Chargeback Recovery

Overcoming Health Insurance Chargebacks


Table of Contents

  1. What Is a Chargeback in Health Insurance?
  2. What Is Supplemental Health Insurance?
  3. Why Are Supplemental Insurance Customers Unhappy?
  4. What Should Supplemental Insurance Providers Do About Chargebacks?
  5. How Do Chargebacks Work in Insurance?
  6. Why Do Supplemental Health Insurance Companies Have High Chargeback Rates?

Let's face it. The health insurance industry in the US is complicated. With costs of care that vary widely from one provider to another, in-network and out-of-network providers, covered and uncovered services, co-pays, coinsurance, deductibles, prescription tiers, etc., it's no wonder that customers often get confused about their insurance. This confusion often leads to a customer believing that some cost will be covered or reimbursed by their insurance provider, only to find out later that they were mistaken.

While it's sometimes unavoidable, failing to meet your customer's expectations is never a good thing, even if those expectations might be unrealistic. Customers with unmet expectations aren't merely dissatisfied, they're more likely to leave negative reviews or tell others about their frustrating experience. They're also more likely to contact their banks to dispute the charges.

Of course, not all methods of payment used in the health insurance industry are vulnerable to chargebacks. Insurance premiums deducted from an employee's paycheck, for example, can't be reversed by the employee's bank. However, certain payment methods and certain types of insurance providers can be particularly vulnerable. Let's take a closer look at chargebacks in health insurance.

What Is a Chargeback in Health Insurance?

A chargeback occurs when a transaction is forcibly reversed by a customer's bank, usually at the customer's request. Customers may or may not be able to file chargebacks against health insurance premiums, depending on the method of payment used.

Banks and credit card networks are required by law to allow customers to dispute credit and debit card charges, so these payment methods are where chargebacks come up most often.

Other payment methods can also have processes in place to reverse transactions, however. Even ACH payments can be reversed in certain circumstances.

For health insurance providers, the number of chargebacks they receive will depend on both the number of dissatisfied customers they have and what payment methods those customers use. Therefore, some types of businesses are more vulnerable than others, such as supplemental insurance providers.

What Is Supplemental Health Insurance?

Supplemental health insurance is a type of insurance that can be used to cover certain costs associated with an illness or injury that aren't covered by traditional health insurance. This can include things like deductibles, coinsurance, transportation, or lost wages, depending on the specific policy.

Health Insurance Chargeback StudyHealth care costs in the US keep going up, and new industries are forming to meet the needs of patients struggling to keep up with prescriptions, co-payments, and other medical expenses that their insurance doesn't cover.

The supplemental insurance industry was created to sell coverage for these out-of-pocket medical expenses, but some of their customers question how much value these companies are really providing.

Unfortunately for supplemental insurance providers, chargebacks are starting to become a big problem in their industry, and not all of the players even seem to realize the extent of it yet.

Many of their customers are confused or dissatisfied with the coverage they're getting, and large numbers of them are registering their displeasure by filing chargebacks against their supplemental insurance premium payments.

Why Are Supplemental Insurance Customers Unhappy?

According to supplemental insurance customers, here are the top three reasons why they asked for a chargeback:

  • 51% expected more savings on their medical/prescription bills
  • 29% felt the service and benefits weren't properly explained to them
  • 11% were unclear about the cancellation and refund policies

Many supplemental insurance plans offer lump-sum or scheduled payments only under certain conditions, and do not necessarily pay out immediately. Customers whose expectations don't match the actual benefits they end up getting are very likely to file chargebacks.

Let's look at it another way, going by the raw data and leaving subjective explanations aside. Issuing banks report that these are the most common reason codes for chargebacks against supplemental insurance providers:

  • 36% Fraudulent – Not Authorized
  • 31% Cancelled Services/Cancelled Recurring Billing
  • 21% Merchandise/Services Not Received

These reason codes tell a story that should be of great concern to the supplemental insurance industry, but even more worrying is their typical chargeback rate: 2% to 3%. Most companies should be trying to keep their chargeback rate below a single percentage point to avoid being classified as "high risk" by their payment processor.

In some cases, payment processors will even blacklist a merchant for having too high of a chargeback rate, preventing them from taking card payments. As you might imagine, being unable to take card payments can significantly damage any business, and can drive customers to seek other options.

It's clear that supplemental insurance providers must pay closer attention when it comes to explaining to their customers about their service benefits and improving customer satisfaction rates. Insurance benefits are complicated, and benefit documentation is often offered in a format that is industry-standard, but not customer-oriented. This may help well-informed customers compare plans, but leads to many customers not fully understanding the plan they are enrolling in.

Most supplemental insurance plans are sold over the phone, which makes it difficult to prove what the buyer understood at the time of purchase. Phone orders are also more susceptible to friendly fraud. As the complaints pile up, trust becomes an ever-growing problem for this industry.

What Should Supplemental Insurance Providers Do About Chargebacks?

If the supplemental industry doesn't wake up to its chargeback problem before it can establish a higher degree of trust with its customers, it will struggle to maintain its financial health.

However, If the industry can adopt policies based on transparency and customer satisfaction, they can profit by selling insurance products with clear benefits that are thoroughly explained to their customers prior to enrollment.

Here are some other actionable steps that the supplemental insurance industry can take to reduce their number of chargebacks:

  • Provide a secured education portal for customers to learn more about the insurance plan, how much they can expect to save, and what the plan does and does not cover.
  • Make it easy to reach out to customer service to cancel the insurance plan at any time.
  • Use a secured phone order validation system to prevent fraudulent transactions.
  • Conduct customer satisfaction surveys after enrollment to learn about any issues the customer may have had with the enrollment process.
  • Read Google or BBB reviews to get customers' unfiltered opinions.
  • Enable 3-D Secure to prevent fraudulent transactions.
  • Create strategies and implement action steps to address customers' key concerns.

Due to this confusion, it may be beneficial to provide potential customers with a summary of benefits clearly explained in plain English, in addition to the typical charts. This can be especially helpful for new customers who haven't enrolled in this type of insurance plan before.

New call-to-actionSome insurance providers include examples of how different levels of annual usage affects the total cost of different plans, but small-scale examples such as a visit to a primary care physician resulting in a lab test and a prescription, a visit to a specialist, or an emergency room visit to treat an injury may help set customer expectations appropriately and ensure they understand what they're signing up for.

It can also be worthwhile to use a chargeback prevention alert service to proactively prevent chargebacks, or to hire a company like Chargeback Gurus to help fight and analyze your chargebacks.

When you have expert help with analyzing your chargeback data and identifying the root causes behind them, you can understand what specific actions or operations in your business are alienating your customers. Preventing chargebacks is typically far more cost-effective than merely fighting them, and can help prevent a business from being labeled high-risk or remove them from that category by reducing their chargeback rate.


How Do Chargebacks Work in Insurance?

When a transaction is made through a debit or credit card, the cardholder can file a chargeback to try to reverse the charge. Merchants can fight chargebacks, but they will have to pay certain fees even if they win the dispute.

Why Do Supplemental Health Insurance Companies Have High Chargeback Rates?

The main reason is customer satisfaction. The health insurance industry ranks in the bottom five in customer satisfaction, according to data ranking 43 major industries from the American Customer Satisfaction Index.

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