The float: It's how insurance companies boost profit

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The float: It's how insurance companies boost profit

By DAN GOLD • For the Tribune • January 6, 2009

We all know that businesses have to make a profit. Health care is no

different, especially the insurance sector. But how do they make their

money?

The major way health insurance functions is by maximizing " the float. "

What is this and how does this work? Consider the traveler's check

industry.

When planning a vacation many people purchase traveler's checks. A

form of private, redeemable currency, these checks are sold at face

value and are honored the world over as reimbursement for goods and

services.

A $20 traveler's check will purchase, when properly endorsed and with

proper identification, $20 worth of goods and services The additional

value to the consumer is security. Because the checks have documented

serial numbers and receipts, as well as a bank that will guarantee

them, lost or stolen checks can be replaced, unlike lost or stolen

money. But, how does the company benefit? The traveler's check

industry maximizes their float.

If at any one time, for purposes of discussion, they have $10,000,000

of traveler's checks in circulation, and $2,000,000 are being

purchased, while $2,000,000 are being spent, they have $6,000,000 in

their possession to invest. From these funds they earn interest. That

is their profit motive.

Hence, it not only behooves the traveler's check industry to sell more

checks, but to also encourage people to hold on to their unspent

checks until, perhaps, next year's vacation. This enlarges their

float. Health insurance works much the same way.

The insurance industry works hard to sell their plans and collect

their premiums. They work just as hard to deny compensation, or delay

the payment of claims for as long as possible. Every claim that is

submitted is analyzed by a computer. If the claim has a miscode or

other incongruity, the claim is rejected, returned to the submitting

client (doctor and or patient,) and must be analyzed and resubmitted.

Big claims, such as bills for surgeries or long stays in hospitals,

are no doubt scrutinized even further by a battery of employed nurses

or other health care professionals who have abandoned clinical work

for a cubical and a stack of insurance claims.

I do not know if they are paid by the total dollar amount of claims

they can reject, or if they have a quota, but based upon the insurance

denials I have seen in my years in practice, one wonders. Any delays

in payment, justifiable or not, mean a larger float. For a good

dramatization of this scenario, see the 2004 animated movie " The

Incredibles. "

Mr. Incredible, a superhero relegated to a job as an insurance claim

adjuster, ultimately is fired for refusing to delay claim payments for

this clients. A minor side plot in the movie, it spoke volumes to me!

Unfortunately for medical practitioners, they cannot defer payment of

their employees, their power bills, their license and continuing

education fees and other expenses by, for example, 40 percent just

because Medicare (the government insurance company) or private

insurers are delaying payment on 40 percent of the doctor's bills for

services already rendered.

While the float means increased profits for insurance companies, it

can be the margin by which medical practices survive or fail. And, in

a poor economy, with so many people unemployed, increasing the

responsiveness of insurers by demanding short turnaround times with

the payment of claim submissions is a high priority for all physicians.

In a medical scenario that is seeing more doctors abandon patient

care, the float, and its negative impact on the profitability of

medical business is adversely affecting the availability of medical care.

Of course, universal coverage, with the U.S. government in total

control of the float, is not going to solve the issue. My strong

suspicion is that it will get worse, especially given the

inefficiencies of the government.

Dan Gold is a board-certified family physician who treats U.S.

military veterans in Great Falls.

http://www.greatfallstribune.com/article/20090106/LIFESTYLE/901060306