Dan Gorenstein: America’s biggest health insurance companies have a side hustle most people have never heard of.

Deep inside Fortune 500 companies, labor unions and state capitols, major insurers moonlight as middlemen.

Audio montage of people saying “third-party administrator” 

DG: Big employers hire these insurers to run their health plans…paying them handsomely and entrusting them to manage hundreds of billions of dollars.

But a recent federal court ruling, and other revelations, raise questions about whether all that trust is dangerously misplaced.

Today, from deep inside one of health care’s blackest boxes, and the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein and this is Tradeoffs.

DG: On today’s show, I’m joined by senior producer Leslie Walker who we have to thank for the pretty weird and wonky journey we’re about to go on.

Leslie Walker: That’s right, Dan. You’re welcome and I’m sorry. 

DG: And I’m kind of thinking, Leslie, that we should temporarily change your title to senior spelunker because today’s episode really is a kind of quest, a plunge into a deep, dark corner of health care.

LW: I’ve got my head lamp, my Keens, my trail mix…and I’m ready to roll.

So, like a lot of sagas in health care, this one starts with a bill and a perplexed patient.

Sandy Peters: My name is Sandy Peters. I’m 71 and I live in western North Carolina. 

LW: Now Sandy’s a retiree, but she still gets her health benefits through the candy company, Mars, that employed her husband for a long time.

SP: For over 25 years…

LW: And for a lot of those years, every month, Sandy went to the chiropractor.

Every time, she paid about $6. The charge never changed…until February of 2014. That’s when her tab more than doubles to $14 — for the exact same treatment she’d always gotten.

SP: I figured somebody had made an honest mistake.

LW: She checks with her chiropractor who confirms, nope, her office billed the usual amount.

So Sandy figures it must be an error by Aetna, the insurance company that acts as the third-party administrator for Mars and their health plan. 

Music

SP reading letter: You will find three Aetna benefit statements for chiropractic services…

LW: She writes Aetna a letter… 

SP reading letter: …that depict upcharging by reflecting chiropractic modality services…

LW: Aetna basically blows Sandy off.  

She goes to the chiropractor in March, and again, another $14 bucks. 

That was a real bad move, Dan. Cause there’s something Aetna doesn’t yet know about Sandy.

SP: I’m kind of like a dog with a bone [laughs]…tenacious is I think the term. 

LW: This lady grabs her pen…

SP reading letter: To Aetna Life Insurance Company…

LW: She gets to work…

SP reading letter: To the customer resolution team…

LW: …firing off letters left and right. 

SP reading letter: I cannot even begin to describe…misappropriation of patient benefits…I continue to dispute. 

SP: I probably wrote 12 letters in 2014.

SP reading letters: March 10th, June 9th, August 14th, October 26th…It is time the bogus claim is exposed.

SP: And the same runaround.

DG: Damn, my hand hurts just thinking about all that letter writing. 

LW: And she’s getting more and more suspicious. She goes from calling the issue a “discrepancy” in the spring to a “swindle” and “fraud” by the fall.

DG: Wait a minute, lots of us have gotten angry with our insurance companies, but this is 8 extra bucks, maybe 3 Milky Way bars, we’re talking about. Why was Sandy so heated? 

LW: Yeah, I mean to be fair, Sandy is retired on a fixed income, but from the start she just felt like this was plain wrong. 

It was never about her money. It was about the candy company’s money. 

She was only paying $8 extra a month, but Mars was picking up the rest of the bill, paying nearly $30 more.

SP: We thought that we could lose our healthcare with Mars, which that’s costly.  How many companies today give their retirees healthcare benefits? And Mars does. 

LW: She worried the company might stop covering retiree health benefits if this kind of thing was happening company-wide. 

DG: And what did Mars say? Did they ever respond to any of her letters? 

LW: Sandy says Mars never did directly reply. They just forwarded a letter from Aetna saying everything was above board, which she assumed meant Mars wasn’t worried.

SP: I was shocked at that.

LW: Now Dan, I think it helps here to pause Sandy’s story for a second and explain the relationship between Mars and Aetna a bit more.

Because it’s a relationship almost every big employer in this country has, and it’s pretty surprising.

