Private Health Insurance: Data on Application and Coverage Denials
Published: 2011-03-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: A large majority of Americans—nearly 64 percent as of 2009—rely on  private insurance for health care coverage, most through employer- sponsored group health coverage. With the enactment of the Patient  Protection and Affordable Care Act (PPACA) in March 2010, enrollment  in private health insurance could expand significantly, particularly for  individuals and families that do not have access to group coverage through  their employer. While there are certain federal requirements protecting  against the denial of applications for enrollment for individuals eligible for  group coverage, until PPACA is fully implemented, these protections do  not apply to some consumers seeking individual coverage from private  health insurers. In addition, once consumers are enrolled in either group  or individual coverage, coverage can be denied for specific medical  services, either through a denial of authorization of a service before it has  been provided or payment for a service that has been delivered. There are  some national data on the extent to which applications for enrollment are  being denied; however, there is not yet any comprehensive, national  information on the extent to which coverage for medical services is being  denied when consumers seek health care. The federal government plans to  collect additional information on the extent of denials of applications for  enrollment and coverage for medical services and the reasons for those  denials, with the intent to make it easier for consumers to shop for  coverage. According to experts, those data may also help with government  oversight of private health insurance.
Oversight of private health insurance has been a responsibility of state  departments of insurance, and states vary in what they require of insurers  and the degree to which they track insurers’ activities, including the extent  to which insurers are denying applications and coverage. The federal  government’s role in the oversight of private health insurance has  included, for example, the establishment of certain consumer protections  for states to enforce. It also includes oversight of employer-based  coverage performed by the Department of Labor (DOL). However, the  federal government’s role has expanded with the enactment of PPACA.  PPACA required the Department of Health and Human Services (HHS) to  begin collecting, monitoring, and publishing information on health  insurance products. HHS began publishing data from insurers on denials  of applications for enrollment in October 2010 and intends to collect data  in the future on denials of coverage for medical services.
PPACA directed us to study denials of applications for enrollment and  coverage for medical services by considering samples of data related to  such denials, including the reasons for the denials and favorably resolved  disputes resulting from the denials. Specifically, we reviewed (1) the data  available on denials of applications for enrollment and (2) the data  available on denials of coverage for medical services.
To describe the data available on denials of applications for enrollment— referred to as application denials in this report—we reviewed federal,  state, and other data including data on the rates of and reasons for such  denials. First, we reviewed data recently collected by HHS from 459  insurers operating in the individual market in all 50 states and the District  of Columbia. The data included application denial rates by insurer for a   3-month period—January through March—in 2010. To supplement the  single calendar quarter of HHS data, we contacted insurance department  officials in six states regarding data on application and coverage denials.  The six states include all the states identified by experts and in the  literature as states that collect data from insurers on the incidence of  application denials, coverage denials, or both. Because we did not survey  all states to determine whether they collect data on the incidence of  application or coverage denials, or both, there may be other states that  collect such data that were not known to experts or discussed in the  literature. Of the six states, we identified one, Maryland, that collected  data on application denials. We reviewed data from Maryland for 2008,  2009, and the first half of 2010 on the rate of application denials by  insurers operating in the individual market in that state. (See app. I for  more information about our methodology for selecting states and the state  data we reviewed.) We also conducted a structured literature review to  identify studies related to application and coverage denials. We  determined that a study was directly relevant to our objective on  application denial data if it included empirical analyses of the frequency of  application denials. Through our review, we identified four studies that  met our criteria. Two of these four studies, produced by America’s Health  Insurance Plans (AHIP), included data on application denial rates in 2006  and 2008, and we reviewed those data. (See app. II for a description of the  literature review methodology and the list of studies identified through the  review.) Finally, we interviewed officials from HHS, Maryland, and AHIP  about factors to consider when interpreting the data. We also interviewed  officials from three large insurance companies about the data they collect  on application denials.
