5 Myths About Those Despicable Health Insurers

Are health insurers corporate equivalents of the super-villains in the "Despicable Me" movies? Many Americans might think so. Stories abound of examples where individuals felt they weren't treated as well as they should have been by their health insurance company. 

But, like the cartoon character Gru in the animated movies, health insurers aren't as bad as they might seem at first glance. This is certainly borne out in the latest results from the National Health Insurer Report Card published by the American Medical Association, or AMA. Here are five myths about health insurers that don't hold water, according to the AMA's findings.

Myth No. 1: Health insurers require prior authorizations a lot.
Prior authorizations are a way that insurers control costs by limiting payment for a service unless it's approved in advance. You might think that the practice would be used extensively to keep expenses down and profits up. But prior authorizations are used in only a small fraction of cases.

Anthem, which is owned by WellPoint (NYSE: WLP  ) , for example, required prior authorizations only 2.14% of the time. Cigna (NYSE: CI  ) and Aetna (NYSE: AET  ) have higher frequencies -- 4.74% and 5.42%, respectively. Humana (NYSE: HUM  ) is even higher, but still in the single digits with a 8.42% prior authorization rate. Of the publicly traded insurers, only UnitedHealth Group (NYSE: UNH  ) requires prior authorizations more than 10% of the time, with a rate of 12.43%.

Myth No. 2: Health insurers deny a large percentage of claims.
Some people might have the impression that health insurance companies deny claims frequently. That's actually far from the case. Even when denials occur, it usually doesn't involve the entire claim and only impacts specific charges (referred to as claim lines). 

Cigna has the lowest rate of the big five, denying only 0.54% of claim lines. UnitedHealth denied 1.18% of claim lines. Aetna and Humana weren't far behind, with 1.5% and 1.97% denial rates, respectively. Anthem was the highest of the group, with a 2.64% claim line denial rate. All of the publicly traded health insurers have markedly lower denial rates than they did just five years ago.

Myth No. 3: When health insurers deny claims, it's usually because they don't cover the services performed.
It's certainly true that health insurers don't cover every medical procedure or prescription drug that their members would like. Are a large number of claim lines denied because of this? Not as many as you might think.

Granted, three of the insurers listed non-covered charges as their top reason for denying a claim line. But for those three, this represented only a tiny fraction of all claim lines. WellPoint's Anthem denied 0.78% of all claim lines for non-coverage. Cigna denied 0.56% of claim lines, and Aetna denied 0.16% for this reason. Most of the insurers rejected well under one-third of total denials for non-coverage.

Myth No 4: Health insurers hold up paying claims for as long as possible.
Of course, there's another way for insurers to avoid payment of claims. They could sit on them for a long time and hold up payment. But the AMA data shows that usually doesn't happen.

Humana pays its claims the quickest of the bunch, with a median first remittance response time of six days. WellPoint's Anthem and Cigna aren't far behind with a median of seven days. UnitedHealth waits a median of 11 days for payment. Aetna brings up the rear with a median remittance time of 14 days.

None of these response times are bad. What's more, all of these companies pay more than 98% of claim dollars within 30 days. That's not a picture of clinching money to keep it from going out the door.

Myth No. 5: Health insurers mess up payments frequently.
What about accuracy? Surely these big bureaucracies mess up claims by the droves. Nope -- at least, not for the most part.

Anthem has the worst record of the five, with an accuracy rate for first electronic remittance advice, or ERA, of 90.77%. An error rate of nearly one in 10 isn't too great. However, the other insurers fared much better.

Aetna, Cigna, and Humana all boast accuracy rates of more than 96%. UnitedHealth claims the best record, with a first ERA accuracy rate of 97.52%. All of them also achieved tremendous improvement of accuracy over the past few years.

Good guys?
Not only are these five health insurers not super-villains when it comes to paying up for insurance claims, several of them have delivered really good returns for investors. Take a look at how these market minions have performed over the past year.

AET Total Return Price Chart

AET Total Return Price data by YCharts.

Humana is the worst, bringing in a total return of a little less than 12%. The others did much better, though, with Aetna and Cigna hauling in 70% returns in a year. Would you like more of your stocks to have performance so "despicable"? Me too.

Obamacare could impact the stock performance for all of these health insurers. For that matter, it will impact you as well -- maybe in more ways than you think. The Motley Fool's new free report, "Everything You Need to Know About Obamacare," lets you know how your health insurance, your taxes, and your portfolio could be affected. Click here to read more. 


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