So Mars actually acts as its own health insurer…that means Mars is on the hook to do all the things an insurer normally does: Collect premiums from workers, pay the bills and be fiscally responsible — like making sure they don’t overpay any of those bills.

DG: We’re talking about billions of health care dollars these big companies oversee, and if it goes badly, it’s their assets on the line. Is that what this is?

LW: That’s what is so surprising. Employers entrust all that money, outsource all that responsibility to these outside companies called third party administrators or TPAs. 

DG: This all sounds pretty risky, Leslie. Like why do this? 

LW: Cause it’s super complicated to run a health plan. But really, employers want the benefits that come with that. 

It can be a whole lot cheaper and exempt them from almost all state insurance regulations. Plus they get more control over the insurance plan itself. They set the copays, make telehealth free, whatever they want.

DG: And why would a big insurer like Aetna want to be a TPA? Don’t they have their own book of business they’re worried about?

LW: Turns out…this is a huge book of that business, Dan. 

Ken Janda: The large insurance companies like Aetna, Cigna, United Healthcare…all love to act as a third party administrator. It’s a very good business and, safer than being in the insurance business, right?

LW: That’s Ken Janda, who spent 40 years working as an insurance executive.

Ken says in a traditional contract, it’s the insurer who’s financially exposed, meaning if a bunch of people get sick, the insurer is on the hook to cover all the bills. 

As a TPA, not their problem. It’s the employer who gets whacked.

DG: So in these administrative contracts, insurers are just very well-paid managers. 

LW: Yep. And the country’s biggest health insurers do the bulk of TPA work for large employers. Part of my spelunking adventure took me deep into some financial reports, 60 and 70 pages long.

And as best I could tell, Cigna, Aetna, and United collectively made more than $20 billion last year off this administrative business.

And, Dan, those three companies serve more than 40 million Americans through these contracts.

DG: People like Sandy Peters. 

LW: Yeah, and this is why Sandy is so worried, right?

If Mars, who’s basically handed Aetna a blank checkbook and the keys to the family car, isn’t going to catch something that seems so wrong…then who will?

And Sandy’s like ‘I guess it’s me.’ So she gathers up every letter, every bill, every little thing she’s learned over the last 12 months, and mails it off to a lawyer she’s heard is looking into sketchy bills.

Sound: Thud

LW: That’s the sound Sandy’s three-inch thick binder made when it hit Brian Hufford’s desk in New York City. 

Brian Hufford: This landed on my desk and it basically laid everything out. And it really showed an incredible, incredible effort by an individual who basically said, ‘There’s something wrong here and I’m going to track it down,’ and that really served as the foundation for the case we brought. 

LW: Sandy’s year of digging provides Brian enough evidence to bring a class action lawsuit against Aetna, with Sandy starring as the lead plaintiff.

Music

LW: So heading into this lawsuit, Brian and Sandy know there’s this extra charge on these bills. 

They know Sandy’s chiropractor didn’t add it. They think Aetna had a hand in it, but they have no idea why or how they did it.

So Brian starts asking questions, getting documents from Aetna, doing depositions with company executives. 

DG: Ohhhh, this is sounding like some white collar espionage thriller. 

LW: You’re gonna want that popcorn, buddy.

So, Mars was paying Aetna this all-inclusive fee to be its TPA.

DG: Okay. 

LW: And part of that job was making sure there are enough providers at good prices that members can go to.

BH: But then Aetna said, you know, we don’t have the best connections on physical therapy and chiropractors. And we would like to subcontract some of the work. So we’re going to subcontract that to Optum.

LW: Optum is another major health care company, owned by insurance giant United, and the other defendant in this lawsuit.

And Aetna’s determined here, Dan, not to lose a dime.

BH: Aetna effectively said, well, obviously Optum has to be paid, they’re performing administrative services, but we don’t want to pay it.

LW: So here’s the plan they hatched with Optum: Aetna’s gonna pass Optum’s fees on to Mars and its workers through medical bills.

The two even agree on a special medical billing code that Aetna’s gonna add to every bill to cover up these fees. Here’s how Brian talked about it in federal court…

Brian Hufford in 4th Circuit Court: Unlisted modality 97039 is designed to reflect an actual treatment for the patient. Ms. Peters did not receive that service and no provider billed for that service. It was put in there by Aetna to hide the administrative fee for Optum.

