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How to Make Health Insurers Take Fraud Seriously

Experts say both employers and working Americans end up paying more when health insurance companies don’t report fraud to regulators and prosecutors.

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In most states, laws require private health insurers to submit information to regulators about suspected fraud in their networks. Such reporting helps everyone by highlighting scammers and their schemes. For instance, a doctor could be billing several insurers for services that weren’t provided, a hospital could be uniformly gaming billing codes to pad profits or a fraudster could be targeting several insurers pretending to be a medical professional.

But ProPublica found that most insurers prefer to handle suspicious cases internally without notifying regulators or prosecutors, who could pursue the alleged perpetrators in court. Ultimately, money lost to fraud is passed on to employers and working Americans who pay for the health plans.

Here are three things insurance regulators, health care advocates and benefits consultants say could be done right now to ensure insurers take appropriate action:

State regulators could penalize insurers for failing to report suspected fraud.

About three dozen states require health insurers to report suspected cases of fraud to regulators. The reports allow regulators to warn other insurers about schemes, investigate cases and make referrals to law enforcement. Although health insurance fraud is widespread, regulators say they receive few reports.

Regulators need to randomly audit the claims received by insurers and fine the insurers for failing to report any fraud the spot checks uncover, said Dennis Jay, executive director of the Coalition Against Insurance Fraud. “I have never heard a good excuse for why regulators are not cracking down.”

Require suspected cases of fraud to be reported to regulators nationwide.

More than a dozen states do not require insurers to report suspected cases of health care fraud to regulators. Neither does the federal government, which regulates self-funded plans, in which an employer funds the plan and hires an insurer or other company to process medical claims.

More than half of the 150 million Americans who get their benefits at work are covered by self-funded plans. This means suspected cases of fraud are not being reported to regulators in most of the plans that cover working Americans. Experts say regulators need to be notified if an insurer or plan administrator identifies potential fraud, allowing them to investigate and alert law enforcement if necessary.

Give employers who fund their companies’ health benefits detailed information about spending, so they can spot suspicious trends.

The typical contracts between employers who fund their plans and plan administrators limit what employers can see about their claims, said Doug Aldeen, a Texas attorney who specializes in employer-sponsored benefits. For instance, the plan administrator may only provide a bill for the total amount spent on their workers’ health care — not a breakdown of costs. Aldeen said this system may obscure spending that could be fraudulent.

Aldeen said proposed legislation in Ohio could help employers take part in policing fraud. The bill would require insurance carriers to provide anonymous but detailed claims data to employers. That way, he said, they could identify any spending that looks out of line. Something similar could be done for all health plans, Aldeen said.

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Portrait of Marshall Allen

Marshall Allen

Marshall Allen is a reporter at ProPublica investigating the cost and quality of our health care.

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