NY's Cuomo: How To Drive Up The Cost Of Insurance

New York’s Attorney General Andrew Cuomo, aspiring to the governorship once held by his father, finds a handy populist target, health insurers.

Cuomo, borrowing from an earlier New York City district federal court suit and one in New Jersey, charges that insurers underpay out-of-network claims by lowballing the reasonable-and-customary charges of doctors against which health plan members’ coinsurance (% payable by insured) is applied. The database, Ingenix, is owned by United Healthcare but shares the data of all major insurers in order to arrive at reasonable-and-customary charges for medical procedures.

The first problem is that Cuomo appears to exaggerate:

Mr. Cuomo said his office had compared the prevailing market rate for a routine doctor’s visit with the amount Ingenix had calculated as reasonable and customary. While doctors in the metropolitan New York City area typically charged $200 for an office visit, he said, Ingenix calculated the rate at only $77. Under a typical plan, the insurer would pay 8o percent of the $77, or only $62. The patient would be responsible for covering the remaining $138 balance.

UnitedHealth disputes the numbers Mr. Cuomo provided, saying Ingenix calculates the range of prices for those office visits as $125 to $300. The company said it did not know how Mr. Cuomo’s office came up with its figures. Members of Mr. Cuomo’s staff declined to describe the method. [bold added]

The second problem is that Cuomo refuses to be transparent, while accusing insurers of not being transparent:

“There is no disclosure; there’s no transparency; there’s no accountability,” said Mr. Cuomo, saying his office began investigating the matter after receiving complaints from consumers.

The third problem is that Cuomo charges as illicit the common statistical method of discarding extreme outliers in calculating reliable averages:

The company rejects charges that seem far from the norm and subjects the information to a “strong validation process,” according to a UnitedHealth spokesman, Don Nathan. The information gives insurers “a snapshot of current charges in a geographic area” that they can use to determine what is a reasonable and customary fee for a service, he said.

The fourth problem is that Cuomo disregards the cost impact of his charges. If extreme charges are included in calculating reasonable-and-customary, then the costs of insurance must rise.

Acknowledging what he called the headline risk, Doug Simpson, a Merrill Lynch analyst, predicted in a research report Wednesday that consumers would end up paying more, no matter the end result of the investigation.

“We believe to the extent that regulators wish to raise provider payments for out-of-network care,” Mr. Simpson wrote, “there will be a corresponding increase in the cost of coverage.”

In that vein, to keep premiums down, insurers can increase the percentage of out-of-network charges the insured is responsible for, and can apply that percentage against the discounted charges paid network doctors, resulting in both cases in higher out-of-pocket costs to care users.

The fifth problem is that Cuomo, coming from the pro-government-run healthcare camp, wouldn’t mind that at all. Cuomo asks:

Individuals generally pay higher premiums for the privilege of being able to select doctors or hospitals outside the network, Mr. Cuomo said.

“You could have paid less and be limited to the in-network doctors,” he said.

For in-network doctors, substitute lower-paid government-run healthcare doctors. Also, expect the long waits and rationed treatments that accompany.

New York State’s health insurance premiums are already near $500 more a month higher than the average state for family coverage, reflecting primarily New York’s relatively expansive coverage laws and mandates.

For decades, sane people and states elsewhere in the country have marveled at New York’s excesses, and sought to avoid them. The result is a highly taxed, stagnant, aging population in New York and its one-legged economy’s reliance on Wall Street’s booms-and-busts (including bust the economy). Tort lawyers seeking class-action payoffs, and ambitious attorney generals elsewhere seeking populist platforms for their ambitions may follow Cuomo’s lead, but the rest of us will suffer.