DG: Wait. So that’s how Sandy’s share of the bill went from $6 to $14. Aetna slipped it in under ‘Unlisted modality 97039′?

LW: Unlisted modality 97039. 

DG: Wow, that is some next level health care hijinks, Leslie. 

LW: Right? And just to keep track here…remember, Mars is paying Aetna to spend Mars’ own money and manage their health benefits wisely.

So Aetna’s raking in those fees with one hand, and with the other, they’re flipping through a medical code book, looking for ways to cut their own costs…at Mars’s expense.

And this whole scheme — a word Brian AND the federal judge both use by the way — only comes out because it’s all laid out in emails.

DG: Are you serious?

LW: Yeah, in these emails Aetna and Optum employees talk about finding a “dummy code” and “burying the fees.” I mean it’s all in there.

BH: They were right up front by saying, boy, if somebody knows about this, we could get into trouble whether it’s the employer or the regulators so we better keep it hidden.

LW: And Dan, Brian told me there’s been some similar cases over the years with third-party administrators inflating fees and things. But to see this level of scheming so blatantly in the open was shocking, even for him.

Though I will say, the first court to hear this case actually ruled in Aetna’s favor.

The judge was persuaded because Optum did have a cheaper network of chiropractors and physical therapists, and overall the arrangement saved Mars and its workers money.

DG: A classic, the ends-justifies-the-means kind of ruling.

LW: Right, but then earlier this summer, a federal appeals court reversed most of the original decision, ruled that Aetna had “unjustly enriched” itself.

DG: By how much?

LW: The lower court needs to re-hear the case, but Brian estimates Aetna could be forced to return up to $15 million in excess fees to thousands of workers, Mars and some other employers.

DG: So just to summarize here, the Fourth Circuit found that two of America’s biggest health care companies colluded to basically pick a dollar here and a dollar there out of the pockets of workers, retirees and large employers…to the tune of up to 15 million dollars.

LW: That about sums it up. We reached out to both companies.

Aetna declined to comment. Optum again said the deal, “delivered aggregate savings to Aetna and its health plan members.” 

And Mars, for its part, said they’re aware of the case, but have nothing else to add. 

Music

DG: So that’s pretty wild and crazy, Leslie, but it is just one case. 

You said Brian had seen a smattering of other lawsuits in this area. But how concerned should employers and their workers really be?

LW: So I think if you’re an employer, you could look at the narrow scope of cases like this as a relief, like it wasn’t that much money, and the scheme’s pretty limited.

But it could also terrify you. I mean Aetna and Optum went to this much trouble and a lot of legal risk for 15 million bucks.

Like TPAs process hundreds of millions of medical claims, negotiate contracts with massive hospital systems…there could be a lot of opportunity to bleed an employer a little here, a little there.

DG: You know, it’s funny. We hear a lot about the questionable business tactics of drug companies…patent abuse type stuff. And we hear about hospitals, doing things like upcoding.

But when it comes to insurers working as TPAs, we don’t hear much about their unsavory practices.

LW: Yeah, the disturbing thing is I’m pretty sure no one really knows how common they are.

I talked to about a dozen experts and they all were like, “an interesting area…basically impossible to study.” Almost none of this information, Dan, is public. 

TPAs barely let employers see their own data, and the contracts they sign with doctors, hospitals and other businesses are usually confidential. The only reason Sandy’s case made it to court is because this relentless retired lady chased down an $8 blip on a $14 bill. 

DG: What about employers, though? I mean they’ve got so much money on the line here. At least some of them must have some suspicions about these intermediaries, right?

LW: Yeah, I had the same thought, and I asked Brian Hufford that. He’s built his entire career suing insurers acting badly as third-party administrators. He’s the guy for these issues.

So I asked him, ‘In your 20 year career, just ballpark, how many employers have come to you and said, I’m concerned about what my third-party administrator is up to?’

BH: Um, I mean…none.

LW: Zero.

BH: Zero.

LW: That floored me, Dan. 

Of course, it’s possible employers are paying super close attention and just haven’t found anything wrong.

