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Does Six Sigma Apply to the Health Insurance Industry?

health insurance industry

Six Sigma is a manufacturing methodology aimed at improving processes and reducing the occurrence of defects in products. However, defects are not just found in products, but in services as well. So if you’re wondering if Six Sigma can apply to something like the health insurance industry, the simple answer is “Yes”.

People need health insurance to pay their medical expenses, meaning errors (defects in this scenario) have a huge impact on their lives. This can range from health insurance being too expensive to afford to insurance claims being delayed or wrongly declined.

How Six Sigma Applies to the Health Insurance Industry

In 2011, a report by the American Medical Association (AMA) showed that the error rate in the health insurance industry is 19.3%. This costs the industry $17 billion annually (it is no wonder the cost of health insurance is high). So how can Six Sigma help insurance companies reduce their error rate?

First of all Six Sigma provides health insurance companies with a way of measuring the quality of performance. It uses a statistical model that gives a rating between 0 and 6. When the quality of performance measures at 0, it indicates that there is low-quality performance. On the other hand, a rating of 6 translates to high-quality performance and the achievement of Six Sigma (3.4 defects per million opportunities).

When insurance companies discover that they fall below reaching Six Sigma, they can work hard to improve their processes. Six Sigma is applicable wherever there are definable and repeatable processes. Thankfully, health insurance is full of such processes, from issuing policies to claims processing to insurance payouts.

One tool within the Six Sigma arsenal they can use to improve their processes is the DMAIC model. DMAIC, which stands for Define, Measure, Analyze, Improve (and Standardize) and Control, is a series of data-driven steps for process improvement.

3 Benefits of Six Sigma in the Insurance Industry

When health insurance companies utilize Six Sigma the right way, they can experience the following three benefits:

1. Standardization of Insurance Claims Submission

By putting in place consistent procedures for information gathering on insurance claims forms, these companies can standardize their insurance claims submission process. This can significantly reduce the number of insurance claims that are filed with inaccurate and/or insufficient information. Furthermore, it can also reduce the costs of processing insurance claims since customer follow-ups are dramatically decreased.

2. Reducing Escalation of Claims

When there are clear guidelines for escalating claims concerning coverages, the number of avoidable escalations can be greatly reduced. They can even be eliminated if other systems of daily performance measurement are put in place.

3. Improved Customer Satisfaction

One way customer satisfaction can be improved is by minimizing frustration. Frustrations can occur because of things like delays. By standardizing quality performance procedures, health insurance can minimize frustration and increase customer satisfaction.


Six Sigma applies to all industries that have repeatable and definable processes. This includes the health insurance industry as well. And when done properly, Six Sigma can lead to benefits that can decrease costs and increase satisfaction – both of these can boost the insurance company’s bottom line.

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