To describe the data available on denials of coverage for medical  services—referred to as coverage denials in this report—we reviewed  state and other data, including data on the rates of and reasons for denials  and the outcomes of appeals related to denials, such as disputes resolved  in favor of consumers. First, of the same six states we contacted regarding  application denial data, we reviewed the most recent year of data available  on the rate of coverage denials from the four that reported collecting such  data. Second, we reviewed data on the outcomes of appeals related to  coverage denials from all of the six states for the most recent year  available. We also interviewed officials from departments of insurance and  other departments involved in overseeing insurance or responding to  appeals in the six states about considerations for interpreting the data. To  supplement the information from selected states, we reviewed data  reported by 49 states and the District of Columbia to the National  Association of Insurance Commissioners (NAIC) on the number of  complaints related to coverage denials resolved in 2009 and the reasons  for and outcomes of those complaints. We also reviewed information on  the outcomes of complaints and appeals submitted by 35 states and the  District of Columbia to HHS in applications for Consumer Assistance  Program grants. As part of our literature review, we identified studies  that included empirical analyses of the frequency of coverage denials, the  reasons for such denials, the frequency of appeals of coverage denials, or  the outcomes of such appeals. Through the review, we identified annual  studies produced by the American Medical Association (AMA) in 2008,  2009, and 2010 that included data on the incidence and reasons for claim  denials. We reviewed data from the 2010 study and interviewed AMA  officials about factors to consider when interpreting the data. Finally, we  reviewed data from DOL on complaints related to coverage denials for  those with employer-sponsored coverage from fiscal year 2010, including  the number and value of financial recoveries made by the department on  behalf of consumers as a result of complaints.
To assess the reliability of the data we reviewed on the incidence of  application and coverage denials, the reasons for such denials, and the  outcomes of appeals and complaints related to those denials, we  interviewed federal, state, and other officials about their efforts to ensure  the quality of the data. This included discussing whether they required  insurers to certify the accuracy of data reported on the incidence of  application or coverage denials and what steps were taken to ensure the  quality of data tracked by states and DOL on the outcomes of appeals and  complaints related to denials. We also asked officials about the limitations  of the data and reviewed any statements about data limitations in  published reports of the data. We determined the data to be sufficiently  reliable for the purposes of describing the (1) denial rates, (2) reasons for  denials, and (3) outcomes of appeals related to denials indicated by the  data; where relevant we stated the limitations of the data in the findings.
We conducted our performance audit from September 2010 through  January 2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: In 2009, approximately 156 million nonelderly individuals obtained health  insurance through their employer and another 16.7 million purchased  health insurance in the individual market. Of those with employer- sponsored group health plans, in 2009, 43 percent were covered under a  fully insured plan where the employer pays a per-employee premium to an  insurance company. The remaining 57 percent were covered under self- funded plans where instead of purchasing health insurance from an  insurance company the employer sets aside its own funds to pay for at  least some of its employees’ health care.
subsections: section_title: Application Denials
paragraphs: Application denials result when an insurer determines that it will not offer  coverage to an applicant either because the applicant does not meet  eligibility requirements or because the insurer determines that the  applicant is too high of a risk to insure. Underwriting is a process  conducted by insurers to assess an applicant’s health status and other risk  factors to determine whether and on what terms to offer coverage to an  applicant.
Many consumers are protected from having their application for  enrollment denied. Consumers who obtain health coverage through their  employment by enrolling in a group health plan sponsored by their  employer have certain protections against application denials. For  example, under federal law, individuals enrolling in group health plan  coverage are protected from being denied enrollment because of their  health status. Under federal law, insurers also generally are prohibited  from denying applications for individual health coverage for certain  individuals leaving group health plan coverage and applying for coverage  in the individual market.
