Do all insurers pay claims the same?

It’s widely assumed by plan sponsors that the adjudication and payment of the more automated, transactional health and dental claims is probably the same among insurers. A claim is a claim is a claim. I expect most also assume that the disability claim might be more subjective and, hence, approached differently by each insurer.

Historically, the market has focused almost exclusively on distribution costs (e.g., expense levels), yet the real opportunity from a cost management perspective is managing the claims cost. Furthermore, we have had many insurers approach us to make the argument that “we pay claims better” and therefore we should focus less on expense levels—our clients should be prepared to pay more for a better result. There had been little objective data to support such statements, so the survey was an opportunity—in some respects—to make their case for them.

The Mercer survey included general questions of claims adjudication capabilities and how insurers would handle specific situations. We also provided sample claims data and asked each participant to adjudicate these claims based on the same objective criteria (e.g., demographic data, plan design information). What better way of answering whether all insurers pay claims the same than by getting a side-by-side comparison of how each insurer would adjudicate the same claims data.

What was the outcome of our survey? For the most part, the industry did not have a problem in responding to the general questions on claims adjudication capabilities. However—and this was a little bit of a shock—approximately 50% of the survey participants refused to adjudicate the sample claims data. The prevailing rationale was, “we believe that our claims adjudication processes are proprietary.” In other words, “trust us when we say that we pay claims better.”

So what can we conclude from the industry response to this portion of our survey?

• There are differences in how various insurers pay claims. They use different price files, the definitions of reasonable and customary differ, etc. How material these differences are, however, remains a bit of a mystery.
• To be fair, not all the industry players have said they pay claims better. Many insurers are content to compete on the basis that “we pay claims quickly and accurately, and we will help you manage the cost of the claim.” But for those in the market who want to compete on how they manage the claim cost, the lack of objective data in this area will continue to make this a tough sell.
• The insurance industry has been critical of plan advisors for focusing almost exclusively on distribution costs (i.e., expenses) when assessing insurer claims payment capabilities. I agree. As an industry we need to do a better job of assessing value. But, when faced with this type of a response from 50% of the insurance industry, my response might be, What do you expect—how can we not focus solely on expense levels?

The survey was confidential, and we will not disclose which insurers agreed to participate and which ones refused. Suffice to say, I am disappointed that we could not take the cost discussion in a different direction and refocus it on where it is really going to matter in the future—managing the cost of the claim.

My broader message to the insurance industry is if you want us (plan advisors and plan sponsors) to focus less on distribution costs, you have to work on articulating your value proposition in this area. The fallback position is for us to believe “all insurers pay claims the same.”