What are private insurers doing to prevent fraud? Not Much.

In 2011, at least $82 billion and as much as $272 billion was wasted on fraud and abuse in the health care system. That’s 3-10% of all health care spending in the U.S.

Health care fraud can be anything from upcoding (recording patients’ conditions as sicker than they really are to reap a higher reimbursement) to charging for services never delivered, to identity theft and more. Some scammers, like personal trainer David Williams, even pretended to be doctors so they could receive lucrative reimbursements from insurance companies.

What are health insurers doing about the real threat of fraud and abuse? Unlike Medicare and Medicaid, which file thousands of lawsuits against scammers, private health insurers are doing much less to prosecute individuals for fraud, journalist Marshall Allen found in an investigation for ProPublica.

Why aren’t health insurers suing and prosecuting people for fraud, when they are getting ripped off to the tune of millions of dollars each year? According to Allen’s interviews with numerous former fraud investigators, insurers don’t prioritize policing fraud because doing so would hurt their profits.

Many of the people committing insurance fraud are providers themselves, who game the system to bill insurance companies for as much as possible. But if private insurers prosecuted every provider who committed fraud, they could lose some providers from their network. And maintaining a large network is key for insurance companies to attract new employers.

More importantly, insurance companies may feel the initial financial loss from fraud, but they can always make up those losses by increasing their premiums, reducing benefits, or increasing co-pays. Its the same twisted logic behind why some private insurers accept ridiculously high hospital prices.

“The bottom line is significant: If a con artist, or a corrupt medical professional, makes off with health care dollars, those losses are not necessarily the insurers’,” Allen writes.

So how can we reduce fraud when insurance companies wont undertake the effort on their own? In an accompanying piece, Allen suggests a few policy changes to reduce fraud:

  • States should require insurers to report suspected cases of fraud to regulators, so states can track levels of fraud and hold insurers accountable for prosecuting scammers. Currently most states already do this, but at least ten do not.
  • Insurance companies should be fined for not reporting fraud cases to state regulators, if they are in a state in which reporting is required.
  • Medicare and private insurance companies should verify that all people requesting a billing number are licensed health care professionals.

Allen’s investigation demonstrates how health care institutions often act to maximize profits, even if it harms patients and goes against their stated mission. When it comes to fraud investigation, insurers are not acting on behalf of patients, and will not do so until they are held accountable.