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Part 1 introduced health insurance and focused on history and overarching philosophy. We will now review the types of insurance and what it means to be in or out of network. We begin with concepts and terminology.
When I studied rhetoric, I learned that mystification referred to the use of special terminology to convince lay people that specialists are more knowledgeable. I found it ironic that the use of the term “mystification” by rhetoricians was an instance of mystification. Nonetheless I find a fair amount of mystification in health insurance terminology.
Let’s begin with the concept of insurance itself. Typically, insurance pays or reimburses for relatively infrequent and occasionally catastrophic negative outcomes that result in loss—auto accidents, fires, storm damage, etc. In contrast, health insurance pays or reimburses for frequent and expected services as well as the less frequent. I’m stating the obvious to point out that healthcare decisions are being made by mostly for profit organizations whose structure and culture is to compensate for loss.
Indemnification is used in the health insurance context to describe insurance policies that protect you from loss due to health related expenses by pre-payment or reimbursement.
In contrast are health maintenance organizations (HMOs). Initially and historically, HMOs maintained your health by providing all necessary medical services. Today, HMOs offer limited or no choice in providers for lower costs.
In a pure indemnification model, you would choose any provider at any time and the insurance would pay or reimburse you. Period. In a pure HMO, your choice—at best—would be limited to providers within the HMO. Furthermore, the HMO would determine whether or not you needed services.
Pure indemnification is rare in private policies. (Interestingly and perhaps tellingly, Medicare is pretty close to pure indemnification. So is Tricare Standard, a policy for active military.) Most non HMO policies have various degrees of choice. In general you pay more for being able to choose.
Let’s look at some key definitions.
In network (sometimes participating). This refers to a provider who has a contact with the insurer and has agreed to accept the contact (allowed) fee as full payment for the various services. If the provider bills for an amount higher than the agreed fee, the fee is adjusted. This adjustment is sometimes called an insurance write-off.
Out of network (sometimes non-participating). This refers to a provider who does not have a contact with the insurer and is free to charge whatever fee they find suitable and appropriate. If the provider’s fee is higher than the allowed fee, the provider may bill for the difference between the allowed fee and their fee. This is known as balance billing.
Now let’s look at insurance plan designations.
In additional to HMO, one of the most common is Preferred Provider Organization (PPO). These allow you to choose either an in network provider or an out of network provider, with greater cost to use the latter. The Point of Service (POS) plan is a variant of the PPO. The difference is that you are required to get a referral to see a specialist.
A variant of the HMO is the Exclusive Provider Organization (EPO) which allows you to choose within the network. While its name sounds similar to a PPO it is a form of HMO.
The requirement for referrals and other types of authorization is called gatekeeper functions.
There are terms referring to payment.
The first is deductible. This refers to the amount the client is responsible for before the insurance will begin to pay. Deductibles may apply globally or they may apply to categories of services. For example, there may not be a deductible for office visits, but there may be one for tests. Deductibles typically only count the insurance share of a reimbursement, making it take longer than expected to be reached. Until a deductible is met, the client is responsible for the full fee.
There are two other ways a client shares the cost of a service. A copay is a fixed amount for a particular type of services. Coinsurance is a percentage that the client pays for each instance of the service. Typically, a client is required to pay either a copay or coinsurance but very rarely both.
There is one time that the insurer gives you a break. That’s when you reach your maximum out of pocket expenditures (MOOP). In that case copays and coinsurance would no longer be required.
One final term that impacts costs are modality specific session limits. These may be hard or soft. Hard limits cannot be adjusted. Soft limits can be increased with varying degrees of difficulty and likelihood of success.
I know it’s a lot of information. Let’s summarize, make a final point, and then take a break.
Today’s health insurance combines elements of indemnification and managed care. All things being equal, costs increase as choice increases: HMO (least cost, least choice), EPO, POS, PPO, indemnification (most cost, most choice).
Deductibles are how much you must pay before the insurance pays anything. Copays and coinsurance are your ongoing share of the cost.
If you are lucky (or unlucky) enough to spend so much money out of pocket you reach your maximum, you don’t have to pay anymore copays or coinsurance for the rest of the plan year.
Keep track of session limits. For various reasons, providers usually don’t.
A final point. Health insurance is a strange 3 party arrangement.
You, the client, have a contract with the insurer. Indeed, you are the insurers customer. In theory, they work for you—their purpose to pay or reimburse for healthcare services.
Your provider also works for you and answers to you. Your provider always works exclusively for you. You are obligated to pay your provider and/or release your insurance company to do so.
Your provider may or may not have a relationship with your insurer. A participating or in network provider provides behinds the scene services including billing, note and plan submission, and other administrative tasks. A non participating or out of network provider need not provide any service other than a statement when you pay. Creative, as a courtesy, currently provides billing, note submission, authorization requests, and so on, promptly and free of charge.
—Richard Feingold, Co-founder
Few people are satisfied with how health insurance serves us. Issues range from the very political (Obamacare good or bad?) to the very practical (will the insurance pay for my child’s service?)
Philosophically, the purpose of insurance is to protect a group of people from uncertain and potentially costly events. While contemporary health insurance maintains that role in terms of catastrophic medical events, it also has become more and more the manager of our health services.
This trend is problematic and fraught with hazards. Here at Creative we deal with its consequences daily. Many of our clients are constrained and sometimes denied services because of decisions made by administrative and quasi-medical people at insurance companies.
My purpose in this article and others to follow is to help all of us maximize our benefits by knowing the law and asserting our rights, by dealing crisply and smartly with insurance, and by maximizing our benefits and their application.
About 4 decades ago during the Nixon administration, Congress passed two laws that set the stage for our current situation. One took power from us and gave it to insurance companies; one took power from employers and gave it to us. The insurance companies have spent the last 40+ years maximizing their profits from all this. They have also done a good job in keeping us from understanding and asserting our rights.
Beginning with the first HMO enabling act in 1973, Congress allowed and encouraged insurance companies to manage health care. Ostensibly, this was so that they could add efficiencies to the markets and balance rising health care costs with collective purchasing power—all for the benefit of the consumer. Further, there was some consideration to reduce medically unnecessary services through mandatory second opinions and peer review.
The next year, through the passage of ERISA, Congress also put employers on notice that when they promised a benefit—such as medical care or pensions—they had to deliver. While the primary motivation of ERISA was protecting against the severe and increasing problem of employer pension default, the inclusion of medical benefits under its protection was prescient and forward thinking—and of great significance to us today. The passage of Affordable Care Act in 2010 extended ERISA protections to government employees and other plans.
This may be a lot to take in. So let’s make one more key point and wrap up Part 1.
Consider a pension. It’s straightforward. You leave the company and at a predetermined time in the future you start getting paid a certain benefit each month (or some other arrangement). What you get paid is determined by the plan.
The company may hire an insurance company (or a bank or brokerage) to administer the pension. That agent may even subcontract part of their function. All that is fine as long as it does not change the amount or the frequency of the benefit. Indeed, any change would be a violation of their fiduciary responsibility; and if they kept money that should have been paid you, they would be guilty of fraud.
Why spend two paragraphs on pensions? Reread them in terms of medical benefits instead pensions. The same principles apply.
We will discuss this further in Part 2.
—Richard Feingold, Co-founder