The Lost Costs With Administrative-Related Tasks With Group Health Plans

Health coverage is expensive- both for individuals and for companies that provide it.
The costs affect much of the medical field, including drug prices, cost of coverage,
costs of care and visits, and a myriad of other areas of the health industry. Part of
those costs is resulting from the administrative handling of health insurance logistics,
and those costs affect the rest of the field, too.

According to studies in the field, noted by the CAQH Index, in 2019 they noted that

“SPENDING ON HEALTHCARE ADMINISTRATION COSTS AN ESTIMATED
$350 BILLION ANNUALLY IN THE UNITED STATES DUE TO IT’S
COMPLEXITY.”

Data from the 2019 CAQH Index indicates that $40.6 billion or 12 percent of the
$350 billion spent on administrative complexity, is associated with conducting
administrative transactions tracked by the CAQH Index. Of the $40.6 billion spent on
these transactions, $13.3 billion or 33 percent of existing annual spending on
administrative transactions could be saved by completing the transition from manual
and partially electronic processing to fully electronic processing. The progress that
the industry has already made to automate these administrative transactions has
saved the industry over $102 billion annually.”

Administration is, of course, an important aspect of any industry, especially one as
complex as medical and related fields. The difficulty with modern health insurance
means extensive administrative hours as they tend to a myriad of issues on multiple
fronts. This means, as noted earlier, a great deal of expense that filters throughout
the medical field.

Unfortunately, small business owners tend to bear the brunt of these costs, at least
when it comes to businesses rather than people. As noted here,

“NOT SURPRISINGLY, THE COST OF PROVIDING HEALTH COVERAGE TO
EMPLOYEES LOOMS LARGER THE SMALLER THE BUSINESS,
BUT THIS ISSUE PLAGES BUSINESSES REGARDLESS OF SIZE”

The price tag on health insurance is a significant pain point for small employers. The
problem extends to recruiting and retaining talent, as well. To compete with larger
employers, small employers are hard-pressed to offer benefits like health insurance,
even as the benefit takes up a larger share of the bottom line. Two-thirds of
businesses (69%) said the problem has been getting worse. They reported that costs
have increased over the last four years; one-third of this group reported annual
increases of 10 percent or more. Businesses with fewer employees cited bigger
increases than larger businesses. Employers cited prescription drugs and lack of
choice of health care plans as pain points.

There are ways to curb this expense without impacting the medical field or health
insurance. One method is the increased use of digital materials. According to the
previously cited Index, “Although partially electronic transactions often cost less and
are less time consuming than manual transactions, there are savings opportunities
associated with moving from partially electronic web portals to fully electronic
transactions. For the medical industry, $2.7 billion of the $9.9 billion total savings
opportunity could be achieved by switching from partially electronic transactions to
fully electronic transactions. The greatest per transaction savings opportunity for
medical providers is a prior authorization. Medical providers could save $2.11 per prior authorization transaction by using the federally mandated electronic standard rather than a web portal. Understanding the impact of portal use in more detail is important as the industry focuses on opportunities to decrease administrative costs and burden.”

The medical field is one area where increased use of digital technology has lagged in
comparison to other fields. Concerns over confidentiality and security, combined with
outdated legislation, mean much in the medical field is handled with pen and paper.
That said, the COVID-19 pandemic has resulted in rapid inroads in digitization. Still,
administrative costs remain high, with subsequent effects throughout healthcare.
Along with the use of digital technology, another way to reduce costs is through increased automation. As noted by the previous study, “The 2019 CAQH Index estimates that the medical industry has avoided over $96 billion in annual administrative costs through efforts to automate administrative transactions. By comparison, the dental industry has avoided over $6 billion annually. For both industries, the largest annual savings has been achieved for eligibility and benefit verification at $68.8 billion for the medical industry and $3 billion for the dental industry. However, although the industry has already avoided significant administrative costs through automation, 33 percent of existing spending could be saved through further automation.

To continue to drive progress, harmonization is needed across all stakeholders to
reduce administrative costs and burdens. Aligning on a common understanding of the
barriers to electronic adoption and the business needs of the future is imperative for
plans, providers, vendors, standards development organizations, operating rule
authoring entities and government to maintain and improve upon industry
achievements to date.”

There are other ways to mitigate costs as well, without subsequent suffering in quality. One way is to reduce what one article sites as administrative waste. As noted by said
article,

“ADMINISTRATIVE WASTE AS ANY ADMINISTRATIVE SPENDING THAT
EXCEEDS THAT NECESSARY TO ACHIEVE THE OVERALL
GOALS OF THE ORGANIZATION OR THE SYSTEM AS A WHOLE.”

The National Academy of Medicine’s seminal 2010 work, The Healthcare Imperative:
Lowering Costs and Improving Outcomes, identified unnecessary administrative costs
as one of six key areas that need to be addressed to bring greater value and lower
costs to healthcare consumers.

