This chapter will teach you about the different types of medical plans available in today’s market. As you read this section, focus on what the different types of coverage offer to policyholders and compare them in terms of advantages and disadvantages. As you are studying the material, ask yourself these questions, “If I were shopping for insurance, which type would I buy and why? If I were in a different state of health, how would that choice change?” Based on factors like financial, vocational, and health status, one person may find a given type of health insurance more desirable than another. There is a great deal of essential information to absorb in this chapter. Read it thoroughly and relate the material to real-life situations as often as possible.
TERMS TO KNOW
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Appeal — a request for a higher authority to review the decision
Blanket policy — covers members of a particular group when they are participating in a particular activity, without naming individual insureds (such as students, passengers, sports teams) Capitation — a payment arrangement that pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care Gatekeeper — a primary care physician (PCP) in an HMO plan Indemnity plan — pays health policy benefits to the insured based on a predetermined, fixed rate, regardless of the actual expense incurred Nonrenewal — policy termination at its expiration date Out-of-pocket expenses — amounts an insured must pay for coinsurance and deductibles before the insurer will pay its portion Stop loss — the amount that the insured pays out of pocket during the year Subscriber — a person who signs up for a prepaid health plan, such as an HMO | |
A. Medical Plan Concepts
Basic medical expense insurance refers to various essential medical, hospital and surgical benefits. The early health insurance policies sold after the Great Depression were basic plans, which were offered separately as hospital, medical, and surgical plans. Basic plans were characterized by first-dollar coverage (no deductible) and low dollar limits, which meant they afforded no protection to an individual or family against catastrophic medical expenses that could be financially disastrous.
The broad category of medical expense coverages can provide a wide range of benefits, or policies may be narrowly written and provide only one or two types of coverage.
1. Fee-for-Service Basis vs. Prepaid Basis
Medical expense plans could be fee-for-servicewhere providers receive a payment for their billed charges for each service provided. Prepaid plansprovide medical and hospital benefits in the form of service rather than dollars. In prepaid plans the providers are compensated regularly whether or not they provide service, but no additional compensation is provided when services are rendered.
2. Specified Coverages vs. Comprehensive Care
Specified coverage policies are those insurance policies that limit coverage to one illness or one limiting group of coverages, i.e. cancer policies, prescription drug coverage, dental plans, and other limited coverage plans. These policies are commonly written as a stand-alone individual policy or to complement a traditional fee-for-service Major Medical Expense Policy.
Comprehensive care policies are those plans that provide coverage for most types of medical expenses: a comprehensive package of health care services that typically includes preventive care, routine physicals, immunizations, outpatient services and hospitalization, such as HMOs.
3. Benefit Schedule vs. Usual, Reasonable, Customary Charges
Some medical expense insurance plans contain a benefit schedule, which very specifically states exactly what is covered in the plan and for how much. Other plans may incorporate the term usual/reasonable/customary. Usual/reasonable/customary means that the insurance company will pay an amount for a given procedure based upon the average charge for that procedure in that specific geographic area.
4. Any Provider vs. Limited Choice of Providers
More traditional reimbursement type comprehensive medical expense plans allow the insured to be treated by most any qualified physician. The newer managed care type of plans limit their benefits to physicians and care centers that are on their specific list of providers.
5. Insureds vs. Subscribers
The participants in a plan are either considered insureds or subscribers. Insureds are people covered by insurance, and who usually receive health insurance benefits. Subscribers (also referred to as participants or members) are people who sign up for pre-paid health plans, such as HMOs. In an individual policy, a subscriber is a person in whose name the contract is issued; in group policies, subscriber means a person whose employment or other status (with the exception of family dependency) is the basis for eligibility for the enrollments in an HMO.
Commercial insurance companies issuing fee-for-service contracts refer to the persons eligible for benefits under the policy as "insureds." Those organizations, such as Blue Cross, HMOs, and PPOs that offer prepaid plans use the term "subscribers" rather than "insureds." In effect, the terms "insured" and "subscriber" refer to the persons eligible for coverage under the plan.
Most commercial health insurance companies refer to their policyholders as insureds. But when Blue Cross organizations formed, they developed prepaid plans with hospitals for their members which they chose to call subscribers rather than insureds largely because of the pre-paid mechanism. To this day, Blue Cross/Blue Shield groups refer to their members as subscribers.
B. Types of Plans
Health care insurers include stock and mutual insurance companies, Blue Cross/Blue Shield, health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Care is administered not only in the doctors' offices or the hospital but also in surgicenters, urgent care centers, and skilled nursing facilities.
