The Impact of United Healthcare Settlement on Health Care Costs

Last week, New York Attorney General Andrew Cuomo announced that he had reached a settlement with United Health Group.   The insurer, which owns software company Ingenix, created the industry standard database which determines how much patients with PPO health plans will be reimbursed when they see "out of network" physicians.  Physician groups have long alleged that this database understates usual and customary fees, and have complained that the insurer has a conflict of interest since it benefits from a low fee schedule.  United agreed to pay  $50 million to help establish a university-run organization to establish an independent database, and admitted no wrongdoing.  Separately, United settled a class action suit over underreimbursement for $350 million. 

Here is how this works.  If I have a PPO and see a physician out of plan and she bills me $500, my insurer will check the Ingenix database. It that database suggests an appropriate price of $200 -- my health plan will only reimburse me 70% of $200 - leaving me with an effective bill of $360.   (Most out of plan benefits also have hefty deductibles - and if I paid the full $360, only $140 of this would be counted toward meeting the deductible.)

This is good consumer protection - since those with insurance usually thought they were purchasing coverage for 70% of the charge, not less than a third!  But how will this impact the cost of medical care? Like many things, it depends.

If providers successfully collected the entire billed fee from patients in this instance, this settlement will have no impact on aggregate cost - but merely shift that cost from out-of-pocket to health plan cost.   Health plans would have to raise their rates, but this would be offset by less consumer health spending.  

If providers routinely wrote off a portion of the consumer bill, though, this settlement would raise the overall cost of health care.  Many providers might add that they need to collect high fees from some payers to subsidize the care they deliver to others who cannot possibly afford to pay full freight.  This includes patients without insurance, and patients insured through state Medicaid programs that often use very low fee for service rates. 

This highlights an underlying problem.   There is a vast difference between billed charge, allowed charge, and actual payment. This difference disadvantages those without insurance coverage, and makes the actual cost of health care very opaque.