Fraud Prevalent in Private Health Insurance

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WASHINGTON—Fraud is just as prevalent in the private health insurance industry as it is with public insurance, according to a report by the George Washington University School of Public Health and Health Services, Department of Health Policy.

The report found that some of the most striking examples of fraud come from fraud committed directly by the private insurance industry itself. In 2007, the United States spent nearly $2.3 trillion on healthcare and public and private insurers processed more than 4 billion health insurance claims. That year, fraud was estimated to reach as much as 10 percent of annual health care spending.

At this rate, the losses in 2007 alone—over $220 billion—would have been enough to cover the uninsured, according to the study. The National Health Care Anti-Fraud Association (NHCAA) has estimated conservatively that 3 percent of all health care spending—or $68 billion—is lost to healthcare fraud.

In addition, the report found that no segment of the healthcare industry or geographical area is immune from fraud. It is estimated that 80 percent of healthcare fraud is committed by medical providers, 10 percent by consumers, and the balance by others, such as insurers themselves and their employees.

Fraudulent billing, kickbacks, up-coding services and bundling are common examples of fraud. Avoidance of sick and high need members, along with the systematic misrepresentation of the cost of care to group plan sponsors, represent major examples of fraud in the private insurance industry.

The report also noted the distinction between fraud and improper payments. Fraud is a misrepresentation of the truth or concealment of material facts. Improper payments, on the other hand, tend to involve technical questions associated with verification of claims or related matters. The report also describes recent efforts to improve fraud detection and recovery across the public and private insurers, including Medicare and Medicaid.

“The evidence presented in this analysis should put to rest the notion that the problem of fraud is limited to public programs,” said Sara Rosenbaum, professor and chair, George Washington University Department of Health Policy. “Because fraud can arise in any sector of the health industry, comprehensive efforts to both detect and deter fraud system-wide are essential to national health reform.”

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