Aetna Sued by Large Employer Client, Kraft-Heinz

Watch a short video or read the transcript below for a quick analysis of the potential impact of the lawsuit brought by Kraft-Heinze against Aetna

Transcript:

Good morning everyone. This is Mike Rawaan with Covalence Health. I want to take a quick second and discuss one of the big news headlines from yesterday. I’m sure everyone has seen plenty of posts about this, so I hope this isn’t too redundant, and you will feel at least slightly more informed after watching (or reading) this.

Krafft-Heinz, which is a large US company comprised of several food brands, sued their insurance carrier Aetna for “mishandling claims data”. The lawsuit alleges that Aetna has overpaid Kraft-Heinz’s medical claims by $1.3 billion over the past 10 years from Kraft-Heinz.

First, let me clarify what the allegations mean. Kraft-Heinz is saying that if Aetna handled and processed their claims in the same manner that they process claims for other customer types, it would have saved Heinz craft $1.3 billion. And that Aetna failed to carry out its fiduciary duty to its client as an administrator of health insurance benefits.

It’s important to understand the difference between administrator of healthcare benefits and payor of healthcare benefits. Most health insurance companies - especially the large ones - offer two type of products or services to their commercial clients - these are large employer clients who have hired these insurance companies to manage medical and sometimes dental, vision and pharmacy benefits for that they offer their employees. The first is Fully Insured, where the insurance company takes full risk and is responsible for paying out all the medical claims for any healthcare services provided to the employees of that employer client. In this case, the employer pays a fixed amount - typically on a monthly basis - to the healthcare insurer and then the healthcare insurer takes care of the rest. The second is Self- Insured, or sometimes called ASO, administrative services only. In this case, the insurance carrier provides administrative services to the employer, such as creating provider networks in negotiating race with said providers, processing claims, etc. In this model, the employer is responsible for paying medical claims on their own using their own earnings, cash reserve or other means.

So why would an insurance company treat claims processing differently for ASO customers versus fully-insured customers? The simple answer is greater profits. If the insurance company is responsible for paying the medical claims and not passing that cost on to the employer, it is in their benefit to reduce the amount of claims they pay. That means they benefit from tougher negotiations with providers to lower the provider rates and increasing the number of claim denials. On the other hand, if it’s a self-insured employer client, then it’s in the benefit of the insurance carrier to increase the amount of claims that are paid. For two reasons: Number one, it increases the cost of ensuring that employer so when the next year rolls around, the insurance company can use these higher claims expenses as the new baseline and increase premiums for that employer, and that’s more revenue for the health insurance carrier. The second is that a lot of these health insurance companies have stake in their provider network and some actually own a lot of the provider groups in their networks, so they actually benefit financially if the provider makes more money.

I’m watching this very closely, and as I’m sure most of you are, because this could end up as a precedent case. Which means it can set the stage for more lawsuits brought on by large self-insured employers against their insurance carriers. A lot of large organizations will begin taking a deeper look into their own medical claims to investigate any violation of fiduciary duty by the health insurance carrier.

Have a wonderful Wednesday and I’ll see you next time.