1. Major Medical Insurance (Indemnity Plans)
Major medical expense policies were a natural outgrowth of basic medical expense policies. Since basic medical expense policies had low dollar limits of protection, the need for a more comprehensive form of protection was realized and provided in the form of major medical policies. Typically, a major medical policy provides a substantial dollar amount of protection, usually $1,000,000, but that amount could be more or less depending on the company writing the policy. New York sets the following minimal limitations for a major medical company:
- No less than a $100,000 benefit;
- Coinsurance cannot exceed 25%; and
- Deductibles not to exceed 5% of one above or basic coverage benefits, if greater.
Characteristics
Major medical expense contracts are characterized by high maximum limits, blanket coverage, coinsurance, and a deductible. Dollar deductibles are paid up front, and the coinsurance, or sharing of the cost, is paid after the deductible is met and the claim is submitted.
Common Limitations
Generally, most major medical plans cover most medical expenses in and out of the hospital, and they have high maximum benefit limits. These plans are called covered or eligible expense plans.
Exclusions from Coverage
The following are among the exclusions found in major medical insurance policies:
- Injuries caused by war;
- Intentionally self-inflicted injuries;
- Regular dental/vision/hearing care;
- Custodial care;
- Injuries covered by workers compensation insurance; and
- Cosmetic surgery (unless necessitated by a birth defect or an accident).
Provisions Affecting Cost to Insureds
Major medical policy premiums vary depending on the amount of the deductible, the coinsurance percentage, the stop-loss amount and the maximum amount of the benefit.
Most companies incorporate an annual deductibleinto their major medical policy. A typical deductible could range from $100 to $2,500. The deductible amount is the portion of medical expenses that are paid by the insured each year before the insurance benefits start. The higher the deductible, the lower the annual premium for the coverage will be. In other words, if you accept more risk through a higher deductible, the insurance company lowers your premium.
Once the deductible has been met, the insured and the insurance company share the following expenses in what is called coinsurance. Generally the insurance company pays the larger share of 90/10, 80/20 70/30 or possibly equally on 50/50. The smaller the percentage that the insurance company pays, the less the premium will be. Coinsurancehelps to keep cost down by requiring the insured’s participation in the ongoing expense.
Many insurance companies include a stop-loss feature in their major medical policies. The stop-loss amount would be the amount that the insured pays out of pocket during the year. When the insured’s out-of-pocket expenses reach the stop-loss, the insurance company then provides coverage at 100% of eligible expenses for the remainder of the year. The out-of-pocket expenses that qualify for the stop-loss would be the insured’s portion of the coinsurance and it may or may not include the deductible. The higher the stop-loss, the lower the premium will be.
2. Health Maintenance Organizations (HMOs)
By means of the Health Maintenance Act of 1973, Congress strongly supported the growth of health maintenance organizations (HMOs) in this country. The act forced employers with more than 25 employees to offer the HMO as an alternative to their regular health plans. (The part of the act requiring dual choice has expired and has not been reenacted).
General Characteristics
The HMO provides benefits in the form of servicesrather than in the form of reimbursement for the services of the physician or hospital. Traditionally, the insurance companies provide the financing, while the doctors and hospitals have provided the care. The HMO concept is unique in that the HMO provides both the financing and patient care for its members.
Limited Service Area
The HMO offers services to those living within specific geographic boundaries, such as county lines or city limits. If individuals live within the boundaries, they are eligible to belong to the HMO, but if they do not live within the boundaries they are ineligible.
Limited Choice of Providers
The HMO tries to limit costs by only providing care from physicians that meet their standards and are willing to provide care at a prenegotiated price.
Copayments
A copayment is a specific part of the cost of care or a flat dollar amount that must be paid by the member. For example, the member may be required to pay $5, $10 or $25 for each office visit.
Prepaid Basis
HMOs operate on a capitated basis: the HMO receives a flat amount each month attributed to each member, whether they see a physician or not. In essence, it is a prepaid medical plan. As a member of the plan, you will receive all services necessary from the member physicians and hospitals.
Preventive Care Services
The main goal of the HMO Act was to reduce the cost of health care by utilizing preventive care. While most insurance plans offered no benefits for preventive care prior to 1973, HMOs offer free annual check-ups for the entire family. In this way, the HMOs hope to catch diseases in the earliest stages, when treatment has the greatest chance for success. The HMOs also offer free or low-cost immunizations to members in an effort to prevent certain diseases.
Primary Care Physicians (PCP) vs. Referral (Specialty) Physician
Care is provided to members of the HMO by a limited number of physicians that are approved to practice in the HMO.
