By James Farley – President at J.P. Farley Corporation

The above statement is a pretty commonly held of plan sponsors, many broker/advisers, and the public in general. It is a misconception.

One of the fastest ways to riches that exists today is to offer a service to a health plan and get it billed as a claim. Insurance companies and networks and PBMs have been doing it for years. They hide the fact that this is occurring inside their various contracts and they write the contract in a fashion that makes it difficult to understand.

Let’s take a real simple example. A claim gets paid twice. This is a pretty common occurrence. When the second payment is discovered its called a recovery and inside the insurance agreement is a recovery fee (usually 20-25% of the amount recovered) which goes back to the insurance company. The original payment of the second claim showed up as a claim expense but only the net reimbursement to the plan gets credited to the claims account.

If the orginal claim amount was $100, the fact that it was paid twice increased it to $200. The $100 refund was only credited to the claims account as $80 resulting in a total net payment from the plan of 100+100-80=120. The plan paid a net $120 for a $100 claim.

In addition, this also inflated the advertised discount the network claimed to be getting because it calculated the billed charge twice and discount credit twice. Thus the plan sponsor gets deceived twice.

This approach got started with the insurance companies, expanded with networks, perfected by PBMs, and is now being adopted by external equity backed point solutions selling to plans of all shapes and sizes.