Carline A. Dalgleish, Sharon Oliver and Alexandra Patricia Adams
Basics of Health Insurance
Learning Objectives
1. Define, spell, and pronounce the terms listed in the vocabulary.
2. Discuss the purpose of health insurance.
3. Differentiate among the various types of insurance policies.
4. Explain the numerous classifications of insurance benefits available.
5. Explain how insurance benefits are determined.
6. Differentiate among the different types of managed care options.
7. List and discuss other major third-party payers.
8. Explain the procedure for verifying insurance benefits.
9. Discuss the different types of fee schedules.
10. Explain how to make managed care referrals and obtain precertifications.
11. Perform eligibility and verification of benefits procedures.
12. Perform a preauthorization procedure.
Vocabulary
allowed charge (allowable amount) The maximum amount of money that many third-party payers allow for a specific procedure or service.
carriers In insurance terms, companies that assume the risk of an insurance policy.
Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) See TRICARE.
Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) A comprehensive health care program in which the VA pays the cost of covered health care services and supplies for eligible beneficiaries; to be eligible, the individual cannot be eligible for TRICARE, but can be the spouse or child of a disabled veteran, as well as the surviving spouse or child of a veteran who died from a service-connected disability; a veteran who died while suffering a service disability; or a military member who died in the line of duty.
commercial insurance plans Plans that reimburse the insured for expenses resulting from illness or injury according to a specific fee schedule as outlined in the insurance policy and on a fee-for-service basis. Sometimes called private insurance.
co-payment A sum of money that is paid at the time of medical service; a form of co-insurance.
disability income insurance Insurance that provides periodic payments to replace income when an insured person is unable to work as a result of illness, injury, or disease.
effective date The date on which an insurance policy or plan takes effect so that benefits are payable.
exclusions Limitations on an insurance contract for which benefits are not payable.
explanation of benefits (EOB) A letter or statement from the insurance carrier describing what was paid, denied, or reduced in payment. It also contains information about amounts applied to the deductible, the patient’s co-insurance, and the allowed amounts.
explanation of Medicare benefits (EOMB) An explanation of benefits from Medicare (see explanation of benefits [EOB]).
fee for service An established schedule of fees set for services performed by providers and paid by the patient.
government plans Entitlement programs or healthcare plans that are sponsored and/or subsidized by the state or federal government, such as Medicaid and Medicare.
grandfathered A legislative provision that allows the exception based on a preexisting condition.
guarantor The person responsible for paying a medical bill.
Health Insurance Portability and Accountability Act (HIPAA) A law enacted in 1996 to improve the portability and continuity of health insurance coverage; to combat waste, fraud, and abuse in health insurance and healthcare delivery; to promote the use of medical savings accounts; to improve access to long-term care services and coverage; to simplify the administration of health insurance; and to serve other purposes. As a result, standards have been created for electronic health information transactions and for the privacy of health information. Also known as the Kassebaum-Kennedy Act.
health maintenance organization (HMO) An organization that provides a wide range of comprehensive healthcare services for a specified group at a fixed periodic payment. HMOs can be sponsored by the government, medical schools, hospitals, employers, labor unions, consumer groups, insurance companies, and hospital-medical plans.
medical savings accounts (MSAs) Tax-deferred bank or savings accounts that are combined with a low-premium, high-deductible insurance policy; they are designed for individuals or families who choose to fund their own healthcare expenses and medical insurance.
Medicaid A federal- and state-sponsored health insurance program for the medically indigent.
Medigap A term sometimes applied to private insurance products that supplement Medicare insurance benefits.
participating provider (PAR) A physician or other healthcare provider who enters into a contract with a specific insurance company or program and by doing so agrees to abide by certain rules and regulations set forth by that particular third-party payer.
primary care provider (PCP) A general practice or nonspecialist provider or physician responsible for the care of a patient for some health maintenance organizations. Also called a gatekeeper.
remittance advice (RA) An explanation of benefits from Medicaid (see explanation of benefits [EOB]).
resource-based relative value scale (RBRVS) A fee schedule designed to provide national uniform payment of Medicare benefits after adjustment to reflect the differences in practice costs across geographic areas.
self-insured (or self-funded) plan An insurance plan funded by an organization having a large enough employee base that it can afford to fund its own insurance program.
service benefit plans Plans that provide benefits in the form of certain surgical and medical services rendered rather than cash. A service benefit plan is not restricted to a fee schedule.
third-party administrator (TPA) An organization that processes claims and performs other business-related functions for a health plan.
third-party payers Entities that make payment on an obligation or debt but are not parties to the contract that created the debt.
utilization review A review of individual cases by a committee to make sure that services are medically necessary and to study how providers use medical care resources.
workers’ compensation A system of laws that protects employees against the loss of wages and the cost of medical care resulting from an occupational accident, disease, or death, unless the employee is proven negligent.