But Brian Hufford doesn’t think that’s the case.

BH: Employers are just…they basically sort of feel like, ‘Look, we’ve got to provide health insurance. We’ve hired this administrator. It’s way too complicated for us to figure it out. So we’re just going to pay that money and worry about other stuff that we can control,’ and they just don’t pay attention.

LW: It took a lot of digging but I did find a few employers that had put tough questions to their third party administrators.

DG: I know you love a good outlier, Leslie Walker.

LW: It’s true. A state legislator in Tennessee, a union leader in Boston and the former head of New Jersey’s state health plans…

And all three ran up against a combination of legal threats, bureaucratic barriers and a whole lotta spin.

DG: After the break, Leslie continues her journey into one of health care’s blackest boxes and learns how one employer tried to keep her TPA accountable.

MIDROLL

DG: Welcome back. Senior producer Leslie Walker is telling us about her journey into a deep corner of health care where middlemen known as third-party administrators dwell.

Employers entrust these intermediaries with billions of dollars and the health care of millions of employees, but the TPAs’ practices are shrouded in secrecy and complexity.

So, Leslie, should employers be more wary?

LW: The Sandy Peters lawsuit could be a glaring YES or just an odd outlier.

So I wanted to dig deeper and find an employer who had really kept tabs on their third-party administrator, and ask them how concerned their colleagues should be.

Christin Deacon: You know, the black box of the TPA…I found it remarkably frustrating.

LW: That was actually one of the first things out of Christin Deacon’s mouth when I interviewed her. 

For 3 straight years, Christin, a lawyer by training, woke up every morning responsible for the health benefits of about 800,000 people in the state of New Jersey and more than $7 billion in health care spending.

CD: I take very seriously that responsibility because it’s taxpayer money at stake and it’s employee money at stake, but it’s also people’s health.

LW: This is a woman who found inspiration in a Department of Labor 18-page handbook. Kept it on her desk, read it daily, still recites some of it from memory.

CD: Act in the sole and exclusive benefit of the plan and your beneficiaries. Number two, any duties that you carry out as a health plan administrator, you have to do so prudently…

LW: And that handbook, Dan, outlines why Christin took her job so seriously, which really boils down to one phrase.

CD: Fiduciary obligation.

LW: Fiduciary obligation basically means you have more than a moral and professional duty to keep the health plan you run safe from waste, neglect and abuse…you have a legal one too. 

Christin understood her TPA, Horizon Blue Cross Blue Shield, was there to help. I mean, the state was paying them $100 million a year.

But she was the one ultimately responsible for all those 800,000 people, which is why she took a measured approach to Horizon.

CD: I’m an optimist and I like to give the benefit of the doubt when appropriate, you know, trust, but verify.

LW: The relationship was pretty good, Christin told me, until the spring of 2019. Her office was under a lot of pressure from the state to cut fat from the health plan.

Music

CD: So here I am in Trenton, with a budget deadline looming, asked to find, you know, $200, $300 million. 

LW: Christin eventually gets down to Horizon’s fees, and she sees a bunch of services the TPA says it’s providing.

CD: And one of the larger line items for us was recovery services. And I start trying to understand, okay, what exactly are these recovery services made up of?

LW: Now this gets complicated quickly so we asked Christin to give us a basic hypothetical that illustrates what she realized recovery services really are.

CD: A very simple example would be a hospital in January, they accidentally bill for two knee replacements, right? Let’s say it was a $50,000 knee replacement, but we get billed a hundred because they accidentally duplicate it. 

LW: But the TPA doesn’t catch that mistake. So they pay the hospital $100,000 out of the state of New Jersey’s benefit fund. 

CD: Some time in June, you know, your TPA discovers that that was in fact an overpayment and they now tell the hospital, I’m going to take back $50,000 because you only did one surgery and you only get 50.

LW: So the TPA has “recovered” this 50 grand, but instead of just refunding it to the state, who paid the bill in the first place, the TPA takes a cut.

New Jersey’s contract at the time allowed Horizon to take 12 cents out of every dollar the company “recovered,” and there was no limit on how much the TPA could collect in these “savings.”

DG: So basically Horizon has a financial incentive to make mistakes…and the more mistakes they make now…and recover later…the more money they make?

