Health Care Payers
The objective of this chapter is to provide an overview of payers that provide coverage for health care services performed in a hospital. Over the past decades the health insurance industry has evolved from a system that required the patient to pay for all health care services. Health insurance did not exist. Health insurance began in 1929 when the first prepaid health plan was introduced by Blue Cross. Growth in the population, complexities of care, and the rising cost of health care has contributed to the evolution of the industry.
Today the health insurance industry consists of a large number of insurance companies offering a wide spectrum of coverage through many different plans and government-sponsored programs (Figure 11-1). Hospitals provide services to patients for treatment of conditions that are covered under various health insurance plans. The process of submitting claims for hospital services is complex because of variations in plan types, coverage, reimbursement, and billing requirements. It is important for hospital personnel involved in billing and coding services to have an understanding of these variations to ensure compliance with plan requirements and to obtain accurate reimbursement. A discussion of all payer plan variations is beyond the scope of this text. In fact, the insurance industry is so diverse that much of the required knowledge can only be gained through experience with the various payers. This chapter provides an overview of key elements of various types of health care coverage and payers.
Historically, health insurance plans provided health insurance coverage for most health care services provided to patients. Payment for health care services was made on a fee-for-service (FFS) basis. These health insurance plans are commonly referred to as traditional fee-for-service plans. Over the past decades, payers have implemented plans to control the rising cost of health care by managing health care services provided to patients. These plans are referred to as managed care plans. There are distinct differences between traditional fee-for-service and managed care plans. The following section provides a review of fee-for-service and managed care plans. It is critical for hospital personnel to understand the difference between these plans in order to obtain the appropriate insurance information and to understand billing requirements for services provided by the hospital.
Traditional health insurance plans are fee-for-service plans, also referred to as indemnity plans. A fee-for-service plan provides health insurance coverage for services rendered by providers of the patient’s choice. Reimbursement is determined for each service based on a fee schedule. Traditional health insurance plans were fee-for-service plans. Fee-for-service plans do not require referrals or preauthorizations. A claim is submitted by the hospital summarizing the total accrued charges. Accrued charges represent the total amount of all charges incurred during the patient visit. Fee-for-service plans generally pay a percentage of accrued charges, such as 80%, as outlined in the plan. The patient is generally responsible for a deductible and a coinsurance amount that is a percentage of the accrued charges, as illustrated in Figure 11-2.
In this example, the hospital charged a separate fee for each service. The total of $388.00 represents the accrued charges. The fee-for-service plan calculated the reimbursement to the hospital at 80% of the accrued charges, or $310.40. The patient is responsible for $77.60, which is the coinsurance amount that is 20% of the accrued charges.
Traditional fee-for-service plans differ from other plans offered. Coverage is provided for services that focus on the diagnosis and treatment of patient conditions. Preventive services are generally not covered. Characteristics of fee-for-service plans are highlighted below.
Coverage provided under a traditional fee-for-service plan can be categorized as basic health insurance coverage or major medical insurance coverage. The benefits under basic and major medical health insurance vary according to the plan. The key distinction between basic and major medical insurance coverage has to do with the expense of medical treatment or the number of hospital days required.
Basic health insurance provides coverage for the cost of health care services required to diagnose and treat the patient’s condition. Health care services required on a day-to-day basis, including physician services, diagnostic studies, surgeries, and hospitalizations, are generally covered by a basic health insurance plan.
Major medical insurance provides coverage for large medical expenses incurred as a result of a catastrophic or prolonged illness. Services required for treatment of a prolonged illness can result in the accumulation of large medical expenses. The major medical plan outlines a specific dollar amount or total number of hospital days that need to be exceeded before major medical coverage becomes effective. A patient may initially require basic medical health care coverage and later require major medical benefits. For instance, John Smith received health care services required to diagnose and treat his liver failure (Figure 11-3). The expenses exceeded $35,000, as indicated on the patient’s account. According to his plan, the major medical coverage becomes effective when medical expenses exceed $30,000 or when the hospital stay exceeds 45 days. Major medical benefits are generally paid on a fee-for-service basis in accordance with the plan.
Managed care plans are health insurance plans that incorporate the provision of coordinated health care services and cost-containment measures to monitor and manage health care services provided to members of the plan. Managed care plans are designed to provide a wide range of preventive, diagnostic, and therapeutic services to plan members effectively and cost efficiently. Patient care services are monitored and managed by a primary care physician, who coordinates care for patients within a network of providers defined by the plan. A primary care physician (PCP) is the plan provider responsible for monitoring and managing the patient’s care according to the managed care plan provisions. The primary care physician (PCP) is referred to as the “gatekeeper” because all services for the patient must be coordinated through the PCP. Each member of a managed care plan must select a PCP from the network of providers within the plan. The following physicians may be designated as a PCP: family practitioner, internist, obstetrician/gynecologist, or pediatrician. A provider network is a network of providers who agree to offer health care services to plan members for a predetermined fixed payment. The provider network includes physicians, imaging centers, laboratories, and hospitals.