Scenario
The instructor in Ann Snyder’s administrative medical assistant class, Grant Wilson, knows that working with medical insurance can be quite rewarding, and experienced billers also find the field financially rewarding. Mr. Wilson works with Ann and her classmates, answering their questions and helping them to see that medical insurance is not as complicated as it seems.
The medical assistant who is able to pay attention to detail and likes paperwork will usually enjoy billing and coding activities. The person who performs these duties in the physician’s office is a critical staff member, because the tasks that are done related to billing influence the physician’s income. That income is used to pay clinic expenses and payroll, so all of the employees of the facility indirectly count on accurate and timely billing. The individual who contributes billing and coding skills, in addition to an understanding of health insurance and reimbursement guidelines, will be an asset to the practice and can look forward to a long and rewarding career.
Ann will learn that when insurance billing is broken down into manageable segments of information and applied to real-life situations, it becomes an interesting task. She will learn about the importance of verifying insurance eligibility and the steps for obtaining authorization for referrals and procedures; she also will learn that those benefits differ among insurance carriers, whether private, commercial, federal, or state insurance payers.
While studying this chapter, think about the following questions:
The Purpose of Health Insurance
The purpose of health insurance is to help individuals and families offset the costs of medical care. Health insurance is defined as a contract for protection against financial losses resulting from illness or injury. This protection provides payment of monetary benefits for covered sickness or injury, depending on the insurance policy purchased. There are various types of health insurance, such as accident insurance, disability income insurance, hospitalization, medical expense insurance, and accidental death and dismemberment insurance.
Health insurance typically covers services and procedures considered medically necessary. Most insurance policies do not cover “elective” procedures, such as certain cosmetic surgeries that are not considered medically necessary. More and more of today’s health insurance policies cover “preventive” care, which includes services provided to help prevent certain illnesses or that lead to an early diagnosis.
Impact of Insurance Billing on the Medical Office
Nearly all of the physician’s income is derived from the insurance payments received for services rendered. Regular expenses, such as rent, salaries, medical and office supplies, equipment, and so on, depend on the practice’s cash flow, which arises from proper and timely filing of insurance claims to meet the financial needs of the medical office. This is the most important job function of the coder/biller.
Cycle of Health Insurance
The information that follows describes common types of insurance coverage and insurance carriers, the steps for obtaining insurance coverage information, and some of the terminology associated with obtaining insurance coverage and insurance billing. The insured or policyholder, defined as an individual, group, or employer, pays a set amount called a premium. A premium is the periodic (monthly, quarterly, or annual) payment of a specific sum of money to an insurance company for which the insurer agrees to provide certain benefits. This premium, in return, pays for an insurance policy that covers the insured for a specific type (or types) of coverage, such as basic and major medical coverage, accidental death or disability, and so on. When an insured or a covered beneficiary or dependent of the insurance policy becomes ill or suffers an injury, treatment is provided by a physician or other provider of service in a doctor’s office, emergency department, or hospital, and the fee is paid by the insurance company when medical necessity and covered benefits are met.
Tasks Related to the Cycle of Health Insurance
The medical assistant’s tasks are initiated when the patient encounters the provider, either by appointment, as a walk-in, or in the emergency department or hospital. Insurance billing and coding tasks typically completed by the medical assistant include:
Determining Primary and Secondary Coverage
When the patient is the insured, the patient becomes the guarantor, and the patient’s insurance is primary. If the patient also is covered by another policy, that policy becomes the secondary insurance.
The only exception to this convention arises when the patient is not the insurance policy holder, such as when a child is insured by each parent. In such cases, the birthday rule applies; that is, under law, the insurance plan of the policyholder whose birthday comes first in the calendar year (month and day, not year) becomes the primary insurance.
Cost of Coverage
In this age of rising healthcare costs, most insurance carriers do not reimburse the full amount for services and procedures rendered. A carrier is an insurance company or third party that pays for medical care. The insured, or beneficiary, in most instances is required to pay certain out-of-pocket expenses, such as deductibles, co-payment or co-insurance charges, and costs for noncovered services.
A deductible is an amount a policyholder agrees to pay per claim or per accident toward the total amount of an insured loss before the insurance company begins payment of benefits. A deductible amount is stated in the insurance contract and normally ranges from $100 to $500. Under most circumstances the deductible must be paid only one time per calendar year; however, some policies have a deductible per occurrence.