ADMINISTRATIVE COSTS HAVE BEEN ESTIMATED TO REPRESENT 25-31%
OF TOTAL HEALTHCARE EXPENDITURES IN THE UNITED STATES,

a proportion twice that found in Canada and significantly greater than in all other
Organization for Economic Cooperation and Development member nations for which
such costs have been studied. Moreover, the rate of growth in administrative costs in
the U.S. has outpaced that of overall healthcare expenditures and is projected to
continue to increase without reforms to reduce administrative complexity.

It is thus important to differentiate administrative waste from necessary
administrative spending. As noted by the previously cited article, “A key segment of
wasteful administrative spending is found in the significant amount of paperwork
needed in our multi-payer healthcare financing system. Having myriad payers, each
with different payment and certification rules increases the complexity and
duplication of tasks related to billing and reimbursement activities. Hence,

“THE TOTAL BIR COMPONENT OF ADMINISTRATIVE SPENDING-
REPRESENTING ABOUT 18 PERCENT OF TOTAL HEALTHCARE
EXPENDITURES-IS OFTEN SINGLED OUT AS WASTEFUL AND A
POTENTIAL SOURCE OF SAVINGS. AN OFTEN-CITED STATISTIC IS THAT
HOSPITALS GENERALLY HAVE MORE BILLING SPECIALISTS THAN BEDS.”

A problem with separating administrative waste from proper administrative costs is
insufficient data. While healthcare provides, creates, and utilizes fast amounts of
data, that information is geared to specific fields and areas. As a result,
administrative data tends to be neglected and understudied. As this article notes,
“Our current understanding of administrative spending relies on a patchwork of
mostly aging analyses, leaving policymakers very much in the dark when it comes to
addressing this growing category of healthcare spending.

MOREOVER, PATIENT ADMINISTRATIVE BURDENS HAVE NEVER BEEN
TALLIED, REPRESENTING THE GREATEST GAP IN OUR UNDERSTANDING
OF ADMINISTRATIVE BURDEN. PATIENTS INCUR ADMINISTRATIVE COSTS
WHEN THEY ENROLL IN COVERAGE, RECEIVE CARE, AND GET
REIMBURSED FOR EXPENSES. PATIENTS WITH PARTICULARLY COMPLEX
NEEDS MAY EVEN RESORT TO HIRING A PATIENT- OR MEDICAL-BILLING
ADVOCATE OR AN ATTORNEY.

Other data gaps include research to identify potential administrative waste associated
with provider credentialing, pre-authorization or grievances and appeals.”
Though more data may be needed in regards to understanding administrative waste,
there are still methods to handle it and ensure expenditures on administration in
healthcare are spent properly. This will help reduce overall healthcare costs,
including health insurance. One of the costliest areas of administrative costs is
billing. This issue has been known for some time. As noted here, “In 2010, the ACA
tried to rein in administrative waste. In recognition of the high cost of billing and
payments, section 1104 of the ACA required the US Department of Health and human services to promulgate rules to standardize many aspects of billing and payments. Specifically, the ACA called for a national system to determine benefits eligibility, coverage information, patient cost-sharing to improve collections at the time of care, real-time claim status updates, auto adjudication standards, and real-time and
automated approval for referrals and prior authorizations. These actions were
supposed to be implemented in 3 waves in 2013, 2014, and 2016. However, only the
first 2 waves were implemented in 2013 and 2014. These regulations standardized
eligibility required real-time claims status, and created electronic fund transfer
standards.

THE MOST COST-SAVING ACTIONS, AUTO ADJUDICATION OF CLAIMS
AND PRIOR AUTHORIZATIONS, WERE SUPPOSED TO BE
IMPLEMENTED IN 2016 BUT WERE NEVER ENACTED.”

The matter is complicated by how to diffuse healthcare is within the United States.
There are federal administrations, state administrations, regional groups, corporate
groups, church groups, local clinics, and clinics operated by chains, such as CVS
Minute Clinics. The previously cited article makes note of this, stating that

“BECAUSE THE US HEALTHCARE SYSTEM IS SO FRAGMENTED, THERE
IS NOT A CLEARLY DOMINANT ENTITY TO SET ADMINISTRATIVE
STANDARDS AND FORCE ADOPTION.

The federal government is the largest payer, but its market power is not concentrated
because its payments flow through hundreds of different programs, including 50
unique Medicaid programs, Medicare, hundreds of Medicare Advantage plans, ACA
insurance exchanges, federal employee health benefits, the military health system,
Veterans Affairs, and the Indian Health Service.Each of these programs has governance over its administrative rules. Some programs, such as Covered California, use their local market power to force standardization of administrative elements, such as benefit design. The private sector alternatives lack either geographic reach or local market scale. The largest private sector entities are

the payers United Healthcare and Anthem. However, neither of these companies are
positioned to be administrative standard setters. United Healthcare lacks a local
market scale because it usually only accounts for 10% to 20% of patients for
clinicians. Anthem lacks geographic scale because it only operates in 23 states. Only
the Medicare system operates in all states and is accepted by nearly all health care
organizations, which means changes to Medicare’s administrative rules are adopted
nearly universally. Medicare is also a large payer, through the Medicare Advantage
program, to the largest commercial payers, which could enhance Medicare’s ability to
serve as an administrative standard setter. This makes Medicare the only participant
with the market power to set administrative standards.” As Medicare for All seems an unlikely, though useful solution,

