a patient suffering from a severe case of ulcerative colitis.
Symptoms of the disease for this patient included severe arthritis, diarrhea, fatigue, and blood clots. The medical bills were running $2.0 million per year. Bills of this magnitude are not unusual for new biologic drugs. The expensive drugs were the only therapy that worked. The patient could not function and would die without the treatment.
The family responded with a lawsuit, which revealed that employees at United Health Group misrepresented findings and ignored warnings from doctors about risks of altering an expensive drug treatment.
The amazing ProPublica article, reveals that insurance companies will basically lie to avoid expensive claims. The denial in the ulcerative colitis was motivated by the cost of the drug. The insurance company was willing to lie and commit fraud to avoid paying for the expensive treatment.
Insurance companies will also resist making claims when a procedure is economical in the long term. For example, insurance companies have denied patients access to the Coflex medical devise for spine surgery even though there is evidence that the procedure is safe and actually cost effective compared to other procedures.
The denial of benefits in the Coflex device decision was motivated by a desire to force or encourage people with expensive back problems to switch to a different more expensive insurance plan. This process of tailoring benefits away from people who are likely to be big health care spenders or denying benefits for expensive health conditions is a practice call “Cherry Picking.”
Policy Implications: The ACA eliminated lifetime and annual health expenditure limits under insurance plans. Insurance companies responded by restricting access to care and by deeming more procedures medically unnecessary.
One response to this problem might be to move the decision on whether a process is medically necessary to an independent board outside of the insurance company. I doubt this would work.
Most people currently don’t appear adverse decisions and insurance companies have much more resources for the appeal process. However, moving the appeals process to an external board might speed up decisions and encourage more people who are denied benefits to appeal the decision. A streamlined appeals process can be extremely important when the patient has been approved for a less expensive option but is appealing for access to the newer potentially better procedure. (This occurs with denials of access to the Coflex medical devise because patients are often approved for a less expensive, less effective surgery that does not involve use of the device.)
A second more practical approach is to have government pay part of the cost of the most expensive health care procedures through a reinsurance program. I might have government pay 50 percent of all health care costs over $100,000. This type of cost-sharing arrangement would result in several benefit – including lower premiums and tax expenditures on the private health plan, decreased demand for short-term health plans that do not provide comprehensive coverage, and a reduction in claim denials.
An increased use of expensive biologic drugs will lead to either higher denials as discussed in the ProPublica article or higher health insurance premiums. This problem can only be resolved by a partnership where the costs of these high-cost cases is shared with taxpayers.
My first paper on the use of reinsurance to improve health insurance options and increase access to health care can be found here. A cost-sharing program is part of my 2023 Health Care Reform proposal. Go here for a quick outline of the proposal.