Managed care plans reimburse providers using various methods including fee-schedule, discounted fee-for-service, and capitation. A majority of managed care plans provide reimbursement based on capitation. The capitation method of reimbursement provides payment that is a predetermined, fixed amount paid per member per month. Managed care plans are different from traditional fee-for-service plans, because they provide coverage for preventive services and incorporate key cost-containment measures.
Managed care plans were designed to provide health care services efficiently through the management of care by a primary care physician (PCP). Cost-containment measures used by managed care plans include referral, preauthorization, and utilization review requirements.
A referral is the process of one physician transferring the care of a patient for a specific illness or injury to another physician. When diagnostic, therapeutic, or specialty care is required that is beyond the scope of the primary care physician (PCP), a referral form is prepared by the PCP and forwarded to the provider. The managed care plan will not pay for services rendered without the appropriate referral. Figure 11-4 illustrates a sample referral form.
Preauthorization is a process required by a managed care plan to obtain approval for a service before the service is rendered. Information regarding the patient’s condition and the plan for treatment is presented to the managed care plan by the provider’s representative. Preauthorization is granted if the plan approves the service. Services that require preauthorization are defined by the managed care plan. For example, most managed care plans require preauthorization for a hospital admission prior to the admission. If an emergency admission is necessary, an authorization must be obtained within a specified period of time after the admission as outlined by the plan. Payment for services will be denied if preauthorization is not obtained. Figure 11-5 illustrates a sample preauthorization request form.
Utilization review is a function of the utilization management process that involves the review of patient care services to determine whether the care provided is appropriate based on the patient’s condition. Patient care services are also reviewed to determine if the services are medically necessary. Health insurance plans will not pay for services that are not considered medically necessary.
Managed care systems attempt to control health care costs by discouraging unnecessary hospitalization and overutilization of health care services. There are several types of managed care plans, including Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Point of Service (POS), and Exclusive Provider Organization (EPO). A comparison of these plans is outlined in Table 11-1.
|Type of Plan||Services||Monitored Care “Gatekeeper”||Care Providers||Cost-containment||Reimbursement||Patient Responsibility|
|Preventive, Diagnostic, and Therapeutic Services||PCP||Participating Network Providers||Non-PAR Out-of-Network Providers||Referrals, Precertification, Second Opinion||Periodic Fixed Payment Predetermined||Copayment/Coinsurance/Deductible|
|Health Maintenance Organization (HMO)||Yes||Yes||Yes||No benefits||Yes||Yes|
Varies by plan
|Preferred Provider Organization (PPO)||Preventive service coverage varies||No||Yes||Yes|
Higher out-of-Pocket Cost
Varies by plan
|Point of Service (POS)||Yes|
Higher out-of-Pocket Cost
Varies by plan
Varies by plan
|Exclusive Provider Organization (EPO)||Yes||Yes||Yes||No benefits||Yes||Yes|
Varies by plan
A Health Maintenance Organization (HMO) is a managed care organization that provides comprehensive health care services (preventive, diagnostic, and therapeutic) to members through a network of participating providers. Members are required to obtain care from providers within the plan network. All patient care services are monitored and managed by a primary care physician (PCP). Health care services are reimbursed based on the capitation method, which pays a predetermined fixed amount. HMO plans optimize the use of health care services through utilization management requirements, such as referral, preauthorization, and utilization review. HMO members are responsible for copayments for specified services as outlined within the plan. The plan may require the patient to pay coinsurance and/or deductible amounts.
A Preferred Provider Organization (PPO) is a managed care organization that provides diagnostic, therapeutic, and preventive services to its members through a network of preferred providers. Members are encouraged to seek care from providers within the preferred network. PPO plans allow patients to seek care outside of the preferred provider network. Plan members generally pay higher out-of-pocket costs when care is rendered by providers outside the network. Plan members are responsible for a deductible and a coinsurance amount as specified by the plan. Patient care services are not monitored and managed by a PCP. Preferred Provider Organizations (PPO) negotiate discounted fees with a group of providers such as hospitals, physicians, clinics, ambulatory surgical centers, diagnostic imaging centers, and laboratories. Some PPO plans provide reimbursement based on capitation.
A Point of Service (POS) plan is a managed care plan that includes features of an HMO and PPO plan to provide diagnostic, therapeutic, and preventive services to members of the plan. POS plans allow the patient to decide what system to use at the point when services are rendered. All patient care services are monitored and managed by a PCP. The plan allows members to obtain care from providers within or outside the provider network. Higher coinsurance and deductible payments are generally required when care is obtained from an out-of-network provider. Utilization management requirements vary by plan; however, a referral must be obtained for care beyond the scope of the PCP, whether seeking care from a network or an out-of-network provider.
