Federal, State, and Other Data Indicated Variation in Application Denial Rates and Provided Little Information on the Reasons for Denials

Nationwide data from HHS showed variation in application denial rates  across insurers operating in the individual market. Specifically, data  collected by HHS from 459 state-licensed insurers on the number of  applications received and denied from January through March 2010  indicated that, while the aggregate rate of application denials was   19 percent nationally, the rate varied significantly across insurers. For  example, just over a quarter of insurers had application denial rates from 0  percent to 15 percent while another quarter of insurers had rates of   40 percent or higher. However, the insurers with rates of 40 percent or  higher reported fewer applications. Data reported by Maryland—the only state we identified as collecting data  on the incidence of application denials—indicated that variation in  application denial rates across insurers operating in the state’s individual  market has occurred in that state for several years. 1.) The available data on application denial rates provided little information  on the reasons that applications were denied. There are several issues to consider when interpreting application denial  rates. First, application denial rates may not provide a clear estimate of the  number of individuals that were ultimately able to secure health coverage,  because individuals may submit applications with more than one insurer  and be denied by one insurer but offered enrollment by another. Another consideration when interpreting application denial rates is that  the rates do not reflect applications that have been accepted by an insurer  but for coverage with a premium that is higher than the standard rate or  with exclusions for coverage of specified services. State and Other Data Indicated That Coverage Denial Rates and the Reasons for Denials Vary and That Denials, If Appealed, Are Often Reversed

Data from selected states and others indicated that the rates of coverage  denials, including denials for preauthorizations and claims, varied  significantly, and a number of factors may have contributed to that  variation. The data also indicated that coverage denials occurred for a  variety of reasons, frequently for billing errors and eligibility issues and  less often for judgments about the appropriateness of a service. Further,  the data we reviewed indicated that coverage denials, if appealed, were  frequently reversed in the consumer’s favor and that appeals and  complaints related to coverage denials sometimes resulted in financial  recoveries for consumers. Specifically, aggregate claim denial rates for the three states  that we identified as collecting such data ranged from 11 percent in Ohio  in 2009 to 24 percent in California in the same year. Several factors may have contributed to the variation in rates across the  four states and the AMA data. In addition to variation across states in aggregated rates, state and other  data also indicated that coverage denial rates varied significantly across  insurers. For example, the California data indicated that in 2009 claim  denial rates ranged from 6 percent to 40 percent across six of the largest  managed care organizations operating in the state. With regard to  claims missing required information, the 2010 AMA data indicated that five  of the seven insurers represented in the data made 15 percent or more of  denials on the basis that the claim was missing information, such as  documentation of preauthorization. For  example, for six of the seven insurers in the 2010 AMA data, over   20 percent of claim denials occurred as a result of eligibility issues such   as services being provided before coverage was initiated or after coverage  was terminated. HHS agreed with our  findings, noting in particular the need to improve the quality and scope of  existing data, and suggested clarifications, which we incorporated. HHS  and DOL also provided technical comments to the draft report, which we  incorporated as appropriate. Appendix I: Methodology for Selecting States and State Data Reviewed by GAO

In order to describe the data on denials of applications for enrollment and  coverage of medical services, we contacted six states to interview officials  and to obtain data the states collect and track on denials and appeals  related to denials. The  six states accounted for at least 20 percent of national enrollment in  private health insurance. We reviewed data from one  state on the incidence of application denials, from four states on the  incidence of coverage denials, from four states on the number and  outcomes of internal appeals, and from all six states on the number and  outcomes of external appeals. Appendix II: Methodology for and Studies Identified by Structured Literature Review

To identify research that examined private health insurance denials,  including the incidence of denials of applications for enrollment and of  coverage for medical services (i.e., “coverage denials”) and the incidence  and outcomes of appeal related to coverage denials, we conducted a  structured literature review. American Association of Health Plans. 2. 3. 6.
Why GAO Did This Study

The large percentage of Americans that rely on private health insurance for health care coverage could expand with enactment of the Patient Protection and Affordable Care Act (PPACA) of 2010. Until PPACA is fully implemented, some consumers seeking coverage can have their applications for enrollment denied, and those enrolled may face denials of coverage for specific medical services. PPACA required GAO to study the rates of such application and coverage denials. GAO reviewed the data available on denials of (1) applications for enrollment and (2) coverage for medical services. GAO reviewed newly available nationwide data collected by the Department of Health and Human Services (HHS) from 459 insurers operating in the individual market on application denials from January through March 2010. GAO also reviewed a year or more of the available data from six states on the rates of application and coverage denials and the rates and outcomes of appeals related to coverage denials. The six states included all states identified by experts and in the literature as collecting data on the rates of application or coverage denials and together represented over 20 percent of private health insurance enrollment nationally. GAO conducted a literature review to identify studies related to application and coverage denials and reviewed data from selected studies. GAO interviewed HHS and state officials and researchers about factors to consider when interpreting the data.

What GAO Found

The available data indicated variation in application denial rates, and there are several issues to consider in interpreting those rates. Nationwide data collected by HHS from insurers showed that the aggregate application denial rate for the first quarter of 2010 was 19 percent, but that denial rates varied significantly across insurers. For example, just over a quarter of insurers had application denial rates from 0 percent to 15 percent while another quarter of insurers had rates of 40 percent or higher. Data reported by Maryland--the only of the six states in GAO's review identified as collecting data on the incidence of application denials--indicated that variation in application denial rates across insurers has occurred for several years, with rates ranging from about 6 percent to over 30 percent in each of 3 years. The available data provided little information on the reasons that applications were denied. There are also several issues to consider when interpreting application denial rates. For example, the rates may not provide a clear estimate of the number of individuals that were ultimately able to secure coverage, as individuals can apply to multiple insurers, and the rates do not reflect applicants that have been offered coverage with a premium that is higher than the standard rate. The available data from the six states in GAO's review and others indicated that the rates of coverage denials, including rates of denials of preauthorizations and claims, also varied significantly. The state data indicated that coverage denial rates varied significantly across states, with aggregate rates of claim denials ranging from 11 percent to 24 percent across the three states that collected such data. In addition, rates varied significantly across insurers, with data from one state indicating a range in claim denial rates from 6 percent to 40 percent across six large insurers operating in the state. There are several factors that may have contributed to the variation in rates across states and insurers, such as states varying in the types of denials they require insurers to report. The data also indicated that coverage denials occurred for a variety of reasons, frequently for billing errors, such as duplicate claims or missing information on the claim, and eligibility issues, such as services being provided before coverage was initiated, and less often for judgments about the appropriateness of a service. Further, the data GAO reviewed indicated that coverage denials, if appealed, were frequently reversed in the consumer's favor. For example, data from four of the six states on the outcomes of appeals filed with insurers indicated that 39 percent to 59 percent of appeals resulted in the insurer reversing its original coverage denial. Data from a national study conducted by a trade association for insurance companies on the outcomes of appeals filed with states for an independent, external review indicated that coverage denials were reversed about 40 percent of the time. GAO provided a draft of the report to HHS and the Department of Labor (DOL). HHS agreed with GAO's findings, noting the need to improve the quality and scope of existing data, and suggested clarifications, which were incorporated. HHS and DOL also provided technical comments, which were incorporated as appropriate.