OTHER AVENUES TO CURTAIL ADMINISTRATIVE WASTE NEED TO BE
CONSIDERED. ONE SUCH METHOD WOULD BE INCREASED USE OF
BILLING SPECIALISTS TO REDUCE THE NEED FOR ADMINISTRATIVE STAFF,
AND, AS A RESULT, THE AMOUNT OF ADMINISTRATIVE SPENDING.

Billing specialists are a good example because of the decentralized nature of the
United States healthcare systems. Centralized billing, even by a third party, would
help to reduce costs. As noted here, “Germany and Japan both have multiple payers
but centralized claims processing. Despite having more than 3,000 health plans,
Japan’s administrative expenditures were a stunningly low 1.6 percent of overall
health care costs in 2015, one of the lowest among OECD [Organization for Economic Co-operation and Development] member nations. In their analysis of three universal health care options for Vermont, including single-payer, researchers William C. Hsiao, Steven Kappel, and Jonathan Gruber estimated substantial savings from administrative simplicity from each option. The two single-payer options they examined would result in even greater administrative savings of between 7.3 percent and 7.8 percent, depending on the rate-setting mechanism. The group estimated that a third scenario, which would establish a centralized claims clearinghouse while allowing multiple payers, could generate savings equal to 3.6 percent of total expenditures. This suggests that about half of the total administrative savings from a single-payer system could be obtained within a regulated multipayer system.”

THUS, BILLING SPECIALISTS, ESPECIALLY OUTSOURCED SPECIALISTS,
CAN HEP REDUCE OVERALL HEALTHCARE COSTS.

As this article notes, “This process is more straightforward than in-house billing for
medical practice staff. They can scan and email superbills and other related
documents to the medical billing service provider.

Most medical billing service providers charge a specific percentage of the collected
claim amount, with the industry average being approximately 7 percent for
processing claims.

The convenience factor is a major reason that medical practices choose to outsource
their billing. A provider handles all the data entries and claim submissions on behalf
of the medical practice. They also follow up on rejected claims and even send invoices directly to patients.

If a medical practice is using electronic health records (EHR) software, then this
process becomes even easier. Practices can store information from a patient’s
superbill in the EHR and securely transfer data to the billing service provider using
the interoperability feature. This eliminates the need to manually scan and send
documents.”

There are benefits to in-house billing as well. The previously mentioned article
mentions that “The in-house billing procedure for processing insurance claims
involves many steps that are universal to every practice.

First, the medical staff enters information into the medical billing software from a
superbill that’s prepared during a patient’s visit. The superbill contains specific
diagnosis and treatment codes, along with additional patient information that the
insurance company needs to verify claims.

Using the software, the practice submits the claim to a medical billing clearinghouse,
which verifies the claim and sends it to the payer. The clearinghouse scrubs the claim
to check for and rectify errors (for a fee) before sending it to the payer. By not
submitting claims directly to a payer, the practice saves time and money and lowers
its claim rejection rate.”

BILLING SPECIALISTS, EITHER IN-HOUSE OR OUTSOURCED, ARE AN
EXCELLENT WAY TO REDUCE OVERALL HEALTHCARE COSTS.

By reducing administrative waste, costs, in general, can be reduced. This also means
those savings will, at least in theory, be transferred to clients. This is especially
important for small businesses, who are often the hardest hit when it comes to paying
for health insurance. As demonstrated, a major issue for health costs and their
increase is related to all the administrative costs.

Several studies have shown this to be true. As referenced in this article, “A new study
from Stanford University finds that

THE TIME EMPLOYEES SPEND WITH INSURANCE ADMINISTRATORS
CLEARING UP QUESTIONS AND ISSUES-CALLED “SLUDGE” BY
RESEARCHERS-HAS COSTS IN THE TENS OF BILLIONS ANNUALLY.

The study, led by Jeffrey Pfeffer, a researcher, and author found

THAT THE DIRECT SOTS OF TIME SPENT BY EMPLOYEES ON HEALTH
INSURANCE ADMINISTRATION WAS APPROXIMATELY $21.57 BILLION
ANNUALLY.

with more than half (53%, or $11.4 billion) of those hours spent at work.
The study noted that excessive time spent on managing benefits can have several
negative outcomes. “Red tape can exert significant compliance burdens on people’s
accessing rights and benefits, thereby imposing time costs and depriving people of
resources or services to which they are ostensibly entitled.”

Various measures can be implemented to help reduce the costs of healthcare.
Eliminating administrative waste through the use of billing specialists is one of these
methods. Not only can such specialists curb waste, they can also provide a cohesive,
centralizing force to a heavily decentralized system.