The New York State Health Insurance Program (NYSHIP), administered by the State Department of Civil Service (Civil Service), is one of the nation’s largest public sector health insurance programs. NYSHIP covers over 1.2 million active and retired State, local government and school district employees, and their dependents. In 2017, NYSHIP cost the State, other government employers, and NYSHIP members $9.2 billion.

Members of NYSHIP have the opportunity to select various plans for coverage. The Empire Plan is by far the most popular plan, covering 1.1 million people, or 89 percent of NYSHIP’s members, at an annual cost of $8.4 billion. Civil Service contracts with UnitedHealthcare (United) to administer the medical/surgical portion of the Empire Plan. United processes and pays medical and surgical claims submitted by health care providers on behalf of Empire Plan members. United contracts with a large network of health care providers who agree to be reimbursed at rates established by United. Members also pay a nominal copayment to the in-network provider.

Empire Plan members may also choose to receive medical and surgical services from out-of-network providers. United’s reimbursements for out-of-network services are usually higher than reimbursements for the same services provided in-network. Also, when Empire Plan members elect to use an out-of-network provider, they are required to pay higher out-of-pocket costs (deductibles and co-insurance). After members reach their annual deductible, United will generally reimburse the member 80 percent of the "reasonable and customary" charge for the out-of-network service. The member remits United’s payment to the provider, and is responsible for paying the remaining 20 percent.

In 2017, United processed claim payments totaling almost $2.9 billion. Of that amount, $1 billion (37 percent) was for out-of-network services.

Starting in 2007, the Office of the New York State Comptroller (OSC) conducted a series of audits to determine whether out-of-network providers routinely waived (did not collect) members’ out-of-pocket costs. OSC found that this practice caused United to make overpayments on claims for out-of-network services.

Between 2007 and 2017, OSC completed 35 audits and found that 32 of 35 out-of-network providers routinely waived Empire Plan members’ out-of-pocket costs, which caused $22.8 million in overpayments. Because a claim should reflect the provider’s actual charge (the amount the provider intended to accept as payment-in-full) for the service, if an out-of-network provider waives a member’s out-of-pocket costs, the provider should reduce its claim to United by the waived amount. Failing to do so can result in United paying 80 percent of an inflated charge.

To illustrate, a provider who charges $1,000 for a service and collects $800 in payments by United should collect $200 from the Empire Plan member. In the event that the provider does not collect (waives) the member’s out-of-pocket cost of $200, it has actually provided a medical service for $800, not $1,000, and United should have paid only $640 (80 percent of $800) of that cost, resulting in an overpayment of $160 ($800 - $640).

The submission of an insurance claim with false information, such as inaccurate service charges, may constitute insurance fraud pursuant to State Law. The State Insurance Department (now the New York State Department of Financial Services) has concluded that it may be a fraudulent billing practice and violation of the State Insurance Law when a provider routinely waives out-of-pocket cost obligations and accepts amounts from the insurer as payment-in-full. In November 2016, the Department of Health and Department of Financial Services sent a joint letter to New York State physicians reminding them that, by regulations, they must charge all patients the same price for the same service.

As a result of OSC’s audits, the New York State Insurance Department conducted its own investigation into the issues identified by OSC, and in 2010 reported that New York State recouped over $11.5 million in restitution from 13 providers found to be routinely waiving members’ out-of-pocket costs. In addition, some providers agreed to discontinue the practice of waiving and join the Empire Plan network, which has led to significant additional savings over the years subsequent to the audits. Between November 2016 and March 2017, OSC referred three audit reports to the Department of Financial Services to determine whether routine waiving would violate insurance law.

OSC’s follow-up reviews of seven providers who joined the Empire Plan network as a result of the audits identified over $70 million in subsequent NYSHIP savings due to United paying the providers at in-network rates as opposed to higher out-of-network rates.

Recent trends show that the cost of providing out-of-network services under the Empire Plan is growing at a faster rate than in-network services: from 2012 to 2017, total annual out-of-network costs grew at a higher rate (38.9 percent) than in-network costs (26.4 percent), and average claim costs grew at a higher rate out-of-network (44.5 percent) than in-network (18.3 percent). Out-of-network providers who do not collect members’ out-of-pocket costs negate Empire Plan members’ financial incentive (lower out-of pocket costs) to use in-network providers. Given that out-of-network services cost more compared to the same services provided in-network, waiving undermines the State’s health insurance program and drives up health care costs for New York State taxpayers.

Based on our audit findings, we determined significant cost savings to NYSHIP would occur if more out-of-network providers who improperly waive members’ out-of-pocket costs discontinued this practice and joined the Empire Plan network. Additionally, out-of- network providers who join the Empire Plan benefit plan members by expanding the number of in-network providers from which members can choose. We recommend that a course of action be taken to recover overpayments and prevent out-of-network providers from improperly waiving members’ out-of-pocket costs.