How Often Health Insurance Won’t Pay for Your Medical Bill

As a consumer and patient, I wanted to understand how common is it for a person to deal with health insurance not paying for medical bills? And are there any important differences among health insurance companies that can alleviate this problem?

2015–2017: Big Picture
It’s not often we’ve had transparency with health insurance companies about how they treat our medical bills. After 2015, the Centers for Medicare and Medicaid (CMS) began posting data online about how many medical bills health insurance companies didn’t pay for, specifically for individuals who bought their own plans on healthcare.gov (state Marketplaces). While the information I present in this article only applies to healthcare.gov individual plans, these health insurance companies are the same companies that sell group plans to our employers and Medicare Advantage plans when we turn 65. It could indicate what the average American is dealing with.
On average in 2017 health insurance companies that sold plans on healthcare.gov didn’t pay for 17% of medical bills, which was roughly 41.7 million medical bills, requested by customers. It’s not clear why they didn’t pay for them, but experts are hoping this information will be collected in 2021. When insurance makes the wrong decision to not pay for a medical bill, customers can say so by appealing, but we usually don’t. When health insurance wouldn’t pay for a medical bill in 2017, on average customers only tried to appeal 0.5% of these decisions.
It’s Common
Let’s break down the data in a way that matters to us most, as individuals. In 2015, it was most common that health insurance did not pay for 3.6 medical bills per customer on their plan. In 2017, it was a little bit less at 2.8 medical bills per customer. Keep in mind there was a wide range of denied medical bills among the health insurance companies. This wide distribution doesn’t make it easy to predict what is going to happen to the average person, so understanding instead what is common — that having a few medical bills denied is common — can be a bit more accurate representation.

It Might Be a Volume Problem
When health insurance doesn’t pay for a medical bill, it’s usually an automated machine making that first decision. The more medical bills they get, the more variety of medical services they could be reviewing. Basically the more bills, the more complexity these automated software programs are going to have to deal with. Most recently in 2017 it was found that the number of medical bills for which health insurance denied payment was strongly related to the number of medical bills they got in the first place. The chart below shows how the more medical bills a health insurance company receives per customer, the more medical bills they will deny. About 66% of the amount of medical bill denials can be explained by how many bills are received in the first place.

It’s Getting Better
In case you didn’t notice earlier, customers in 2017 had fewer medical bills denied by health insurance than in 2015. That sounds promising for us to have fewer hassles, but is this change significant or just a random occurrence? Between these 2 years, the public data that we have tells us that 27 health insurance companies dropped out after 2015, 39 new companies joined by 2017, and 90 companies were the same.

The 90 companies that remained on healthcare.gov, did not have a big enough difference in medical bill denials between the 2 years to be significant. However, the companies that dropped out after 2015 compared to the new companies that joined in 2017 did show a significant difference. Do these new companies just treat customers better, or is there something fundamentally different about them?
A Potential Tradeoff Between Choice And Simplicity
Being able to see whatever doctor or therapist we want and having our health insurance company pay for it is a nice choice. The more flexibility in who we can see, the larger our health insurance network is. Health insurance companies that provide this flexibility in choice are common. Some companies, though, believe that medical care can be less expensive when we as customers work with a limited network of hospitals and clinics the insurance company knows well. Companies use 3 different models to do this:
- Managed Care: a health insurance company that only allows customers to work with a small network of hospitals and clinics in their area (used to be called HMOs, or health maintenance organizations)
- Hospital-Owned/Integrated Care: a hospital (usually a hospital chain in a state or region) owns a health insurance company to prefer their own network of hospitals and clinics for customers
- Both: a hospital-owned health insurance company that limits customers to their chain of hospitals and clinics
In the chart below you can see that in 2017 there were 12 more insurance companies that use these 3 models than there were in 2015. In contrast there was only 1 more of the traditional, large network company that joined.

When the amount of medical bill denials per customer is categorized by these four types of companies, the ranges vary a lot among them (the bottom black line to the top black line in chart below). Traditional health insurance has a larger range of how many medical bills its denying compared to the rest of the three groups. However, only a significant difference in the amount of medical bill denials was found between traditional health insurance and insurance that is both hospital-owned and managed care. Traditional insurance commonly denied 4.2 medical bills per customer versus the combined hospital-owned and managed care companies that denied 1.5 bills per customer. It’s not that a difference doesn’t exist for hospital-owned or managed-care companies, but it may require sampling more of them to find out.

Key Takeaway
Why there is a difference among the different types of health insurance companies could be because they are getting different amounts of medical bills in the first place, or another factor that has to do with efficiency in processing the bills. For some reason, the combination of hospital-owned insurance and managed care that strictly limits their customers’ network of hospitals and clinics, makes an important difference for customers. This combination is the only model that can set a hospital billing policy that controls the amount, quality and type of medical bills sent by their own doctors that is then processed by their own insurance company. In contrast, in 2015 the only insurance companies in Arkansas to sell plans on healthcare.gov were 3 managed care companies. While they could restrict their customers’ network , they still received 245, 278, and 369 medical bills per customer that year. Either Arkansas residents are much sicker than the rest of the U.S., and getting more medical care, or they are receiving similar care that is generating a lot more bills. Hospital-owned insurance that doesn’t restrict customer networks could face similar problems, but we need more data to know for certain.
If we want fewer hassels with our health insurance companies, as consumers it may help to purchase plans from insurance companies that are both hospital-owned and managed care. If we’d rather have more choice in our doctors, the tradeoff may be that we can expect to deal with more health insurance disputes to pay for those medical bills.
Helping Patients Appeal Wrong Health Insurance Decisions
I was interested in this topic because I’ve worked with dozens of patients and providers to help them with their health insurance disputes. It’s never been easy and most of the time we had to appeal to the very final stages, which took months to over a year, before any change happened. What surprised me was how often health insurance did change their minds and ended up paying for the bills, showing their initial automated choice to deny them was wrong. A recent government report on Medicare Advantage health insurance data that isn’t publicly posted, said that 56% of health insurance denials they audited in 2015 were incorrectly made. If you’re working as a patient advocate for a loved one or clients of your own to help them with health insurance appeals, I hope this information has been helpful and can help you think through possible ways to prevent the burden of insurance denials for those you work with. With customers having such a low appeal rate, your support is very much needed for their consumer protection.
Who Is This?
Hi! I turned my biostatistics project into a $5 patient advocacy campaign. I spent a few years operating a patient advocacy startup in St. Louis, and am now returning to graduate school to help support better ways we can pay for and deliver medical care. Thanks for reading!