Currently, some consumers who apply for private health insurance  through the individual market can have their applications denied for  eligibility reasons or as a result of underwriting. For example, applications  filed by some consumers with preexisting health conditions can be denied,  unless prohibited by state or federal law. Additionally, insurers may  accept the application but offer coverage at a premium level that is higher  than the standard rate or that excludes coverage for certain benefits. The  options for appealing application denials in the individual market can be  limited to filing a complaint with the state department of insurance.  However, in 35 states, individuals who—due to a preexisting health  condition—have been denied enrollment or charged higher premiums in  the individual market are typically eligible for coverage through high-risk  health insurance pools (HRP). Additionally, as required under PPACA,  individuals who have preexisting health conditions and have been   uninsured for 6 months are eligible for enrollment in a temporary national  HRP program.
section_title: Coverage Denials
paragraphs: Coverage for medical services can be denied before or after the service  has been provided, either through denial of preauthorization requests or  denial of claims for payment. As a condition for coverage of some services,  providers or consumers are required to request authorization prior to  providing or receiving the service. Preauthorization denials occur when a  determination is made that (1) the consumer is not eligible to receive the  requested service, for example, because the service is not covered under  the individual’s policy, or (2) the service is not appropriate, meaning that it  is not medically necessary or is experimental or investigational. Denials of  claims occur for various reasons. Claims may be denied for billing reasons,  such as the provider failing to include a piece of required information on  the claim, such as documentation that the provider received  preauthorization for a service, or submitting a duplicate claim. Claims may  also be denied because of eligibility issues. For example, a claim may be  submitted for a service provided before an individual’s coverage began or  after it was terminated, or a claim may be submitted for a service that has  been excluded from coverage under an individual’s policy. Another reason  for denials reported by some insurers is that the individual has not met the  cost-sharing requirements of his or her policy, such as the required  deductible. Finally, claim denials can occur when a determination is made  that the service provided was not appropriate, specifically that the service  was not medically necessary or was experimental or investigational.  Depending on the reason for a claim denial, either the provider or the  consumer may bear the financial responsibility for the denied coverage  amount. Claims that are denied because of such billing errors as the  provider not providing a required piece of information can be resubmitted  and ultimately paid.
For claim denials, the full claim may be denied or, if the claim contained  multiple lines, such as a surgery with charges for multiple procedures and  supplies, only certain lines of the claim may be denied. How insurers and  self-funded group health plans track claim denials and the reasons for  denials may vary. For example, AMA officials noted that there is no  guidebook for how reason codes should be assigned to claim denials.  Officials noted that denials are often assigned the code for the most  general reason even though the denial may be for a more specific reason.
Consumers have several avenues available to dispute coverage denials.  First, consumers can file an appeal of a denial with the insurer or self- funded group health plan for review, referred to as an internal appeal.  Internal appeals can result in the denial being upheld or reversed. In  addition, consumers in most states can have their appeal reviewed by an  external party, such as an independent medical review panel established  by the state. These appeals, referred to as external appeals, can also  result in denials being reversed and in states recovering funds for  consumers for the cost of the denied service. State external appeal options  may only be available once the consumer has exhausted the internal  appeal process or for consumers with certain types of coverage.  Historically, those with self-funded group health plans generally did not  have access to an external appeal process, but consumers could file suit  against a health plan in court to challenge a denial. PPACA, however,  required that group health plans, including self-funded plans, provide  access to an external appeal process that meets federal standards for plan  years beginning on or after September 2010. Finally, consumers may file  complaints regarding coverage denials with the state, generally the  department of insurance, or, for those with group health plans, with DOL.
Filing a complaint can be a less formal mechanism for disputing a  coverage denial than filing an appeal; however, complaints can result in  reversals of denials and in financial recoveries for consumers.
section_title: State and Federal Oversight of Private Health Insurance
paragraphs: States have responsibility for regulating private health insurance, including  insurers operating in the individual market and the fully insured group  market. In overseeing insurer activity, states vary in the data they require  insurers to submit on denials and internal appeals of denials. According to  NAIC officials, few states require insurers to report data regularly on the  frequency of denials and internal appeals, and NAIC has not issued any  model laws or regulations that include requirements for insurers to report  such data. States also may use data on complaints and external appeals to  identify trends in the practices of insurers and target examinations of  specific insurers’ practices. Nearly all states and the District of Columbia  regularly report complaint data, which includes information on the  numbers of, reasons for, and outcomes of complaints, to NAIC.