LW: Bingo and as soon as Christin connected those dots, she was pissed.

CD: Um, so yeah, what the F right? Had they been more vigilant in overseeing the claims as they were paid out of the door, then we wouldn’t need to save that money because it wouldn’t have ever been paid.

LW: She tells the TPA they need to bring this line item down immediately. But first, she says, Horizon warns her that will end up meaning more wasted spending.

And, look, most TPAs do claims recovery. They say it’s basically impossible to catch all this stuff in real time and still pay bills as rapidly as employers want. I mean, they’re processing hundreds of millions of claims, some stuff is gonna get through.

DG: Plus I can’t imagine providers are blameless here, right? They’re also trying to squeeze every dollar they can out of every visit, pad their revenues.

LW: That’s all true. But here’s what stood out to Christin.  

She had assumed paying Horizon $100 million a year meant they’d do whatever they could to help her save money and deliver high quality care.

Now she knew it was a lot more complicated. 

CD: For me, it was one of the, one of the first and certainly the most, significant moments when I recognized how sort of screwed, self-funded employers were and, and are ​​and will continue to be until they really take agency and insert themselves in this process.

LW: At that point Christin decided it was time to get in the driver’s seat.

DG: Lean into that fiduciary responsibility.

LW: Exactly.

Music 

LW: And she got help from lawmakers. They passed a bill requiring her to hire an independent firm to take over the claims recovery work.

But even then, Horizon made it tough, telling her the new firm could only review 25 batches of records from one hospital…none at all from another.

To me, Dan, that pushback really captures Christin’s experience in a nutshell. These are huge businesses with their own incentives, profits, provider networks…and if what an employer wants conflicts with that TPA’s bottom line, they’re gonna fight you. 

DG: And Leslie, is that the sorta gold nugget you found on your journey into these deep, dark depths? 

LW: That’s a big one. The other: TPAs just don’t have much skin in the game. There’s this footnote to Christin’s story…

She left her job with the state in mid-August and now helps other employers keep tabs on their TPAs.

But Dan, before heading out the door, Christin had spent 18 months warning Horizon that providers might gouge the state on COVID tests. And, up until her last day, she was seeing $800 dollar claims for tests that should have cost $100.

CD: There’s an absolute sort of cavalierness, right? It’s our money, right? It’s the states and the taxpayers and the members’ money. They weren’t negligent. It was like, you know, reckless disregard.

LW: I asked Horizon about this. A spokesperson for the company said in an email their contracts prohibit them from commenting and directed me to the state of New Jersey. 

An official there said Horizon recently agreed to change certain policies, including COVID test payments, and the state “continues to closely monitor performance.”

DG: So Leslie, given how hard these companies are to oversee, and all these other reasons for concern, what are regulators doing about any of this?

LW: There’s really not a lot they can do.

Like we talked about at the top of the show, a big reason employers self-insure in the first place is to get out of regulations.

States basically can’t touch most of these plans. The only regulator that can is the Department of Labor, and they’re stretched super thin. 

In a report to Congress, the Department said, get this, they have one investigator for every 12,500 plans…and a lot of them aren’t even health plans.

And Washington doesn’t seem too concerned either. Lawmakers are like, ‘Private employers can hire whoever they want to help run their health plans…if they get a bad deal, that’s their problem.’

DG: That’s the kinda whole thing, employers are on their own here.

LW: I mean think that is what’s so unique here. 

More than 150 million Americans get health insurance through work…two-thirds of them from a plan run by their employer.

Those workers and retirees are really trusting their employers to dot every i, count every dollar. And when they fail, it’s people like Sandy left holding the bag.

So this idea of fiduciary responsibility, the duty employers have to look out for their workers…I’m just left wondering, based on everything I learned reporting this story, how many employers are truly up to that task.

DG: Leslie Walker, thank you very much for taking us on this journey.

LW: Thanks for coming along for the ride.

DG: There is one regulatory change on the horizon that could shine a little more light into this black box.

Next summer, new price transparency rules created by the Trump administration are slated to kick in for insurers, potentially helping employers get a better handle on what their own TPAs are doing. 

I’m Dan Gorenstein and this is Tradeoffs.