Primary Care Physician (PCP)
When an individual becomes a member of the HMO they will choose their primary care physician (PCP) or gatekeeper. Once chosen, the primary care physician or HMO will be regularly compensated for being responsible for the care of that member, whether care is provided or not. It should be in the primary care physician’s best interest to keep this member healthy to prevent future time for treatment of disease.
Referral (Specialty) Physician
In order for the member to get to see a specialist, the primary care physician (gatekeeper) must refer the member. The referral system keeps the member away from higher priced specialists unless it is truly necessary. In many HMOs, there is a financial cost to the primary care physician for referring a patient to the more expensive specialist, thus the primary care physician may be inclined to use an alternative treatment before approving a referral. HMOs must have mechanisms to handle complaints which sometimes result in a delay of referral, or complaints about other patient care or coverage concerns.
Hospital Services and Emergency Care
The HMO provides the member with inpatient hospital care, in or out of the service area. The services may be limited for treatment of mental, emotional or nervous disorders, including alcohol or drug rehabilitation or treatment.
Emergency care must be provided for the member in or out of the HMOs service area. If emergency care is being provided for a member outside the service area, the HMO will be eager to get the member back into the service area so that care can be provided by salaried member physicians.
Other Basic Services
HMOs have the option of providing one or more of the following supplemental benefits:
- Long-term care;
- Nursing services;
- Home health care;
- Prescription drugs;
- Dental care;
- Vision care;
- Mental health care; or
- Substance abuse services.
3. Preferred Provider Organizations (PPOs) and Point of Service (POS) Plans
The Preferred Provider Organizations (PPOs) could be seen as the traditional medical systems’ answer to HMOs. In the PPO system, the physicians are paid fees for their services rather than a salary, but the member is encouraged to visit approved member physicians that have previously agreed upon the fees to be charged. This encouragement comes in the form of benefits. While the members can utilize any physician they choose, the PPO may provide 90% of the cost of a physician on their approved list while possibly only providing for 70% of the cost if the member chooses to utilize a physician not included on the PPO's approved list.
The Point-Of-Service (POS) plan is merely a combination of HMO and PPO plans.
General Characteristics
A PPO is a group of physicians and hospitals that contract with employers, insurers, or third party organizations to provide medical care services at a reduced fee. The PPOs differ from the HMOs in two ways. First, they do not provide care on a prepaid basis, but physicians are paid a fee for service. Secondly, subscribers are not required to use physicians or facilities that have contracts with the PPO.
In a POS plan, the doctors are usually paid on a capitation basis: they get a set fee per person regardless of the amount of service performed. Both PPO and POS plans offer a greater selection of providers compared to HMOs.
With the Point-Of-Service plan the employees do not have to be locked into one plan or make a choice between the two plans. A different choice can be made every time a need arises for medical services.
In-network and Out-of-network Provider Access
When a medical caregiver contracts with a health organization to provide services to its members or subscribers, but retains the right to treat patients who are not members or subscribers, it is referred to as open panel. In an open panel arrangement, the doctors are not considered to be employees of the health organization.
When the medical caregiver provides services to only members or subscribers of a health organization, and contractually is not allowed to treat other patients, it is referred to as closed panel. In a closed panel arrangement, the doctors are considered employees of the health organization.
PPO plans, like HMOs, enter into contractual arrangements with health care providers who form a provider network. However, plan members do not have to use only in-network providers for their care.
Similarly, in a POS plan the individuals can visit an in-network provider at their discretion. If they decide to use an out-of-network physician, they may do so. However, the member copays, coinsurance and deductibles may be substantially higher.
In POS plans, participants usually have access to a provider network that is controlled by a primary care physician ("gatekeeping"). Plan members, however, have an option to seek care outside the network, but at reduced coverage levels. POS plans are also referred to as "open-ended HMOs."
Any physician or hospital that qualifies and agrees to follow the PPO’s standards and charge the appropriate fees that the PPO has established can be added to the PPO’s approved list at any time. Physicians and providers may belong to several PPO groups simultaneously.
Primary Care Physician Referral
In a PPO, the insured does not have to select a primary care physician. The insured may choose medical providers not found on the preferred list and still retain coverage. The insured is allowed to receive care from any provider, but if the insured selects a PPO provider, the insured will realize lower out-of-pocket costs. Conversely, if a non-network provider is used, the insured's out-of-pocket costs will be higher. In a PPO, all network providers are considered "preferred," and you can visit any of them, even specialists, without first seeing a primary care physician. Certain services may require plan pre-certification, an evaluation of the medical necessity of inpatient admissions and the number of days required to treat your condition.