The medical assistant should always verify the effective date, or date the insurance coverage began, on the patient’s insurance card. An excellent policy for any provider’s office is to call the insurance company to verify insurance eligibility, benefits, and exclusions before the patient’s appointment or encounter with the provider. This verification is done by phone or fax and ensures that the insurance is in effect and the patient is eligible for benefits. Most major insurance carriers have a Web site dedicated to verifying eligibility and claims payments. (Verification of benefits is discussed in more detail later in the chapter.)
Co-insurance is a policy provision frequently found in medical insurance. Under this provision, the policyholder and the insurance company share the cost of covered losses in a specified ratio, such as 80/20 (i.e., 80% of services are paid by the insurance carrier and 20% by the insured).
Many plans now require a co-payment, which is a type of co-insurance that is collected at the time of service. Co-payments usually range from $10 to $25 for office visits but can vary according to the services rendered. Most managed care plans require a co-payment. In addition, any services or procedures that are not covered under the terms of an insurance policy are the responsibility of the policyholder or insured.
Types of Health Insurance
Health insurance is available to most people in this country through group or individual plans. In addition, many people are covered by government plans or entitlement programs. However, although health insurance might be available, it is not always affordable. A recent survey revealed that more than 40 million Americans have no regular source for obtaining medical care, and lack of health insurance was a major obstacle.
The types of health insurance available include group insurance, individual insurance, government-sponsored insurance, self-insured plans, and medical savings accounts. Government plans can be federal and/or state sponsored; they include Medicare, Medicaid, TRICARE, the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), and workers’ compensation.
Group Policies
Insurance written under a group policy covers a number of people under a single master contract (subsidized by employers) that is issued to their employer or to an association with which they are affiliated. Group coverage usually provides greater benefits at lower premiums because of the large pool of people from whom premiums are collected. Physical examinations are normally not required, and pre-existing conditions are often waived. Often the employee shares the cost of coverage through payroll deductions.
Individual Policies
Individuals who do not qualify for inclusion in a group or government-sponsored plan may apply to companies that offer individual policies, often called personal insurance. The applicant is normally required to fill out an extended health questionnaire and undergo a physical examination before acceptance. Unlike with group policies, with personal insurance there is a risk that coverage may be denied, or the individual may have to accept a rider, or limitation, on benefits the policy will cover. Premiums are almost always higher with individual policies, and often the benefits are less.
Government Plans
Many large groups of people are covered by government plans or entitlement programs. A patient who is age 65 or older is covered by Part A and Part B of Medicare. A medically indigent patient may be eligible for Medicaid, with or without Medicare. Dependents of military personnel are covered by TRICARE (formerly the Civilian Health and Medical Program of the Uniformed Services [CHAMPUS]); surviving spouses and dependent children of veterans who died as a result of service-related disabilities are covered by CHAMPVA.
Some wage earners are protected against the loss of wages and the cost of medical care resulting from an occupational accident, disease, or disability through workers’ compensation insurance. An individual may collect benefits for health expenses from an automobile policy if the injury is related to a car accident or other such loss.
TRICARE
The federal government first became responsible for insuring a large group of people in 1956 with passage of Public Law 569. This law authorized dependents of military personnel to receive treatment from civilian physicians at the expense of the government. The program administering these benefits became CHAMPUS, which today is known as TRICARE (discussed in detail later in this chapter).
Medicaid
In 1965 the federal government provided for the medically indigent through a program known as Medicaid. Title XIX of Public Law 89-97, under the Social Security Amendments of 1965, provided for agreements involving cost sharing between federal and state governments to provide medical care for people meeting specific eligibility criteria.
Medicare
Established in 1965, Medicare is a federal health insurance program that provides healthcare coverage for individuals age 65 and older. The program also covers certain individuals under age 65 who have disabilities or end-stage renal disease (ESRD). The Medicare program was developed by the Healthcare Financing Administration (HCFA) as part of Title XVIII of the Social Security Act. The HCFA now is known as the Centers for Medicare and Medicaid Services (CMS).
Workers’ Compensation
All state legislatures have passed workers’ compensation laws to protect wage earners against the loss of wages and the cost of medical care resulting from occupational accident or disease, as long as the employee was not proven negligent. State laws differ as to the classes of employees included and the benefits provided by workers’ compensation insurance.
Self-Insured Plans
Many large companies or organizations have a big enough employee base that they choose to fund their own insurance program. This is called a self-insured (or self-funded) plan. Technically, a self-funded plan is not insurance by true definition. The employer pays employee healthcare costs from the firm’s own funds. Usually the costs of benefits and premiums for self-insured plans are similar to those for group plans. Self-funded plans tend to work best for companies that are large enough to offer good coverage and reasonable premium rates and are able to pay large claims for expensive medical services. Often a third-party administrator (TPA) or fiscal intermediary handles paperwork and claim payments for a self-insured group.