Historically, the federal government’s role in oversight of private health  insurance has included establishing requirements for states to enforce. For  example, the Health Insurance Portability and Accountability Act of 1996  (HIPAA) established consumer protections on access, portability, and  renewability of coverage. In addition, with respect to group health plans,  the federal government enforces disclosure, reporting, fiduciary, and  claims-filing requirements under the Employee Retirement Income  Security Act of 1974 (ERISA). DOL conducts a number of efforts to  enforce the ERISA requirements. For example, the department conducts  civil investigations that can result in corrective actions, such as monetary  recoveries for consumers who are enrolled in employment-based plans. In  addition to these formal methods, DOL also works to resolve complaints  filed with the department. These efforts are considered informal  resolutions, although complaints can also serve as a trigger for formal  enforcement actions.
PPACA expanded the federal oversight role by requiring HHS to begin  collecting, monitoring, and publishing data from certain insurers.  Specifically, PPACA required the establishment of an internet Web site  through which individuals can identify affordable health insurance  coverage options in their state. To implement this requirement, in May  2010, HHS issued an interim final rule requiring insurers in the individual  and small group markets to submit data to HHS on their products,  including data on the number of enrollees, geographic availability of the  products, and customer service contact information, by May 21, 2010, and  annually after that. In July 2010, HHS began publishing these data on the  new Web site, which is designed for individuals and small businesses to  obtain information on coverage options available in their state. In October  2010, HHS began posting additional data collected from insurers, including  data on the percentage of applications denied for each product offered in  the individual market. The interim final rule also required insurers to  submit other data, such as data on the percentage of claims denied in the  individual and small group markets, and the number and outcomes of  appeals of denials to insure, pay claims, and provide preauthorization, in  accordance with guidance to be issued by HHS. As of December 2010, HHS  had not issued any guidance on reporting these additional data.
section_title: Federal, State, and Other Data Indicated Variation in Application Denial Rates and Provided Little Information on the Reasons for Denials
paragraphs: 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. See table 1 for additional information  on the range in application denial rates across insurers.
HHS officials noted that the data the department collected on application  denials, which represent a single calendar quarter of applications, are only  a starting point. They told us that as insurers report additional quarters of  data, the value and usefulness of the data will increase. In addition,  officials said that they have taken steps to ensure the accuracy of the data  and noted that the accuracy of these data is critical to HHS, because no  other source of information on private health insurance has a complete  catalog of insurers operating in the individual market and what products  those insurers are selling.
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. Maryland data showed  that the range of application denial rates across insurers was   26 percentage points or more in each of three reporting periods, 2008,  2009, and the first half of 2010. (See table 2 for the range in denial rates in  the data reported by Maryland.)
Data reported in studies by AHIP also showed variation in application  denial rates. The AHIP data illustrated that application denial rates varied  across age groups, with denial rates increasing as the age of the primary  applicant increased. In 2008, when AHIP data showed that 13 percent of all  medically underwritten applications were denied, in general the denial  rate progressively increased as the applicant’s age increased, from a low of  5 percent for applicants under 18 years of age to a high of 29 percent for  applicants from 60 to 64 years of age. Similar variation in AHIP  application denial rates was seen in data from 2006. (See fig. 1.)
The available data on application denial rates provided little information  on the reasons that applications were denied. For instance, the HHS and  Maryland data did not include any information on the reasons for  application denials. The AHIP data, however, provided limited  information. Specifically, AHIP’s data showed that a higher percentage of  applications were denied because of the applicant’s health status than for  nonmedical reasons, such as the plan not being offered in the applicant’s  geographic area. AHIP data showed that in 2008, of the 1.8 million  applications for enrollment that insurers either denied or made offers of  coverage, 1 percent were denied for nonmedical reasons and 12 percent  were denied after underwriting when the applicant’s health status and  other risk factors were assessed. According to an AHIP official,  applications that were denied after underwriting were presumably denied  because the applicant’s medical questionnaire responses were beyond the  insurer’s threshold for issuing a policy.
