PRIVATE INDEMNITY AND MANAGED CARE MEDICAL PLANS

After completing this chapter, you should be able to:

Distinguish the differences and similarities among the various private medical plans

Relate facts unique to indemnity medical plans, such as: qualifications, patient expenses, coverage, circumstances in which they may interact with Medicare, and/or billing considerations

Relate facts unique to HMO managed care medical plans, such as: qualifications, patient expenses, coverage, circumstances in which they may interact with Medicare, and/or billing considerations

Relate facts unique to PPO managed care medical plans, such as: qualifications, patient expenses, coverage, circumstances in which they may interact with Medicare, and/or billing considerations

Explain the meanings of various insurance clauses and how the clauses may affect patients and medical office employees

Key Terms

actuaries

mathematicians who study trends and set insurance premiums, deductibles, and copays.

authorization number

proof that prior approval was obtained for a specific service: treatment, test, or procedure. It does not guarantee coverage if the claim does not establish medical necessity.

Blue Cross and Blue Shield (BCBS)

medical plans organized during the Great Depression as nonprofit, low-cost medical plans operating under special laws with less government red tape. Blue Cross covered hospital costs and Blue Shield covered physician costs. The plans have since merged, and many states dropped the nonprofit status to compete. They are no longer low cost.

capitation

a method to pay physicians based on the number of patients assigned by the medical plan rather than actual costs incurred. The physician controls the expense of rendering care.

coinsurance

the portion of covered medical care costs for which the patient has a financial responsibility. Often a deductible must be met first. Copay refers to either coinsurance or copayment.

coordination of benefits

allows payors to reduce payments by the amount of coverage provided elsewhere so reimbursement is never greater than the actual charge.

copayment

a cost-sharing agreement in which the patient pays a specified fee for specified services, and the medical plan pays the remainder of the cost. Copay can refer to either copayment or coinsurance.

deductible

a specified amount of expense the patient must pay before the medical plan pays anything.

group medical plans

medical insurance plans offered to groups, usually at a discounted rate or with special provisions. Employers are offered guarantee-issued coverage—employees cannot be excluded from the plan, and preexisting conditions are covered in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and subsequent related laws.

health insurance portability

allows individuals to keep employer-group medical insurance plans when changing jobs.

HMO

health maintenance organization; a managed care medical plan.

indemnity

the purest form of commercial medical insurance. The patient directs his or her own care and pays a deductible as well as a percentage of the costs.

individual medical plans

insurance policies offered to individuals rather than groups. Individuals can be denied coverage. Under HIPAA, insurance portability is tied to employer-group plans in which an employee changes jobs.

medical necessity

a medically sound reason for ordering a specific service.

MIB

Medical Information Bureau; an organization formed by insurance companies in 1902 to share or pool subscriber information related to health and lifestyle in order to prevent fraud.

out-of-plan

services rendered by providers or hospitals that do not have a contract agreement with the patient’s medical plan.

participating physician

(1) a physician who signed a contract with a medical plan and agreed to provide services to plan members; (2) a physician who signed a Medicare contract and agreed to provide services and accept the Medicare fee schedule for Medicare patients.

PP/PM

per patient per month; the amount of money a physician receives each month for each assigned patient under a capitation payment system. Some payors call it per member, per month.

PPO

preferred provider organization; a managed care medical plan.

preauthorization

the process of obtaining prior approval before a service: treatment, test, or procedure. It does not guarantee coverage if the claim form does not establish medical necessity.

preexisting condition

any condition with which a person has ever been diagnosed or for which a person has ever received medical treatment.

preferred provider

a physician who has signed a contract with a PPO-type of medical plan (similar to an HMO-participating provider).

preventive medicine

treatment rendered to prevent medical problems and reduce the incidence of costly medical care.

RBRVS

resource-based relative value system; the prospective payment system used by Medicare to pay physicians. It considers the CPT code in relation to work, overhead expenses, and malpractice (risk). A geographical adjustment is then made to account for cost-of-living differences throughout the nation.

right of subrogation

allows physicians to be reimbursed by medical plan payors for some or all of the patient charges until payor responsibility can be determined. This is considered a good faith payment. If a different payor is later found to be responsible, the medical plan that paid first is reimbursed for those expenses.

RVU

relative value unit; a numeric value assigned to each procedure code in the RBRVS. This number represents the total of each of three parts (work, overhead, and malpractice). Each part is multiplied by the geographic practice site indicator (GPSI) and then added together to get a total adjusted RVU. The total adjusted RVU is multiplied by the conversion factor (the assigned per-RVU dollar value) to arrive at the RBRVS fee allowed for the service.

standards of care protocols

tests and procedures are only considered covered services for specific predetermined diagnoses that are not usually disclosed to the physician because they are considered trade secrets. These are commonly called black-box edits.

UCR

usual, customary, and reasonable; often the average payment rate that same-specialty providers have accepted in a given region.

Introduction

This chapter gives a broad overview of the major features for private medical plans. Private medical plans include private indemnity plans and private managed care plans. They are the types of policies that patients purchase through employers or organizations and the type they purchase through insurance agents.