Self-funded healthcare or self-insurance is an arrangement in which an employer provides health or disability benefits to employees with its own funds or employees for health coverage with their personal funds. This is different from fully insured plans, in which the employer contracts an insurance company to cover the employees and dependents. In self-funded healthcare, the employer assumes the direct risk for payment of the claims for benefits. The terms of eligibility and coverage are set forth in a plan document, which includes provisions similar to those found in a typical group health insurance policy. Unless exempted, such plans create rights and obligations under the Employee Retirement Income Security Act of 1974 (ERISA).
Medical Savings Account
In 1996 Congress made tax-free medical savings accounts (MSAs) available to 750,000 American workers and their families. This is a type of self-insurance. Under a provision of the Kassebaum-Kennedy health insurance reform bill, small companies (50 or fewer employees), self-employed individuals, and the uninsured can purchase health insurance policies and make tax-free deposits to an MSA. They can use their MSA money to pay small and routine healthcare expenses, reserving a high-deductible medical insurance policy to pay large, catastrophic expenses. Money that remains in the account at year’s end earns tax-free interest. People can also elect to use MSA money to pay their health insurance premiums during a job change, which should reduce job lock, a situation in which people do not change jobs for fear of losing their health insurance.
In an MSA program, generally associated with self-employed individuals, tax-deferred deposits can be made for medical expenses. Withdrawals from the MSA are tax free if used to pay for qualified medical expenses. The MSA must be coupled with a high-deductible health plan (HDHP). Withdrawals from MSA go toward paying the deductible expenses in a given year. MSA funds can cover expenses related to most forms of healthcare, disability, dental care, vision care, and long-term care, whether the expenses are billed through the qualifying insurance or otherwise.
Once the plan deductible has been met in a given year, the HDHP pays any remaining covered medical expenses in that year. If there are funds remaining in the MSA at the end of the year, the funds can either roll over for the following year or can be withdrawn as taxable income.
MSAs have been superseded by health savings accounts (HSAs), which were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Existing MSAs were grandfathered.
Types of Insurance Benefits
An insurance package is tailored to the needs of each individual or group policy, and the combinations of benefits are limitless. This is also called “cafeteria style,” in which employers can choose the benefits they want for their employees. A policy may contain one or any combination of the benefits described in the following sections (Table 20-1).
TABLE 20-1
Types of Health Insurance and Plan Benefits
BENEFIT | COVERED | PAYS |
Hospitalization | Cost of all or part of the hospital room and board; and specific hospital services (i.e., costs involved in having surgery in a hospital) | Maximum amount per day and maximum number of days |
Surgical | Any surgical procedure, including but not limited to incision or excision; removal of foreign bodies; aspiration; suturing; reduction of fractures | Surgeon’s fee Assistant surgeon’s fee |
Basic medical | Outpatient and/or physician office procedures and services | Physician’s fees diagnostic, radiologic, laboratory, and pathology fees |
Major medical | Catastrophic or prolonged illness or injury | Takes over when basic medical, hospitalization, and surgical benefits end |
Disability | Accident or illness resulting in an inability for patient to work; can be paid whether work-related or not work related. | Cash benefits paid in lieu of salary while patient is unable to earn an income |
Dental care | Preventive care and/or treatment and repair of teeth and gums | Typically pays 100% for preventive care, 50% for repair and treatment |
Vision care | Eye exam and glasses | Set benefit amount, depending on vision care policy for examination and/or glasses |
Medicare supplement | Deductible and co-insurance amounts unpaid by Medicare | Deductible and co-insurance amounts unpaid by Medicare |
Special risk | Certain specific illnesses (cancer, heart failure) or accidents (automobile, airplane) | Typically pays a maximum benefit |
Life insurance | Loss of life | Usually a lump sum payment of the life insurance benefit |
Long-term care | Long-term skilled nursing or rehabilitation care | Set amount determined by policy benefits |
Hospitalization
Hospital coverage pays the cost of all or part of the insured person’s hospital room and board and specific hospital services, such as the costs involved in having surgery in a hospital. Hospital insurance policies frequently set a maximum amount payable per day and a maximum number of days of hospital care, per the diagnosis-related group (DRG). Some insurance companies require that the hospital be accredited or licensed.