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. Second,  denial rates also do not reflect applications that have been withdrawn. For  example, AHIP data for 2008 indicated that 8 percent of applicants  withdrew their applications before underwriting occurred. Experts also  noted that some individuals may not submit applications for health  coverage because they believe or have been advised, for example by an  insurance agent, that their application would likely be denied. Third, an  insurer’s denial rates may be affected by requirements of the states in  which the insurer operates. For example, officials from one insurance  company explained that for applicants in the state for which they are the  insurer of last resort, state law prohibits them from denying applications  for enrollment based on the health status of the applicant. Officials told  us that a denial can occur only for nonmedical eligibility reasons, which  the AHIP data indicate are far less frequent.
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. Data from HHS,  Maryland, and AHIP all indicated that some portion of applicants received  offers at a premium that was higher than the standard rate. For example,  the HHS data demonstrated that from January through March of 2010,  about 20 percent of individual market applicants were offered coverage  with premiums higher than the standard rate. Maryland data also indicated  that for the first half of 2010, 8 percent of applicants were offered either  coverage with premiums higher than the standard rate or coverage that  excluded specified health conditions. Finally, AHIP data from 2008  showed that 34 percent of offers for coverage were for coverage at a  higher premium rate. The AHIP data also showed that 6 percent of offers  for coverage were for coverage that excluded specified health conditions.
section_title: State and Other Data Indicated That Coverage Denial Rates and the Reasons for Denials Vary and That Denials, If Appealed, Are Often Reversed
paragraphs: 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.
subsections: section_title: State and Other Data Indicated Wide-Ranging Coverage Denial Rates, and a Number of Factors May Have Contributed to This Variation
paragraphs: State data that we reviewed showed that rates of coverage denials by  insurers operating in the group and individual markets varied significantly  across states. 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. Data reported by the  remaining state, Maryland, indicated a claim denial rate of 16 percent in  2007. A fourth state, Connecticut, collected data on a different measure,  preauthorization denials, and these data indicated a denial rate of   14 percent in 2009. In addition, claim denial rates indicated by AMA  data—3 percent during 2 months of 2010—varied from coverage denial  rates in the four states.
Several factors may have contributed to the variation in rates across the  four states and the AMA data. For example, Ohio and AMA data were  based on denials of electronic claims. AMA officials told us that  providers with electronic billing systems and insurers that accept  electronic claims are more sophisticated in terms of billing management,  and therefore the denial rates calculated by AMA may be lower than rates of denials for all claims, including both electronic and paper-based. In  another example, Maryland’s rate was calculated using data for categories  of denials that accounted for about 90 percent of all claims denied. In  contrast, according to California officials, California’s data represented all  claim denials. Differences in the time frames for the data may have also  contributed to the variation. AMA officials noted that their data were from  a 2-month period of the year (February through March) when there was  less contractual activity, such as open enrollment periods, and when  denials related to meeting deductible requirements—which according to  officials from one insurance company can be significant—have already  been resolved. In contrast, data from the four states, except Ohio, covered  a full year and therefore reflect all denials for the year, including those  related to enrollment and deductible issues. See table 3 for the rates of  coverage denials indicated by state data and a description of the  characteristics of the data, some of which may have contributed to the  variation in rates.
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. Similarly,  preauthorization denial rates in Connecticut varied across 21 insurers,  with rates among the seven largest insurers ranging from 4 percent to   29 percent in 2009. Somewhat narrower variation across insurers was also  evident in the AMA data, with claim denial rates in 2010 that ranged from  less than 1 percent to over 4 percent across the seven insurers represented  in those data.
State and other officials told us about several factors that may have  contributed to the variation across insurers and make it difficult to  compare data across insurers. First, California officials told us that  insurers may interpret a state’s reporting requirements differently and  noted that some insurers may count certain claims transactions as denials  that the state would not consider a denial. This was evidenced by  discussions with one insurer who told us that if asked to report the  number of claims denied, some insurers might include claims where the  service was approved but the insurer paid nothing because the member  was liable for the charge, which California officials would not characterize  as a denial. Officials from the insurer said that their current overall denial  rate is 27 percent, but it would be 18 percent if member liability denials  were excluded. Officials from California and AMA also indicated that  circumstances unique to an insurer may affect their denial rate. For  example, California officials told us one insurer’s denials rose sharply in a  month because providers were submitting claims to the insurer’s HMO  when they should have gone to the preferred provider organization (PPO).  Rather than transferring the claims, the HMO denied all of them, and then  the PPO paid the claims shortly after that.
section_title: State and Other Data Indicated That Coverage Denials Occurred for Various Reasons and That Denials, If Appealed, Were Frequently Reversed
paragraphs: According to state and other data, coverage denials occurred for various  reasons. For example:    Claim denials were often made for billing errors such as duplicate claims  and missing information on the claim. For example, data from Maryland  showed that the most prevalent reason for claim denials in 2007 was  duplicate claim submissions, accounting for 32 percent of all denials.  Among six of the largest managed care organizations in California, the  four that reported on the most prevalent reasons for claim denials in 2009  all reported duplicate claims as one of those reasons. 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. Data from Maryland showed that   74 percent of denied claims did not meet the state’s criteria for “clean”  claims, those claims that include all of the required information needed for  processing.
Denials of claims also frequently resulted from eligibility issues. 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.
Insurers also denied preauthorizations and claims as a result of judgments  about the appropriateness of the service, such as that the service was not  medically necessary or was experimental or investigational, although less  frequently than for billing errors and eligibility issues. Data from Maryland  showed that in 2007 insurers denied nearly 40,000 preauthorizations or  claims because they determined the services were not medically  necessary. This was a relatively small number compared to the 6.3  million claim denials reported in the same year. The 2010 AMA data  showed that only one of the seven insurers denied claims on the basis that  services were not appropriate, specifically that the service was  experimental or investigational, with about 9 percent of denials made for  that reason. NAIC data on complaints filed with states in 2009 also  provided some information on coverage denials related to the  appropriateness of services. Specifically, the data showed that of the  approximately 14,000 complaints related to coverage denials, at least 8  percent were related to the insurer’s determination that the service was  not medically necessary and 2 percent were related to the determination  that the service was experimental.
section_title: Agency Comments and Our Evaluation
paragraphs: HHS provided us with written comments on a draft version of this report.  These comments are reprinted in appendix III. 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.
In its written comments, HHS emphasized the importance—for  policymakers, regulators, and consumers—of data on health insurance  application and coverage denials. HHS noted that data on application and  coverage denials can help increase transparency in the private health  insurance market and that these data can also provide an important  baseline measure for evaluating the impact of changes resulting from  PPACA. In its comments, HHS also noted that data collection on  application and coverage denials has been uneven across insurers, plans,  and states and that very little information is available to help analysts  understand the causes or sources of variation in the data that are  available. According to HHS, more effort is needed to improve the quality  and scope of existing data collection to give policymakers and regulators  better and richer data to evaluate health insurance plan practices and  market changes and to produce measures that may be useful to consumers  when they are shopping for insurance.
In its written comments, HHS also identified a limitation to our data that  needed some clarification. Specifically, HHS pointed out—correctly—that  while our draft report provided information on the percentage of claims  that were denied, as well as data on the outcomes of internal appeals and  external reviews of denied claims, our draft report did not provide data on  the frequency with which claim denials are appealed by consumers. These  data were not included in the report because the data we reviewed did not  allow for a systematic calculation of an “appeal rate”—the number of  coverage denials for which an appeal was initiated—for several reasons,  including different sources or years of denials and appeals data we  reviewed. In response to HHS’ comments, we added language to the report  clarifying this limitation. For context, we also added information on the  appeal rate from one quarter for one state—the only information we  identified on internal claims appeal rates. HHS also noted that the  statement in our draft report that “denials are frequently reversed” upon  appeal may be confusing, because readers may assume a large number of  claim denials are ultimately overturned. We revised the language in our  draft report to prevent this misinterpretation of our data, by stating that  coverage denials, if appealed, were frequently reversed in the consumer’s  favor.
We are sending copies of this report to the Secretaries of HHS and DOL,  the congressional committees of jurisdiction, and other interested parties.  In addition, the report is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Methodology for Selecting States and State Data Reviewed by GAO
paragraphs: 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 we selected included states identified in  the literature, through searches of state insurance department Web sites,  or in interviews with experts as a state collecting data on the incidence of  application or coverage denials. These also included states that collect or  track data on appeals related to coverage denials reviewed by insurers  (internal appeals) or reviewed by external parties (external appeals). The  six states accounted for at least 20 percent of national enrollment in  private health insurance.
Once we selected the states, we asked officials from each state whether  they collected the following types of data: (1) incidence of application  denials; (2) incidence of coverage denials, including incidence of denials  of preauthorizations and claims; (3) incidence and outcomes of appeals  reviewed by insurers (that is, internal appeals); and (4) incidence and  outcomes of appeals reviewed by external parties (that is, external  appeals). If state officials reported collecting the data, we reviewed at  least the most recent year of data available. 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. (See table 6.)
section_title: Appendix II: Methodology for and Studies Identified by Structured Literature Review
paragraphs: 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. This review resulted in 24 studies that we  determined to be relevant to our objectives. To conduct this review, we  searched 23 reference databases for articles or studies published from  January 2000 through July 2010, using a combination of search terms,  such as “denial” and “insurer.” We determined that a study was directly  relevant to our objectives if it: (1) included empirical analysis related to  the incidence of application denials, the incidence of coverage denials, or  the incidence and outcomes of appeals related to such denials; and   (2) analyzed, at minimum, denial or appeal data from an entire state or two  or more insurers. In addition to searching the reference databases, we  checked the bibliographies of the relevant studies to identify other  potentially relevant research and interviewed several private health  insurance experts about research done on denials.
We identified 24 studies in the literature that included empirical analyses  examining (1) the frequency of denials of applications for enrollment or  (2) the frequency of or reasons for denials of coverage for medical services  and outcomes of appeals related to such denials. Table 7 identifies the  number of studies that address these topics, with some studies addressing  more than one topic.
The 24 studies that GAO identified in the literature are as follows:  1.  American Association of Health Plans. Independent Medical Review of  Health Plan Coverage Decisions: Empowering Consumers with  Solutions. Washington, D.C., 2001. 2.  America’s Health Insurance Plans. Individual Health Insurance 2009:  A Comprehensive Survey of Premiums, Availability, and Benefits.  Washington, D.C., 2009. 3.  ——-. Individual Health Insurance 2006–2007: A Comprehensive  Survey of Premiums, Availability, and Benefits. Washington, D.C.,  2007. 4.  ——-. Update on State External Review Programs. Washington, D.C.,  2006. 5.  American Medical Association. 2010 National Health Insurer Report  Card. Chicago, Ill., 2010. 6.  ——-. 2009 National Health Insurer Report Card. Chicago, Ill., 2009.  7.  ——-. 2008 National Health Insurer Report Card. Chicago, Ill., 2008.  8.  