The insurance industry separates private medical plans into two categories: commercial medical plans (indemnity) and service medical plans (managed care). Managed care plans include HMOs and PPOs, as well as some new types of policies that combine the features of HMOs and PPOs. Many managed care plans are private medical plans, but an increasing number of managed care plans are government medical plans. This chapter discusses the private managed care plans. Workers’ compensation managed care plans are covered in Chapter 9. Medicare managed care plans are covered in Chapter 10. Chapter 11 covers Medicaid, TRICARE/CHAMPUS, and CHAMPVA managed care plans.

The lines of distinction between the various private medical plans are becoming more and more blurred each year as different plans are developed that combine the features of indemnity plans and the various managed care plans to offer a wide variety of choice in medical coverage.

With so many choices available, it is impossible to know everything about every medical plan on the market. Therefore it is important for you to understand the differences and the similarities between the basic features of indemnity and managed care medical insurance plans. Armed with a basic understanding of the industry, you will be able to determine when additional steps might be required, either to help patients obtain authorization for needed medical care or for the practice to receive payment for the care rendered.

Insurance agents offer group medical plans and individual medical plans. A person must belong to a group to qualify for a group plan. Employers are best known for offering group medical insurance plans. Sometimes organizations, associations, and unions also offer group medical plans.

The Health Insurance Portability and Account-ability Act of 1996 (HIPAA) changed the insurance industry by requiring guaranteed-issue coverage for employer groups, with no exclusions for pre-existing conditions if there has been no lapse in coverage. This requirement significantly increased the cost of coverage for employer groups. Employers with fewer than 20 employees are defined as small groups. Employers with more than 100 employees are defined as large groups. The size of the group and the age range of the employees are considered in determining the cost of a group policy. Large groups are required by law to include at least one managed care plan in the group’s menu of choices.

Individual medical plans may be acquired directly from an insurance agent. They once were the most

Indemnity Plan

The indemnity medical plan is the purest form of a commercial medical plan. This is the traditional policy in which a patient may choose any doctor or hospital. The medical plan pays a designated portion of the bill after a deductible is met.

At one time the indemnity medical plan was an employee benefit at most major corporations. Now large employer groups are required to offer a menu that includes at least one managed care plan. Because indemnity plans are more expensive, employees tend to choose managed care options. As a result, indemnity plans now cover less than 20% of the market in the United States.

With most indemnity plans:

Patients are expected to file their own claim forms. The patient fills out the top portion of the claim form, and the physician either fills out the bottom portion of the claim form or gives the patient a copy of the superbill to attach to the claim form. (Chapter 4 contains detailed information about claim form requirements.)

Patients may see any physician; they do not have to choose a “primary” physician.

Patients do not need a written referral to see a specialist.

Patients seldom need an authorization from the medical plan before getting tests or treatments the physician has ordered.

Patients seldom need an authorization before admission to a hospital, and they may choose any hospital.

Patients direct their own health care with very little interference from the medical insurance company.

Most indemnity plans cover hospitalization after a deductible has been met. A deductible is a specific amount of expense the patient must pay before the medical plan pays anything. Then the medical plan pays a percentage of costs the payor (the medical plan) decides are reasonable, and the patient pays the remainder of the costs. The patient’s share of the cost for covered services is called coinsurance.

Hospitalization coverage does not include physician services. Some indemnity plans cover only inpatient physician services, but most plans cover inpatient and outpatient physician visits. Often a separate deductible applies to outpatient care.

Some indemnity plans cover “extras” such as emergency services, lab work, prescription drugs, home health care, maternity care, and wellness care. A few indemnity plans cover “luxury” items such as mental health, drug abuse, transplants, and experimental treatments.

Patients pay most of the medical costs “out-of-pocket” at the time of service and then file a claim with the medical plan for reimbursement. Many medical plans delay sending reimbursement for at least a few weeks and sometimes longer if the payor can find a valid reason for further delay. If the medical plan decides the cost of the service was too high, they will only send reimbursement for the amount the payor considers to be reasonable. Patient expenses are often higher than expected.

Individuals or groups who purchase indemnity plans choose:

The level of coverage

The amounts of the deductibles (inpatient and outpatient)

The percentage of patient costs (copayments or coinsurance)

Pricing for indemnity plans varies widely depending on the level of coverage offered in the plan and the amount of costs the patient pays without reimbursement. The disadvantage with this level of customization is that there are no standards for coverage, and the wording of the policy can sometimes be misleading. Patients often believe they have a higher level of coverage than they actually have. Box 8-1 presents the pros and cons of indemnity plans for physicians.

Box 8-1 Indemnity Pros and Cons for the Physician

Advantages

Physicians and other providers are not required to sign contracts in order to provide services.

The scheduler may automatically schedule the appointment with any provider.

Authorizations are not required for office visits.

Authorizations are seldom required for tests or treatments.

Authorizations are seldom required for hospitalizations.

The patient may use any hospital.

