Insurance Terms and Concepts

Medical Insurance involves a contract in which a business agrees to pay a portion of a patient’s medical expenses in exchange for a premium payment or, for government plans, coverage is offered to those who meet certain coverage criteria.

Out of Pocket Expense

Premium is the payment to the insurance to maintain coverage.

Deductible is the amount of covered expenses the insured must pay out of pocket before insurance pays.

Co-insurance is a percentage of covered expense not covered by insurance.

Co-payment is a flat amount the patient pays per encounter.

Types of Benefit Plans/Networks

Indemnity is an insurance where there is no participating or preferred network. Usually paid on a percentage of approved charges.

Managed care is insurance where there is a contracted network that has a reduced or discount fee for services.

Managed Care

PPO is Preferred Provider Organization. PPO’s have a network of providers who have a discounted rate and better benefit levels. Non-network providers have higher costs for patients. Payments are for each service or “Fee for Service.”

EPO is like a PPO but there is no benefit for Non-Network providers.

Managed Care

HMO or a Health Maintenance Organization is a plan where services are only provided by network providers that are designated to care for the patient. A Primary Care Physician manages the patient care and must give a referral for specialist services or tests. Expensive items must be approved by the HMO.

Managed Care

A PCP is usually paid on a CAPITATION rate, which is a monthly stipend for having a certain number of patients on his roster. He does not receive money for seeing the patients, only for having them on his roster.

Some HMOs pay the doctors a salary and some are both the insurance and the healthcare provider, such as Kaiser. Kaiser is called a “staff model” HMO.

Managed Care

A POS or Point of Service plan has several benefit “tiers” where there are contracts with HMO, PPO and other types of providers. The provider contract type determines how the patient’s insurance pays. So the patient can see an HMO PCP one day with a co-pay, and possibly self-refer to a PPO specialist with a co-insurance.

Eligibility

Whether the patient has insurance coverage and whether it covers the service they need.

Can end if the patient does not meet certain criteria (marriage, employment, etc.,) or if the premium is not paid.

Should be checked BEFORE first appointment and anytime there is reason to believe it may have changed. With Medi-Cal, it should be checked EVERY visit.

People with Insurance

Policy Holder or the Insured or the Subscriber are all ways of describing the person who took out the insurance and is the main person on the policy.

Dependent is someone who meets certain criteria (age, family relationship) who is added by the policy holder to the policy for additional premiums.

Insurance Notices

EOB is Explanation of Benefits. This is a notice to the insured about how the insurance paid or did not pay a claim. An MSN is a Medicare EOB.

Remittance Advice is just an EOB sent to the healthcare provider. It contains information about multiple patients and its payment should be reconciled with all the different patient accounts listed.

Payment

If a service is not paid by insurance, the EOB will contain a DENIAL which should give a clear reason for non-payment. This can be contested or Appealed.

Payment is based on covered items being priced by various pricing methodologies.

Pricing Professional Services (Fee for Service)

Usual Customary and Reasonable (UCR) and Customary and Reasonable (C&R) are used on Indemnity plans and some PPOs to price non-contracted services.

Fee Schedule is a series of prices for procedures performed by a healthcare provider. The provider has a price list and the insurance has a price list. If there is a contract, the contract rate is always the rate that prices the services.

Medicare Fee Schedule

For professional services Medicare has a fee schedule called the Resource-Based Relative Value Scale or RBRVS. This is based on a Harvard Medical School study and prices all physician services that have a CPT or HCPCS code.

There is a Participating physician fee schedule and a Non-Participating physician fee schedule.

Pricing Inpatient Facility Services

Hospital Inpatient bills may be paid on a daily (per-diem) rate depending on the level of service (Med/surg, ICU, CCU, etc) or they may have a special contract rate or percentage payment.

Medicare Inpatient hospital is paid based on the ICD-9 diagnosis code and the severity of the condition(s) treated. This is called a Medicare Severity Diagnosis Related Grouping (MS-DRG). Because the rate is predetermined based on illness, it is called a Prospective Payment System.

Pricing Outpatient Facility Charges

Outpatient hospital facility charges may be paid on a percentage or based on allowances for CPT or HCPCS codes on the bill.

Medicare prices with Ambulatory Payment Classifications (APCs) which are similar to the way professional charges are paid, but Medicare refers to this as a Prospective Payment System as well.

Coordination of Benefits

When a patient has more than one insurance plan, insurance companies do not want to pay more than 100% of the total allowable bill.

In order to avoid the combined insurances not exceeding the bill amount, coordination of benefits is applied.

Coordination of Benefits

When a patient has multiple insurances, they are sorted into primary, secondary and tertiary.

Primary insurance is the insurance that pays first and generally covers the largest portion of the bill.

Secondary insurance receives the EOB along with a bill and pays remaining charges up to their allowances, not to exceed the bill amount.

If there is a tertiary insurance, it may be billed to pick up anything the first two insurances did not pay. Tertiary insurance also must receive a bill and the EOBs from primary and secondary insurances in order to process the claim.