Medical Plans Medical Plan Concepts Fee-for-Service A payment system for health care in which the provider is paid for each service given. Prepaid Plans Plan subscribers pay a set fee, usually each month, for medical services covered under the plan. Blue Cross and Blue Shield plans are prepaid plans. Subscribers versus Insureds - Individuals subscribe to Blue Cross and Blue Shield plan services and, thereby, become members or "subscribers." Hospitals agree to an established fee schedule developed by Blue Cross and, thereby, become member providers. The bills of individual members are sent directly from the hospital to Blue Cross for reimbursement. Insureds, conversely, are actually insured under indemnity/reimbursement medical expense or major medical plans. The service type contracts such as Blue Cross and Blue Shield or Health Maintenance Organizations agree to reimburse the healthcare providers directly for the services rendered to individuals subscribing for those services. The indemnity/reimbursement plans agree to reimburse (or indemnity) the insureds but agree to recognize assignment of benefits to healthcare providers. Benefit Scheduled versus Nonscheduled Plans Scheduled benefit plans include a schedule that lists major commonly performed operations and benefits payable for each. Procedures not listed on the schedule are paid on the basis of the absolute value and the relative value of each surgical procedure. Nonscheduled plans pay on the basis of what is considered usual, customary and reasonable (UCR) in a certain geographical area. UCR is based on the amount physicians in an area charge for the same procedures. Differences Between Individual and Group Contracts Individual health insurance contracts are issued to cover the applicant and usually dependents. Most individual health insurance policies are issued guaranteed renewable so the underwriting to determine insurability is completed with care. Factors considered include, age, sex, physical condition, previous health history, occupation, moral and financial standing, and to a small degree, family health history. Although group insurance is underwritten with care, the underwriter s attitude toward group risks can be less restrictive than with individual contracts in part because the yearly renewable term contract under which the insurance is written contemplates annual revaluation of the risk and adoption of remedial measures if the initial evaluation proved to be incorrect. On each contract anniversary date, the underwriter has the opportunity to adjust the premium rate, conditions of the contract, and the benefits provided. - 1 -
Differences Between Private Insurers and Government Insurers Private Insurers are organizations owned and operated by private citizens. They can be classified as either proprietary, which include stock companies, or cooperative, which include mutuals or reciprocals. Private insurers will insure most coverage types, however, they exclude risk exposures that are considered uninsurable. Examples would be war, unemployment or flood. Government Insurers are organizations owned and operated by the government. They can be classified in two broad categories: insurers who write coverages that are commercially uninsurable, such as war, flood or unemployment, and; insurers who write coverages that are commercially insurable and, as such, compete with the private insurers. Examples would be Social Security coverages and Workers Compensation. Typically, the government only insures risks that are either catastrophic or cyclical in nature. Hospital and Medical Expense Types of Plans Basic hospital, surgical and medical policies and major medical policies are commonly grouped into what are referred to as Medical Expense Insurance. They provide benefits for the cost of medical care that result from accidents or sickness on a reimbursement or indemnity basis. The three basic coverages (hospital, surgical and medical) may be purchased separately or together as a package. These types of coverage are often referred to as first-dollar coverage because they usually do not require the insured to pay a deductible. They differ from major medical expense insurance because the basic medical coverages usually have more limited coverage than the major medical policies. Basic Hospital Expense Coverage - Hospital expense policies cover hospital room and board, and miscellaneous hospital expenses, such as lab and x-ray charges, medicines, use of operating room and supplies, while the insured is confined in a hospital. There is no deductible and the limits on room and board are set at a specified dollar amount per day up to a maximum number of days. These limits may not provide for the full amount of hospital room and board charges incurred by the insured. For example, if the hospital expense benefit was $500 per day, and the hospital actually charged $650 per day, the insured would be responsible for the additional $150 per day. Miscellaneous Hospital Expenses - Normally have separate limits from other coverages, and pays for other miscellaneous expenses associates with an in-hospital stay. The benefits provided by this coverage can be expressed in several ways: As a multiple of the daily room and board limit (10 times, 15 times the daily room and board limit) As a flat benefit ($5,000, $7,500, $10,000 etc.) - 2 -
As a percentage of participation (80% of covered expense up to a maximum of $5,000, $7,500 or $10,000). The insured would be responsible for the remaining 20% plus any costs above the stated maximum. The benefits provided by this coverage are drugs, x-rays, and laboratory expenses. (Remember the initials DXL.) Basic Medical Expense Coverage - This is often referred to as Basic Physicians Nonsurgical Expense Coverage because it provides coverage for nonsurgical services a physician provides. The benefits are usually limited to visits to patients confined in the hospital and some policies will also pay for patient office visits. Basic Surgical Expense Coverage - The third type of basic medical expense coverage, Basic Surgical Expense Coverage, is commonly written in conjunction with Hospital Expense policies. These policies pay for the costs of surgeons' services, whether the surgery is performed in or out of the hospital. Coverage includes surgeons' fees, anesthesiologist, and the operating room when it is not covered as a miscellaneous medical item. As with the other types of basic medical expense coverage, there is no deductible, but coverage is limited. Each contract has a surgical schedule that lists the types of operations covered. If the operation is not listed, the contract may pay for a comparable operation. Special schedules may express the amount payable as a percentage of the maximum benefit, list a specified amount or assign a relative value that when multiplied by its conversion factor gives the benefit payable. Major Medical Policies - As opposed to the limited coverage available under the basic medical expense policies, major medical policies offer a broad range of coverage under one policy. Generally, these policies provide comprehensive coverage for hospital expenses (room and board and miscellaneous expenses, nursing services, physicians' services, etc.). These policies are intended to provide the insured with catastrophic medical expense protection. Major medical policies provide benefits for prolonged injury or illness. Coverages include doctors' fees, nurses' fees, hospital room and board, miscellaneous hospital expenses, expenses in connection with pregnancy, nervous or mental disorders, alcoholism or drug addiction rehabilitation, and cosmetic surgery as the result of an accident. Usually a blanket limit with inside limits for specific expenses such as surgical expenses, are provided. There normally is a lifetime benefit per person limit, and it may have a deductible for each accident/illness and/or each calendar year and/or each covered person. Unlike the basic medical expense plans, these policies usually carry deductibles, coinsurance requirements, and very large benefit maximums. Major medical contracts usually provide high maximum limits such as $1,000,000 to $2,000,000 or more. Policy limits either apply on a per disability basis or a lifetime basis. Policies written on a per disability basis provide greater coverage because the full policy limits apply to each disability. For example, a policy written for $1,000,000 per disability would cover the cost of hospital, surgical and related expenses caused by a covered disability up to the $1,000,000 amount (subject to any deductibles). Policies written on a lifetime basis provide coverage under one policy up to a stated limit for the "lifetime" of the policy. Once the policy limit is reached, the policy expires. For - 3 -
example, a lifetime policy written for $1 million would expire upon the reimbursement of four $250,000 disabilities. The premium cost related to major medical coverage is controlled through the use of deductibles, internal limits, and coinsurance provisions. Major medical policies don't provide coverage until all applicable deductibles are satisfied. Benefit schedule versus usual, reasonable and customary charges - Medical expense benefits may be paid under either a usual, reasonable and customary approach or a benefit schedule approach. The benefit schedules include the following two variations: first under a benefit schedule which limits benefits paid for each specific treatment to a maximum amount specified in the policy. For example, a policy schedule may state it will pay up to $200 for a tonsillectomy; and second, under a relative-value schedule which limits benefits paid to a maximum amount based upon the unit values which are relative to each other. For example, a procedure which has a unit value of 30 is twice as expensive as one which has a unit value of 15. Under the usual, reasonable and customary (UCR) approach, benefits are paid based upon the usual, reasonable and customary charges for the specific type of procedure performed. The term "usual, reasonable and customary" charge typically means the prevailing charges which fall within the standard range of fees normally charged for a specific procedure by a physician of similar training and experience in that geographic location of the country. Any provider versus limited choice of providers - Traditional providers of medical coverage permit the insured to visit any provider for health care and services are generally pay on a feefor-service basis. Some health providers limit the individual's choice of providers. Examples included Health Maintenance Organizations and Preferred Provider Organizations. Under these type plans, individuals are permitted to go outside the plan, but they will only be reimbursed at the plan's rate of reimbursement. Health Maintenance Organizations (HMOs) HMOs are prepaid health care plans with an emphasis on preventive care as a means of reducing medical expenses. HMOs have the following characteristics: Comprehensive Care provides a package of health care services including: preventive care; routine physicals; immunizations; hospitalization and outpatient services. Subscribers pay a fixed monthly fee and are permitted the use of the HMO facility (usually limited to one or perhaps several medical locations). HMOs typically do not have deductibles or coinsurance provisions, however, they generally include modest copayment provisions for drug prescriptions and doctor visits. Delivery of Medical Services addresses how the medical services are delivered. Specifically, subscribers are required to use HMO facilities which typically limits choice. Primary care physicians are used to emphasize preventive treatment and to act as gatekeepers to control access to a medical specialist. Subscribers are permitted to go outside the plan, but they will only be reimbursed at the plan's rate of reimbursement. - 4 -
Most HMOs have out-of-area coverage which provides benefits in the event of a medical emergency outside of the coverage area. Cost controls are utilized to minimize medical expenses and to promote and emphasize cost savings. Preventive care is emphasized and physicians are generally employed by the HMO, and therefore, have less of an incentive to authorize unnecessary treatments. HMOs are formed primarily through group plans with employers, unions or insurance companies. Structures - HMOs may be formed by consumer groups, health providers, insurance companies, Blue Cross Blue Shield associations and labor unions. An HMO differs from traditional insurance plans in that it both finances and provides the health care services to its members. HMOs may be sponsored by consumer groups, group health providers, insurance companies, Blue Cross/Blue Shield Organizations and labor unions. Subscribers - Insureds known as subscribers pay a premium to the HMO and are provided with a broad range of health care services, including routine doctor visits and emergency room care. The service is provided by physicians and hospitals that have an agreement with the HMO to provide care. Health Maintenance Organizations Exclusions - HMOs include the same general exclusions which are found in medical expense plans, with the exception of care for preventive treatments. HMOs subscribers are treated by primary care physicians who attempt to minimize medical expenses through preventive treatment and act as gatekeepers to control access to medical specialists. HMOs are prepaid comprehensive care plans with minimal copayments. For example, physician visits may be charged at $10 per visit or prescription drugs at $5 per prescription. Employer Group Plans - Employers must offer a federally qualified HMO to its employees if the employer pays a minimum wage; has 25 or more employees; the employer makes a contribution to an employee's health care plan; and the employer receives a request for a federally qualified HMO operating in the area where there are at least 25 employees reside. If all of the above cited circumstances exist, the employer group plan must: Offer a dual-choice provision which requires the employer to offer to its employees the choice of its present medical plan or the federally qualified HMO as an option. Once the HMO option is made available, the employer must provide an open enrollment period of at least 10 working days each year for employees to transfer between such plans. Furthermore, no probationary period, limitation or exclusion may be imposed. The employer must also advise the employees of this option at least 30 prior to the beginning of the open enrollment period. Types of HMOs - The HMO is organized by which physicians or hospitals provide the health care. HMOs can be organized according to four different models: Group model, Staff model, Network model, and Association model. In addition, HMOs may be identified as either openpanel or closed-panel. - 5 -