The Point-Of-Service (POS) plan combines "gatekeeping" arrangements with the ability to self-refer at increased out-of-pocket costs. A patient can obtain a higher level of benefits at a lower cost when care is provided by or arranged through the primary care physician (PCP). Benefits for covered services when self-referring (without having your primary care physician arrange for the service) are generally more expensive.
Catastrophic Coverage
Catastrophic health plans emphasize coverage for hospitalization or serious illness only. These feature a higher deductible and a lower monthly premium payment.
Indemnity Plan Features
If a non-member physician is utilized under the Point-Of-Service plan, then the attending physician will be paid a fee for service, but the member patient will have to pay a higher coinsurance amount or percentage for the privilege.
Fixed indemnity refers to health insurance policies that allow insureds to choose the doctor they would like to receive care from and the hospital that they would like to receive care in. In addition, fixed indemnity plans allow insureds to decide what kind of health care services they wish to have (within the limits of the policy provisions).
Most indemnity policies are offered as deductible health care plans. The insured may choose they deductible amount (the higher the deductible, the lower the premium rate). Most plans have copayment requirements that are determined by percentages applied after the deductible amount has been reached.
Hospital indemnity, long-term care, cancer policies and long-term disability coverage that are written as separate policies are also classified as fixed indemnity policies.
Stop-loss or excess health insurance policies are not classified as fixed indemnity policies.
4. Exclusive Provider Organizations (EPOs)
An Exclusive Provider Organization (EPO) is a type of preferred provider organization in which individual members use particular preferred providers rather than having a choice of a variety of preferred providers. An EPO is characterized by a primary physician who monitors care and makes referrals to a network of providers.
C. Cost Containment in Health Care Delivery
With the dramatic rise in the cost of medical care over the past few decades, the concept of managed care has become a necessity for insurance companies. Managed care plans, such as HMOs and PPOs, are designed to control costs by controlling the behavior of the plan participants.
1. Cost Saving Services
Cost-saving services or case-management provisions provide plans with controlled access of providers, large claim management, preventive care, hospitalization alternatives, second surgical opinions, preadmission testing, catastrophic case management, risk sharing, and providing high quality of care. Insurance companies use the services of case managers for large, ongoing claims through a process of utilization management. The case manager evaluates the appropriateness, necessity, and quality of health care, and may include prospective and concurrent review.
2. Utilization Review
Utilization management is a system for reviewing the appropriateness and efficient allocation of health care services and resources that are being given or are proposed to be given to an insured. It also covers the review of claims for services that may be covered by a health care provider. There are different types of utilization management reviews: prospective, retrospective, or concurrent review.
Prospective Review
Under the prospective review or precertification process, the physician can submit claim information prior to providing treatment to know in advance if the procedure is covered under the insured’s plan and at what rate it will be paid.
Concurrent Review
Under the concurrent review process, the insurance company will monitor the insured’s hospital stay to make sure that everything is proceeding according to schedule and that the insured will be released from the hospital as planned.
Retrospective Review
Under the retrospective review process, employers and insurers can evaluate the utilization review process and the effectiveness of the professionals involved in large claims. These reviews include hospital bill audits.
D. New York Mandated Benefits and Offers (Individual and/or Group)
1. Newborn Child Coverage
Any family coverage must provide coverage for newborns from the moment of birth. This includes newborns adopted by the insured, if the insured takes physical custody of the infant upon the infant's release from the hospital.
Newborns are covered for injury or sickness including the necessary care and treatment of medically diagnosed congenital defects and birth abnormalities including premature birth (except in cases of adoption). Coverage of the initial hospital stay is not required if a natural parent has insurance coverage available for the infant's care.
If notification and/or payment of an additional premium or contribution is required to make coverage effective for a newborn infant, the coverage may provide that notice and/or payment be made within at least 30 days of the day of birth to make coverage effective from the moment of birth. This provision must include 48 hours of hospitalization coverage for natural childbirth and 96 hours for caesarian delivery.
2. Dependent Child Age Limit
As defined by the Insurance Laws of New York, the term dependent children includes any children under a specified age.
Know that the Affordable Care Act mandates that every insurer that offers health insurance policies that provide coverage for dependent children of the insured must provide that coverage for the children up to the age of 26.
Group health policies that provide coverage for dependents of the insured must cover any married and unmarried children of the insured until the age of 26, regardless of financial dependence, residency, student status, or employment. Coverage may be extended to age 29 for unmarried children if requested by the policyholder.