Surgical
Surgical coverage pays all or part of a surgeon’s fee; some plans also pay for an assistant surgeon. Surgery includes any incision or excision, removal of foreign bodies, aspiration, suturing, and reduction of fractures. Surgery may be performed in a hospital, physician’s office, or elsewhere. The insurer frequently provides the subscriber with a surgical fee schedule that establishes the amount the insurer will pay for commonly performed procedures.
Basic Medical
Basic medical coverage pays all or part of a physician’s fee for nonsurgical services, including hospital, home, and office visits. Usually there is a deductible that the patient pays, in addition to a co-payment or co-insurance payment each time service is received. The insurance plan may include a provision for diagnostic laboratory, radiology, and pathology fees. Some medical plans do not cover routine physical examinations or preventive health checkups, such as mammograms or prostate examinations, if the patient does not have a specific complaint or illness.
The Affordable Care Act brings major changes to the healthcare industry, and several of its provisions have already taken effect. Beginning on January 1, 2014, all Americans will have access to affordable health insurance options, according to the HHS website. Some of the key provisions include:
• Prohibiting discrimination due to preexisting conditions based on gender or sex
• Eliminating annual limits on insurance coverage
• Ensuring coverage for individuals who are participating in clinical trials
The four core categories of the Act include benefits for hospitalization and ER services, physician and midlevel practitioners care, pharmacy benefits, and laboratory and imaging services. In 2015 and beyond, additional provisions will go into effect, such as paying physicians based upon value and not volume.
To be in compliance with the Act, insurance plans must consist of 10 essential health benefits (EHBs), including the following provisions:
Disability (Loss of Income) Protection
Disability insurance is a form of insurance that insures the beneficiary’s earned income against the risk that a disability will make working uncomfortable (as with psychological disorders), painful (as with back pain), or impossible (as with coma). It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits.
Weekly or monthly cash benefits are provided to employed policyholders who become unable to work as a result of an accident or illness. Many disability policies do not start payment until after a specified number of days or until a certain number of sick leave days have been used. Payment is made directly to the individual and is intended to replace lost income resulting from an illness or other disability. It is not intended for payment of specific medical bills, and it should not be confused with a regular insurance plan, entitlement program, or workers’ compensation, in which compensation is provided for an employee who is injured on the job or cannot work as a result of a job-related illness or other disability.
Dental Care
Dental benefits programs offer a variety of options in the form of either fee-for-service or managed care plans that reimburse a portion of a patient’s dental expenses and may exclude certain treatments.
Dental coverage is included in many fringe benefit packages. Some policies are based on a co-payment and incentive program, in which preventive dental care (e.g., cleaning and x-ray films) is covered 100%, with most other coverage paid at 50%.
Vision Care
Vision care insurance may include reimbursement for all or a percentage of the cost for refraction, lenses, and frames. Some vision plans also pay for corrective procedures, such as laser eye surgery.
Medicare Supplement
Many Medicare beneficiaries purchase a supplemental health insurance policy to help defray medical costs not covered or only partially covered by Medicare. Federal regulations now require Medicare supplement contracts to be uniform in benefits to avoid confusion for the purchaser. Medicare supplements that cover Medicare recipients’ out-of-pocket expenses, including the deductible and co-insurance payments, are called Medigap policies.
Special Risk Insurance
Special risk insurance protects a person in the event of a certain type of accident, such as an automobile or airplane crash, or for certain diseases, such as tuberculosis or cancer. There is usually a maximum benefit.
Liability Insurance
Liability insurance covers losses to a third party caused by the insured. There are many types of liability insurance, including automobile, business, and homeowners’ policies. Liability policies often include benefits for medical expenses resulting from traumatic injuries, lost wages, and sometimes pain and suffering payable to individuals who are injured in the insured person’s home or car, without regard to the insured person’s actual legal liability for the accident.
Life Insurance
Life insurance provides payment of a specified amount on the insured’s death, either to his or her estate or to a designated beneficiary or, in the case of an endowment policy, to the policyholder at a specified date. Life insurance policies sometimes provide monthly cash benefits if the policyholder becomes permanently and totally disabled. Sometimes the proceeds from life insurance are used to meet the expenses of the insured person’s last illness.
Long-Term Care Insurance
Long-term care insurance is a relatively new type of insurance that covers a broad range of maintenance and health services for chronically ill, disabled, or mentally retarded individuals. Services may be provided on an inpatient basis (at a rehabilitation facility, nursing home, or mental hospital), on an outpatient basis, or at home. The Health Insurance Portability and Accountability Act (HIPAA) of 1996 improved access to long-term care services and coverage.
How Benefits are Determined
Insurance benefits may be determined and paid in one of several ways: