California individual and family plan health insurance carriers have been combating fraudulent enrollment for open and special enrollment periods. Many of the health insurance companies have placed additional requirements on applicants to verify California residency. Unfortunately, enrollments through Covered California, which have virtually no verification of special enrollment eligibility, continue to be a source of high-cost claims from fraudulent enrollments.
Fraudulent Claims Increase All Individual and Family Rates
Health insurance companies have been communicating their concerns to both federal and California officials about fraudulent enrollments. These enrollments either skirt the spirit of the Affordable Care Act or are patently fraudulent. The result is health plans paying large dollar amounts for expensive high-cost health care. These fraudulent claims force the health plans to raise their rates for all Californians. Here are some of the concerns and complaints that have been voiced.
Medi-Cal Cost Shifting
Medi-Cal managed care programs that contract with the state to administer Medi-Cal benefits enrolling medically-frail enrollees in off-exchange plans and paid their dues, effectively shifting the risk from the local program to private health plans. These individuals were suffering from cancer and end stage renal disease requiring expensive dialysis. The effect of the program is to shift the risk and cost of providing care from the Medi-Cal risk pool to off-exchange health plan risk pool. This type of adverse selection impacts rates for both on and off-exchange plans.
Provider Reimbursement Arbitrage
Insurers are now seeing enrollment from individuals with costly conditions, such as dialysis, that are paid for by drug makers or providers that benefit from private payer reimbursement. For example, a number of enrollees on dialysis where the enrollment was being paid for by the American Kidney Fund. Many of these enrollees are eligible for Medi-Cal coverage, but were using the Foundation’s payments to enroll in private coverage. Five of the top six funders of the Kidney Fund are drug companies or dialysis providers. These companies donate to “charitable funds” where the purpose appears to be facilitating higher reimbursements that will more than make up for any “donations.” In other words, the reimbursement for drugs and services from the health plan to the donating companies is greater than their donations to the non-profit foundation who is paying member’s health insurance premium.
There had been widespread fraud by residential treatment facilities providing substance abuse treatment. These facilities advertise to out-of-state or homeless people, and then enroll the individuals through the SEP for a “permanent move” even though they do not qualify. Some health plans are able to uncover this fraud and block enrollment for off-exchange plans. However, there is enrollment shift to Covered California where very little SEP validation occurs.
Residential Treatment Facilities
There have also been several cases of widespread fraud using third-party payments by residential treatment facilities providing substance abuse treatment. Many of the individuals enrolled through these programs would be eligible for Medicaid, but they are enrolled in off-exchange coverage to avoid any eligibility screening. These facilities advertise to out-of-state or homeless people, and then enroll the individuals through the SEP for a “permanent move” even though they do not qualify. The premiums are frequently paid by the residential treatment facility on behalf of the enrollees.
California Department of Insurance recently announced that they arrested a group of people involved in the substance abuse scams. Owners of sober living facilities arrested for health insurance fraud. Enrolled members were directed to receive out-of-network services from providers affiliated with the third-party premium payer. These third-party payers were probably receiving kick-backs from the providers of substance abuse therapy to cover the costs of the health insurance premiums plus an additional amount as profit.
There has been speculation that Anthem switched to the EPO plan design with no out-of-network coverage as way to protect itself against fraud. There was a rash of substance abuse claims in 2015 and 2016 for out-of-network claims. Health Net cited the fraud in their 2016 PPO rate filing with DOI. Blue Cross did not have the severe limits of OON Allowable Amounts that Blue Shield had, exposing themselves to higher OON claims, fraudulent or otherwise.
California has also seen an influx of people seeking care from other states. These individuals did not have health insurance in their home state. When they are diagnosed with an illness, they travel to California and enroll under the Special Enrollment Period using the qualifying event of new residency in California. They receive their care, cancel their health insurance and move back to their original state. This leaves the insurance companies paying for high-cost care and the member only making premium payments for a couple of months.
All of the carriers have tightened up underwriting for enrollment in off-exchange plans. Most are requiring residency documentation. It is not uncommon to have to provide a utility bill and birth certificate for off-exchange plans before enrollment will be effectuated. A few health insurance companies have instituted attestations that the individual paying the premium is either the covered individual or a direct relation. This is an attempt to circumvent third party payers from enrolling a person in a health plan and then directing that person, usually in a substance abuse program, from receiving services from their OON providers at highly inflated prices.
