Why Modern Health Plans Can’t Afford to Ignore Claims Recovery

A lot has been made of inflation in recent years.

At every corner of the economy, costs continue to soar past wages, threatening the livelihood of millions of Americans each day.

Nowhere is this felt more acutely than in the healthcare industry, as cost increases for medical care continue to outstrip those of the broader consumer price index. 

And it’s not just plan members getting squeezed by “greedy” insurance companies. The costs for providers is just as real, with mega-claims of $3 million or more skyrocketing by 47% in 2024. 

What can healthcare executives do when raising premiums and cutting benefits becomes wholly unethical and ineffective?

Hope lies with subrogation.

In this breakdown, we will dive into subrogation from all angles and discuss how it is an increasingly crucial component of a health plan’s cost containment strategy.

What Is Subrogation?

If you’re not overly familiar with the back-office workings of your company, you may be wondering: how does subrogation work?

Subrogation is the process by which an insurer seeks reimbursement from a responsible third party after a claim has been paid.

When a covered injury occurs to a policyholder, as the insurer, you are contractually bound to pay. Since injuries are extremely time sensitive, there is no time for protracted finger pointing. The plan member needs to be made whole. 

So you pay. Even when you’re not legally at fault.

This is where subrogation comes in. As a post-pay cost recovery process, it helps insurers identify and pursue reimbursement when a third party is proven to be negligent.

Here’s a quick hypothetical of potential subrogation.

A family chiropractic clinic recently purchased new granite countertops for its reception area. Two days after installation, the granite cracked when the secretary leaned against it, causing her to fall and break her arm.

The employee filed a worker’s comp claim to begin receiving care. 

Faced with the prospect of worker’s comp premiums increasing in the wake of this claim, the general partner of the clinic beseeched her worker’s comp provider to investigate a possible subrogation claim against the granite installer, as she suspects defects in the manufacture and assembly of the countertops.

If the granite provider is found to be negligent, they will have to reimburse the worker’s comp insurance for the payments they provided to the injured secretary.

Modern Approaches to Subrogation

Although subrogation is far from a new concept, it is a bit of an obscure process, even to those within the industry. 

This is because billions of “subrogatable” dollars simply go unnoticed each year.

Much of the fault for this can be traced to outdated processes. Subrogation often involves sending a series of questionnaires to the injured party as part of a fact-finding mission to establish fault. This is uncomfortable and inefficient, with many of these questionnaires going directly in the trash. 

Modern subrogation services take a more innovative, data-driven approach. Rather than putting the plan holder in the middle of a legal back-and-forth, the best subrogation companies use the latest software and machine learning to identify subrogation opportunities. This reduces detection delays and lien compilation issues for meaningful tightening of financial leakage. Modern subrogation companies also improve operational efficiency of health plans via their automation of manual processes, effectively easing administrative burdens. 

Subrogation As a Cost Containment Strategy

Much of the cost containment focus in the insurance industry has traditionally centered on pre-pay strategies.

Lowering administrative costs. Restricting benefits. Finding more affordable network providers.

At best, many of these pre-pay practices are unsavory. At worst, they are unsustainable. 

By using subrogation as the centerpiece of a comprehensive post-pay cost containment strategy, insurance plans can improve their financial benefits simply by keeping what is rightfully theirs. If you’re a CFO for a healthcare company, think about it this way: each subrogatable dollar is potentially $1 more contributing to your bottom line–no additional sales necessary.

However, it’s not simply recovered revenue that makes subrogation a powerful cost containment tool. There are other more intangible benefits. For example, it can promote an element of accountability in the workplace. Employees, vendors, and contractors may be less likely to operate recklessly if they know liability can be traced back to them. It can also be effective in curtailing fraud. If those cases that previously flew under the radar become more likely to be investigated, bad actors may be less inclined to try and deceive insurance providers. 

More to the Story: Optimize Subrogation for Improved Financial Outcomes

In a world of soaring healthcare costs, it is unrealistic to keep placing the strain on plan members. There is a more effective–and agreeable–cost containment strategy: subrogation. By using the latest technology and analytic insights to pursue cost recovery from liable entities, healthcare companies can keep what is theirs for improved financial outcomes. For more of the latest trends in the contemporary healthcare landscape, explore the content at Healthcare Business Today for additional thought leadership!