Health insurance claim denials cost U.S. billions

A racketeering lawsuit filed against UnitedHealth Group by two New York hospitals "illustrates perfectly the dysfunctional nature of our health insurance system," New York Times columnist Paul Krugman writes in an opinion piece.

The hospitals "accuse UnitedHealth of operating a 'rogue business plan' designed to avoid paying clients' medical bills," according to Krugman.

He notes that UnitedHealth already has settled similar charges brought by New York's attorney general.

In that settlement, UnitedHealth agreed to pay restitution to plan members and attributed the problems to computer errors, according to Krugman.

While the outcome of the new lawsuit remains to be seen, it is "a fact that insurers spend a lot of money looking for ways to reject insurance claims," Krugman writes.

Meanwhile, health care providers "spend billions on 'denial management,' employing specialist firms ... to fight the insurers," Krugman says, adding, "So it's an arms race between insurers ... and doctors and hospitals."

Krugman cites a report recently released by the consulting firm McKinsey that found that the U.S. health care system spends $98 billion annually on "excess administrative costs."

Krugman also notes that "McKinsey estimates the cost of providing full medical care to all of America's uninsured at $77 billion a year," adding, "Either eliminating the excessive administrative costs of private health insurers or paying what the rest of the world pays for drugs and medical devices would by itself more or less pay the cost of covering all the uninsured."

Krugman concludes that the "larger problem" of the U.S. health care system "isn't the behavior of any individual company.

It's the ugly incentives provided by a system in which giving care is punished, while denying it is rewarded" (Krugman, New York Times, 2/16).