Blue Shield California residency definition
A resident of California is an individual who (a) has not established a permanent residence outside of California and (b) intends to reside in California for at least 180 days of the year following his or her effective date. These requirements apply whether an application is submitted during open enrollment (OE), or under a special enrollment period (SEP).
These requirements also apply to newborn babies and their parents. For example, if an expecting couple from New York is on vacation and the baby is born in California, the parents are not considered residents of California and the baby is therefore not eligible for a Blue Shield plan. This is because (for practical reasons) the residency of the parents or legal guardians determines the residency of the infant. These requirements apply whether the parents or legal guardians reside outside of California or outside of the country. Regarding surrogate mothers, unless she is claiming parental rights, her residency is irrelevant to determining the residency of the infant. Instead, the residency of the parents or legal guardians is what is important.
Applicants for Blue Shield coverage under a SEP must verify California residency by submitting two examples of documentation from Blue Shield’s SEP checklist. In addition, applicants seeking coverage under an SEP for a permanent move must have had coverage at some point during the 60 days prior to their moving to California.
Covered California Loop-Hole
While the health plans are trying to combat fraud, Covered California is a huge loop-hole. Covered California has stated that they will randomly audit the qualifying events of special enrollments by requesting verification. They have reminded agents that if they facilitate fraudulent enrollments they could lose their privilege of being a Certified Insurance Agent for Covered California. But as of December 2016, Covered California has not instituted any qualifying event verification for special enrollments or require proof of residency for open enrollment.
Past Claims Experience
For better or worse, when it comes to determining health insurance rates, past claims experience is the foundation of future premiums. If a carrier can substantiate higher than normal or expected claims, most regulators will allow the future rates to reasonably reflect the potential for those claims to continue. It’s impossible to accurately estimate how much of the health care claims paid by the health plans in 2015 and 2016 on fraudulent enrollments contributed to the spike in rates for 2017. To put it another way, it’s difficult to know how much the 2017 rates were inflated by fraudulent claims.
It’s possible that if the health plans can reign in fraudulent claims during 2017, they may have to rebate some of the premium amounts back to the members under the Medical Loss Ratio regulations that say they must spend 80% of their premium dollars on health care services. If they only spend 75% during 2017, the members could be entitled to a 5% rebate on their premiums. If they are able to squash fraudulent claims, thereby reducing their expenses upon which the 2017 rates were established, members could see a rebate in 2018 for their 2017 premiums.
However, with so much of the individual and family health insurance enrollments passing through Covered California, and by-passing the more stringent underwriting of off-exchange enrollments, there could still be a significant portion of fraudulent claims being paid by the health plans. The open enrollment and special enrollment rules were meant to address adverse selection. Every agent I know, including me, has been contacted by individuals wanting to circumvent the rules to get health insurance when they suddenly have a health care emergency or diagnosis of a disease. This is the classic case of adverse selection, only applying for health insurance when you need it.
I am not a great defender of the health insurance companies. I don’t like many of their rules, regulations and tactics. But I have to admit that they have held up their end of the Affordable Care Act agreement by enrolling every individual and routinely paying on the health care claims that are submitted according to the benefits of the health plan. This has meant paying over $100 million – a conservative estimate based on documents I have seen – in health care expenses that were incurred under fraudulent enrollments in 2015.
Basic health care is a right. Guaranteed issue of health insurance without discriminating against pre-existing health conditions is a pillar of the ACA. Health insurance is the admission ticket to quality affordable health care in the United States, whether some agree with the system or not. But fraud distorts the market place and costs for honest individuals and families playing by the rules.
As an agent, I regularly help households upload documents to Covered California to verify income and citizenship. I will gladly facilitate the verification of Special Enrollment Period qualifying events if Covered California requested documentation. Covered California can’t negotiate its way to lower rates when those rates are inflated because of fraudulent enrollments. They need to become a partner with the health plans to filter out fraudulent enrollments and claims that are putting upward pressure on health insurance rates.