America’s largest health insurance companies moonlight as obscure middlemen, managing billions in health care spending for many of the country’s biggest employers. In this story, we tell two anecdotes illustrating what can go wrong when employers outsource so much important spending and decision-making to these companies, also known as third-party administrators. Prior to our story, the opaque operations of these third-party administrators and employers’ reliance on them had received very little media coverage.
First, we delve into a recent court case – Peters v. Aetna – that has flown under the radar, pitting a class of workers and retirees of the candy company Mars and other employers against insurance giant Aetna. The court case details how Aetna, who Mars was paying and trusting to act as the third-party administrator of Mars’ health care plan, managed to secretly bury millions of dollars’ worth of unjustified administrative fees in the medical bills of workers and retirees of Mars and other employers. We also tell the case’s origin story, which began with the 71-year-old spouse of a Mars retiree being overcharged by just $8 for a chiropractor visit and refusing to let the charge slide, revealing just how hard these kinds of schemes are to uncover.
Second, we tell the story of a New Jersey state employee who set out to cut waste from the state’s public employee health plan and ended up uncovering a host of ways in which their third-party administrator was undermining the state’s best interests, despite being paid $100 million a year by the state to oversee public employee health benefits. This anecdote underscores the fact that even the country’s largest employers, like a state spending more than $7 billion a year on health care, are not immune to the risks of outsourcing the administration of their health care plans. It also illuminates the conflicting incentives that motivate third-party administrators and cause them to act in ways that may not serve the best interests of their employer customers.
Finally, our story puts these two anecdotes into broader context. We use our own original data analysis to estimate the revenues that large insurers are making ($20 billion in 2020) off this obscure line of business, and we detail the shortcomings of current policies in place to protect employers and workers from potential waste and abuse by third-party administrators.