Authorizations are not required for referrals.

Medical practices are not required to submit claim forms, although they may choose to do so.

Medical practices may ask the patient for payment in full at the time of service, or the practice may choose to extend credit to the patient or to accept assignment from the medical plan for payment of the plan’s portion of the fee.

Medical practices may balance-bill patients for costs not reimbursed by the medical plan.

Disadvantages

Patient deductibles must be met before the medical plan pays anything.

Patients pay a larger portion of the costs.

Patients often delay seeking treatment when out-of-pocket expenses are high.

Sometimes coverage is limited, and the patient assumes full financial responsibility for noncovered services.

Preventive care is seldom covered.

Patient statements must be prepared and mailed when patient balances are due.

The physicians have less leverage in disputes with the insurer because the physician only has an implied contract to provide services through the patient’s medical plan.

Collecting past due amounts from patients is time consuming and tedious. It can easily cost more than the amount owed.

The patient may receive the payment and the EOB, so you do not know if there were any errors causing penalties. Patient’s can become annoyed when full payment is not received, even when the reduction was due to a deductible amount, and they may complain to friends and neighbors rather than discussing the problem with you. This is negative advertising.

BILLING CONSIDERATIONS

You may collect full payment from the patient at the time of service, and let the patient file the medical claim form. However, many medical offices choose to file indemnity claims for their patients in order to retain control over the quality of claim preparation. The rules for standard claim form preparation were covered in Chapter 4.

Regardless of who actually prepares the claim and submits it to the insurance company, the physician is responsible for the provider-supplied information required on the bottom half of the claim form. Even though the physician is not required to sign a direct contract with the medical plan, an implied contract still exists, and legal requirements must be met.

Use the national standard coding guidelines and coding conventions that you learned in Chapters 5 to 7 and follow the standard rules for claim form preparation that you learned in Chapter 4. Always use your physician’s standard fee schedule for fees submitted on medical claims.

Monitor the payments received and the explanation of benefits (EOB) that accompanies payment. If full payment is received, then you know there are no plan-specific billing requirements to worry about.

If full payment is not received, call the medical plan using the telephone number listed on the patient’s insurance card (a photocopy of the front and back of the insurance card should be located in the patient’s medical record). Ask to speak with a claim adjustor. Please make an effort to be very courteous every time you speak with a claim adjustor. Supply the claim adjustor with the patient’s insurance information and politely ask the adjustor if there are any plan-specific billing rules. Document the plan-specific billing rules in the patient’s financial record (not the medical record) so that you do not have to call every time you submit a claim for this patient. In addition, document the claim adjustor’s first and last name; his or her position, title or department, and telephone extension; and a summary of the call, including date and time. Then correct the claim using the plan-specific rules in addition to the national standard billing rules. Submit the claim and monitor the payment and EOB to be sure full payment is received.

If full payment is not received a second time, call the same adjustor again and politely request assistance. When you are able to ask for the same claim adjustor by name each time you call a medical plan, you are less likely to receive conflicting information. Most claim adjustors will appreciate your efforts to complete claims correctly and will be less critical when you heed their advice.

Do not give in to the temptation to be rude or to blame the claim adjustor for problems, even if you think the claim adjustor deserves the blame. An unhappy or angry claim adjustor can find many reasons to delay payments. The claim adjustor is much more likely to be of real assistance if you treat him or her with courtesy and respect. Remember, the claim adjustor is employed by the medical plan, and the medical plan wants to find valid reasons to delay, reduce, or deny payment.

Sometimes personalities do clash. If you are unable to establish a cordial relationship with one claim adjustor, try working with another claim adjustor until you find one with whom you can establish a good working relationship.

When a claim adjustor has been especially helpful, it is appropriate to send a note of thanks. Address the note to the director for the medical plan and remember to name the helpful claim adjustor. Medical plans receive a lot of negative publicity, and claim adjustors often spend the entire day, every day, dealing with irate people. It is nice to be thanked once in a while. The adjustor will be given a copy of your note, and you will be remembered in a good light.

Some billing employees add their favorite claim adjustors to the medical office’s “Christmas and special occasions” list. Cards, and sometimes gifts, are sent to those on the list. This type of goodwill, combined with a sincere effort to file clean claims, paves the way for more favorable decisions when problems arise. This type of gratuity is allowed as long as the monetary value of the gift is nominal. The IRS allows expense deductions for business gifts less than $25.00 each in value, and the recipient is not required to report a nominal gift as “income.” More importantly, a nominal gift of this nature is not considered a kickback. Because the office gift list is sometimes long, the typical medical office spends less than $7.00 per gift, well within the range allowed by the IRS.

When there is more than one payor, identifying the correct primary payor is very important. The primary payor is the one who is legally responsible for paying first. The secondary payor pays second, and the tertiary payor, if any, pays third. The one who pays first usually pays the largest portion of the charges, so insurance companies and government payors monitor this issue closely. A good understanding of primary payor/secondary payor rules is essential in a medical billing office.

The following primary payor/secondary payor rules apply for private indemnity plans: