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Why is Such a High Percentage of Premiums Spent on Claims Payment

Insurers spend lots of their time and money processing claims, and this isn’t a good thing. In fact, this inefficient use of energy hurts people from all sides, including the insured as well as the insurers. High premiums are required to pay for the high expenses behind claims processing.

The premiums that all insured persons are paying are supposed to be the insurer’s bread and butter. It should be paying their own personal bills and providing security and comfort for themselves and their family. Instead, as much as 80% of premiums are being spent on processing claims, according to Strategy&. That’s a significant amount to spend out of a number that should mostly make up the insurer’s income.

So why is such a high percentage of the profit from premiums being used for claim payments? According to some experts in the health payer practice, this is mostly due to the inefficient, complex methods of processing claims. Every insurer has different policies and requirements. All claims are to be entered through an electronic data interchange channel, but some smaller providers don’t have access to these systems and must file their claims on paper. There are too many possible variables, and too much labor and time that go into these disparate methods of claims processing.

In order to improve the efficiency of claims processing, and in turn cut down significantly on the amount of premiums that get spent on claims payments, insurers need to take a few steps towards cleaning up their methods. To start, insurers should work on having an auto-adjudication rate that is greater than 85%. Auto-adjudicated claims are those that do not need to be addressed by a human. They can go through the system automatically. Claims that are auto-adjudicated will cost less than a dollar per claim, versus an average price of $20/claim filed by humans.

But, even in the case of auto-adjudicating claims, there is a possibility of issues with the claims processing. If the providers enter information incorrectly, the claim cannot auto-adjudicate. This is an opportunity for insurers to reach out to the providers to explain how claims should be treated for smooth processing in the future. However, that task takes time and money.

To save even more money on claims processing, experts recommend that insurers consider outsourcing their claims processing. Options like Netmark Payer Services provide expert, offshore services that take the burdens of claim processing off of the insurer’s hands. This option could very well be a more cost effective and efficient way to handle claims processing.

As insurers take the steps needed to reduce the complications of their claims processing, they’ll find that less of the premium payments are needed to pay for this step. Options, like streamlining the adjudication process and potentially bringing in an outsourced vendor, can let insurers price their premiums more competitively, process their claims more efficiently, and bring in new patients, all while leaving them with more money for a more generous income.

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