3. Policy Extensions for Handicapped Children
There are policy extensions for unmarried dependent children, regardless of age, who are incapable of self-sustaining employment because of mental illness, developmental disability, mental retardation (as defined in the mental hygiene law) or physical handicap. Coverage will not end as long as the policy stays in force and the dependent child remains in this condition.
The dependent child must have become incapable prior to the attainment of the limiting age, and the policyholder must have submitted proof of the dependent's incapacity within 31 days of the day the notice of termination of coverage is sent to the policyholder.
E. HIPAA Requirements
For your state licensing exam, you are required to understand HIPAA regulations that apply to individual and group health coverage and the concept of pre-existing conditions restrictions. Please note, however, that the recently enacted health care reform (Affordable Care Act) eliminates pre-existing conditions restrictions in health insurance plans.
Legislation that took effect in July 1997 ensures "portability" of group insurance coverage and includes various required benefits that affect small employers, the self-employed, pregnant women, and the mentally ill. HIPAA (Health Insurance Portability and Accountability Act) regulates protection for both group health plans (for employers with 2 or more employees) and for individual insurance policiessold by insurance companies.
HIPAA includes the following protection for coverage:
Group Health Plans
- Prohibiting discrimination against employees and dependents based on their health condition;
- Allowing opportunities to enroll in a new plan to individuals in special circumstances.
Individual Policies
- Guaranteeing access to individual policies for qualifying individuals;
- Guaranteeing renewability of individual policies.
1. Eligibility
HIPAA has regulations regarding eligibility for employer-sponsored group health plans. These plans cannot establish eligibility rules for enrollment under the plan that discriminate based on any health factor relating to an eligible individual or the individual's dependents. A health factor includes any of the following:
- Health status;
- Medical conditions (both physical and mental);
- Claims experience;
- Receipt of health care;
- Medical history;
- Genetic information;
- Disability; or
- Evidence of insurability, which includes conditions arising out of acts of domestic violence and participation in such activities as motorcycling, skiing, snowmobiling, etc.
Employer-sponsored group health plans may apply waiting periods prior to enrollment as long as they are applied uniformly to all participants.
To be eligible under HIPAA regulations to convert health insurance coverage from a group plan to an individual policy, an individual must meet the following criteria:
- Have 18 months of continuous creditable health coverage;
- Have been covered under a group plan in most recent insurance;
- Have used up any COBRA or state continuation coverage;
- Not be eligible for Medicare or Medicaid;
- Not have any other health insurance;
- Apply for individual health insurance within 63 days of losing prior coverage.
Such HIPAA-eligible individuals are guaranteed the right to purchase individual coverage.
2. Guaranteed Issue
If the new employee meets the requirements, the employer must offer coverage on a guaranteed issue basis.
3. Renewability
At the plan sponsor's option, the issuer offering group health coverage must renew or continue in force the current coverage. However, the group health coverage may be discontinued or nonrenewed because of nonpayment of premium, fraud, violation of participation or contribution rules, discontinuation of that particular coverage, or movement outside the service area or association membership cessation.
4. Privacy Protection
Under the Privacy Rule for HIPAA, protected information includes all "individually identifiable health information" held or transmitted by a covered entity or its business associate, in any form or media, whether electronic, paper or oral. This is called protected health information (PHI).
Individually identifiable health information including demographic data that relates to past, present or future physical or mental health or condition, or payment information that could easily identify the individual.
A covered entity must obtain the individual's written authorization to disclose information that is not for treatment, payment, or health care operations.
The Security Rules of HIPAA apply to electronically protected health information that is individually identifiable in electronic form. This includes information about a patient's past, present or future medical condition and payment for health care provision. The Security Rules were established to protect confidentiality, integrity, and availability of electronically protected health information.
Covered entities must comply with the security provisions of HIPAA by maintaining reasonable administrative, physical, and technical safeguards against any reasonably anticipated risks.
F. Chapter Recap
This chapter explained key concepts and major types if medical plans, including cost containment measures and federal regulations. Let's recap them:
MEDICAL PLANS CONCEPTS
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Medical Plan Characteristics
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TYPES OF PROVIDERS AND BENEFITS
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Major Medical Insurance(Indemnity Plans)
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Health Care Services Organization (HMOs)
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Preferred ProviderOrganizations (PPOs)
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Point-of-Service Plans (POS)
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COST CONTAINMENT IN HEALTH CARE DELIVERY
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Cost Saving Services
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Utilization Management
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| Managed Care |
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Chapter Complete