California Healthcare Foundation. Independent Medical Review  Experiences in California, Phase I: Cases of  Investigational/Experimental Treatments. Prepared by the Institute  for Medical Quality for the California Healthcare Foundation, Oakland,  Calif., 2002.  9.  Chuang, K. H., W. M. Aubry, and R. A. Dudley. “Independent Medical  Review of Health Plan Coverage Denials: Early Trends.” Health  Affairs, vol. 23, no. 6 (November/December 2004), 163-169. 10. Collins, S. R., J. L. Kriss, M. M. Doty, and S. D. Rustgi. Losing Ground:  How the Loss of Adequate Health Insurance is Burdening Working  Families: Findings from the Commonwealth Fund Biennial Health  Insurance Surveys, 2001–2007. New York, N.Y., 2008. 11. Doty, M. M., S. R. Collins, J. L. Nicholson, and S. D. Rustgi. Failure to  Protect: Why the Individual Insurance Market is not a Viable Option  for Most U.S. Families. Findings from the Commonwealth Fund  Biennial Health Insurance Survey, 2007. New York, N.Y., 2009. 12. Foote, S. B., B. A. Virnig, L. Bockstedt, and Z. Lomax. “External Review  of Health Plan Denials of Mental Health Services: Lessons from  Minnesota.” Administration and Policy in Mental Health and Mental  Health Services Research, vol. 34 (2007), 38-44. 13. Gresenz, C. R., and D. M. Studdert. External Review of Coverage  Denials by Managed Care Organizations in California. Working  Paper No. WR-264-ICJ, RAND Institute for Civil Justice, Santa Monica,  Calif., 2005. 14. Gresenz, C. R., D. M. Studdert, N. Campbell, and D. R. Hensler.  “Patients In Conflict With Managed Care: A Profile of Appeals in Two  HMOs.” Health Affairs, vol. 21, no. 4 (July/August 2002), 189-196. 15. Gresenz, C. R., and D. M. Studdert. “Disputes over Coverage of  Emergency Department Services: A Study of Two Health Maintenance  Organizations.” Annals of Emergency Medicine, vol. 43, no. 2  (February 2004), 155-162. 16. Kaiser Family Foundation / Harvard School of Public Health. National  Survey on Consumer Experiences With and Attitudes Toward Health  Plans: Key Findings. Washington, D.C., 2001. 17. Kapur, K., C. R. Gresenz, and D. M. Studdert. “Managed Care:  Utilization Review in Action at Two Capitated Medical Groups.” Health  Affairs, Web exclusive (2003), W3-275-282.  18. Karp, N., and E. Wood. Understanding Health Plan Dispute  Resolution Practices, Washington. D.C., 2000. 19. Pearson, S. D. “Patient Reports of Coverage Denial: Association with  Ratings of Health Plan Quality and Trust in Physician.” The American  Journal of Managed Care (March 2003), 238-244. 20. Pollitz, K., R. Sorian, and K. Thomas. How Accessible is Individual  Health Insurance for consumers in less-than-perfect health? Prepared  for the Henry J. Kaiser Family Foundation, Menlo Park, Calif., 2001. 21. Pollitz, K., J. Crowley, K. Lucia, and E. Bangit. Assessing State  External Review Programs and the Effects of Pending Federal  Patients’ Rights Legislation. Prepared for the Henry J. Kaiser Family  Foundation, Menlo Park, Calif., 2002. 22. Schauffler, H. H., S. McMenamin, J. Cubanski, and H. S. Hanley.  “Differences in the Kinds of Problems Consumers Report in  Staff/Group Health Maintenance Organizations, Independent Practice  Association/Network Health Maintenance Organizations, and Preferred  Provider Organizations in California.” Medical Care, vol. 39, no. 1  (2001), 15-25. 23. Studdert, D. M., and C. R. Gresenz. “Enrollee Appeals of Preservice  Coverage Denials at 2 Health Maintenance Organizations.” The Journal  of the American Medical Association, vol. 289, no. 7 (Feb. 19, 2003),  864-870. 24. Young, G. P., J. Ellis, J. Becher, C. Yeh, J. Kovar, and M. A. Levitt.  “Managed Care Gatekeeping, Emergency Medicine Coding, and  Insurance Reimbursement Outcomes for 980 Emergency Department  Visits from Four States Nationwide.” Annals of Emergency Medicine,  vol. 39, no. 1 (January 2002), 24-30.
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kristi Peterson, Assistant  Director; Susan Barnidge; Krister Friday; Jawaria Gilani; Teresa  Tam; and Hemi Tewarson made key contributions to this report.