Major insurance companies in America have been caught “red handed.” For years, they’ve been involved in a price fixing scheme to pay lower rates to patients for “out-of-network” services. They accomplished this through a computerized network of deflated values for services provided. But now with the settlement of a class action lawsuit filed by the American Medical Association and others, the “jig is up.”

Investigations into the standard operating procedures of major insurance providers began in earnest last February. This is when New York Attorney General Andrew Cuomo launched an industry-wide look into allegations that health insurers had conspired to unfairly saddle consumers with too much of the cost of out-of-network healthcare.

Out-of-network has to do with insured customers being allowed to use medical providers that are not part of a company’s approved group of doctors. Customers are allowed this benefit by agreeing to pay a higher insurance premium to secure the services of their own preferred doctor. In exchange, the insurance companies promise to cover up to 80 percent of the “usual and customary” rate and with the insured customer responsible for the remaining 20 percent. Some 70 percent of insured Americans fall into this category of paying more for the privilege of using their own provider.

The company mainly responsible for setting the rates for reimbursement is UnitedHealth Group, the nation’s 2nd largest insurer. The company owns the Ingenix database, the computerized network that is used by most major insurance companies as the standard for setting payment of patient claim rates.

What the investigation found was that UnitedHealth and also Aetna, the 3rd largest insurer in the country, had been intentionally skewing the data input amounts downward to artificially reduce “usual and customary” reimbursement fees. This means that doctors were universally paid less for their services. As a result, a greater portion of the cost of medical services was being passed along to the customer. UnitedHealth has 33 million customers; Aetna has 16 million.

“With this agreement, the tide is turning against the corrupted reimbursement system that took hundreds of millions of dollars from the pockets of patients nationwide,” said Attorney General Cuomo.  “Health insurers will no longer be able to distort their data, leaving patients with unfair bills.”

As a result of the class action suit agreement, a new nationwide database will be established under the auspices of an independent, non-profit group. New, correct data will be inputted and will serve as the standard for all future out-of-network reimbursements.

The United Health Group will pay a total of $350 million to fund the settlement for health plan members who were over-charged for services dating back to 1994. The company has also pledged to pay $50 million toward the set-up costs of the new computerized billing network. Aetna has agreed to pay $20 million for network set-up costs. It is estimated that the new database will take about 6 months to set up and make operational.Source: The New York State Attorney General’s Office. “Cuomo: Insurers Nationwide Should Be On Notice.” January 2009. http://media-newswire.com/release_1084469.html and The UnitedHealth Group. “UnitedHealth Group Reaches Agreement to Settle Class Action Lawsuits Related to Out-of-Network Reimbursements.” January 2009. http://biz.yahoo.com/bw/090115/20090115005323.html?.v=1