Health Benefit Plans

Prompt Payment of Claims

Denied and Disputed Claims

Proposed Amendment: N.J.A.C. 11:22-1.6

Authorized By: Donald Bryan, Acting Commissioner for Insurance, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17:29B-4(9), 17B:17-1 et seq., 17B:30-13.1, 17B:30-23 et seq. and 26:2J-15b.

Calendar Reference: See Summary below for explanation of exceptions to calendar requirement.

Proposal Number: PRN 2001-446

Submit comments by January 18, 2002 to:

Karen Garfing, Assistant Commissioner

Department of Banking and Insurance

Regulatory Affairs

20 West State Street

PO Box 325

Trenton, NJ 08625-0325

FAX: (609) 292-0896


The agency proposal follows:


The Department of Banking and Insurance (Department) rules at N.J.A.C. 11:22-1 implement P.L. 1999, c.154 concerning health information electronic data interchange technology (HINT) (codified at N.J.S.A. 17B:30-26 through 34). These rules set standards for the payment of claims relating to health benefit plans and dental plans regulated under Titles 17, 17B and 26 of the New Jersey Revised Statutes. Specifically, N.J.A.C. 11:22-1.6 contains the criteria relating to denied or disputed claims.

The Department is proposing to amend N.J.A.C. 11:22-1.6 by prohibiting a practice whereby carriers use extrapolation of errors discovered in an audit of a sample of claims as a basis for adjusting claims previously paid and that were not part of the audited sample. Under this extrapolation method of adjustment, an insurer conducting an audit on a particular number of paid claims submitted by one claimant may find a certain number of actual claims errors. The insurer then infers that additional errors on other paid claims submitted by that same claimant have been made. The insurer places a dollar value on each projected error based on the dollar value of the actual errors found, and charges the claimant for the total number of projected errors. The Department believes that such a practice penalizes claimants for errors that may never have occurred, and constitutes a violation of N.J.A.C. 11:22-1. Accordingly, the Department is proposing the following amendment:

A new subsection is being added at N.J.A.C. 11:22-1.6(f) prohibiting the use of extrapolation as a basis for calculating adjustments to claims previously paid, and stating that actual error is the only permissible basis for calculating adjustments to previously paid claims.

A 60-day comment period is provided and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, the proposal is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.


Social Impact

This proposed amendment will have a favorable impact on claimants because they will not be subjected to monetary charges imposed on them by carriers for errors in paid claims that claimants never may have made. The Department anticipates that carriers who may currently engage in this extrapolation practice will react unfavorably to this proposed amendment. Those carriers, however, should recognize the unfairness of such a practice to claimants.

Economic Impact

This proposed amendment will have a favorable impact on all claimants because they will not have to pay charges imposed on them by carriers that have been adjusting paid claims by extrapolating. Carriers that have been using extrapolation as a basis for adjusting previously paid claims will be unfavorably impacted by this proposed amendment because they will no longer be able to collect charges imposed on claimants under this method. The impact on the Department will be negligible because the Department will absorb any administrative or enforcement costs associated with this amendment.

Federal Standards Statement

A Federal standards analysis is not required because this proposed amendment is not subject to any Federal standards or requirements.


Jobs Impact

The Department does not anticipate that this proposed amendment will result in the generation or loss of jobs.

Agriculture Industry Impact

This proposed amendment has no impact on the agriculture industry.

Regulatory Flexibility Analysis

This proposed amendment may apply to some carriers that constitute "small businesses" as that term is defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed amendment imposes no reporting or recordkeeping requirements; however, the amendment prohibits carriers from using extrapolation as a basis for calculating adjustments to claims previously paid. The costs of complying with this prohibition are discussed in the Economic Impact above. It is not anticipated that compliance will require employing professional services. The requirement applies uniformly, regardless of the business size of the carrier, because the unfairness of the prohibited practice to claimants is unrelated to carrier size.

Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

11:22-1.6 Denied and disputed claims

(a) - (e) (No change.)

(f) No carrier or its agent shall use extrapolation as a basis for calculating adjustments to claims previously paid. Adjustments to claims previously paid shall be based only on actual identifiable error(s) in the submission, processing or payment of a particular claim(s).