An Exclusive Provider Organization (EPO) is a managed care organization that provides diagnostic, therapeutic, and preventive health care services to members of the plan. EPO plans have many of the same characteristics as preferred provider plans. EPO plan members are required to obtain care from providers within the exclusive provider network. All patient care services are monitored and managed by a PCP. Utilization management requirements vary by plan; however, a referral must be obtained for care beyond the scope of the PCP and preauthorization is required for specified services, such as a surgery. Exclusive Provider Organizations (EPO) negotiate discounted fees with a group of providers such as hospitals, physicians, clinics, ambulatory surgical centers, diagnostic imaging centers, and laboratories. Some EPO plans provide reimbursement based on capitation. The patient may be responsible for copayment, coinsurance, and deductible amounts, as outlined in the plan.
The health insurance industry consists of a large number of insurance companies offering a wide spectrum of coverage through many different insurance plans. The plans discussed here have been adopted by various private and government payers. It is important for hospital billing and coding personnel to have an understanding of the various private and government payers to ensure compliance with payer requirements.
Payment for hospital services is received from patients and various third-party payers. Third-party payer is a term used to differentiate between the patient and any organization or other entity that provides coverage for health care services. Blue Cross, Aetna, Medicare, and TRICARE are examples of third-party payers. Third-party payers represent the largest portion of reimbursement for hospital services. They provide coverage for health care services through many different types of plans that represent variations in the billing and coding process for hospital services. Third-party payers that cover hospital services can be categorized as private and government payers. Private payers offer group health insurance plans, individual health insurance plans, and liability plans, such as automobile, personal injury, and workers’ compensation insurance. Government programs include Medicare, Medicaid, Children’s Health Insurance Program (CHIP), TRICARE, and the Civilian Health and Medical Program of the Veterans Administration (CHAMPVA).
A private payer is any type of health insurance plan that is paid for by someone other than the government. Private payers offer coverage for health care services to members of employer groups, organizations, or individuals who purchase health insurance. Private payers offer a wide range of health care benefits through a variety of different plans. The group or individual who purchases private health insurance can select the plan that provides coverage needed and is within specified budget parameters. Health insurance plan coverage and billing specifications vary by plan. Plan provisions include details regarding coverage, determination of primary or secondary payer status, patient responsibility, claim submission, and the appeals process. Private health insurance can be categorized as group health insurance, individual health insurance, and other health insurance.
Group health insurance is insurance purchased by an employer or other organization for the purpose of providing coverage for medical services rendered to employees or members of a group. Groups that provide health insurance coverage generally offer more than one type of plan so that members can select the coverage that best meets their needs. Group health insurance plans can cover an individual member and various family members, such as a child or spouse. Group plans provide coverage for a wide range of health care services. Plan premiums are generally lower than individual health insurance premiums because the cost of the plan is spread among all the members who are enrolled in the plan.
Individual health insurance is insurance purchased by an individual directly from an insurance company. The individual’s employer may not offer coverage, or the individual may be self-employed. Individual health insurance plans cover the individual and can also cover various family members, such as a child or spouse. Premiums for an individual plan are generally higher than premiums for a group plan because the cost is not spread among members of a group. Individual plans may not provide the wide range of benefits that a group plan might provide.
Hospitals provide diagnostic and therapeutic services to patients who are covered under other types of insurance, such as liability insurance. Liability insurance covers losses to a third-party caused by the insured, by an object owned by the insured, or on premises owned by the insured. Liability policies also provide coverage for health care services required for an illness or injury that is related to a liability. An example of liability insurance is personal injury insurance. Common examples of personal injury insurance include auto insurance and worker’s compensation insurance.
Personal injury insurance provides personal injury protection (PIP) coverage for losses incurred as a result of another individual or company’s negligence. Personal injury losses can involve property damage and/or health care issues. A personal injury claim must be filed for health care services that are required. Hospitals have policies and procedures regarding payment for services involving personal injury liability. Some facilities require the patient to pay for services and seek reimbursement from the liability insurance company. If liability is not determined, the medical insurance plan may be billed. If liability is determined, coverage will be provided up to a maximum amount allowed by the personal injury insurance. When a personal injury claim exceeds the benefit amount, the benefits are exhausted. When the benefits are exhausted, the medical insurance may be billed.
Automobile insurance protects an individual against financial loss resulting from an automobile accident. It is a contract between the insured and the insurance company. The insured pays a premium and the insurance company agrees to cover losses incurred as defined in the policy. Automobile insurance provides coverage for damaged property, and many policies cover health care services. Automobile insurance provisions vary by state. In most states, insurance options include bodily injury and personal injury protection (PIP). Bodily injury is generally required by all states because it covers injuries caused by the insured to someone else while the insured party is driving. PIP is also referred to as “No-Fault” because medical expenses are covered under each insured’s plan regardless of fault. The PIP plan will cover medical expenses up to a specified limit as outlined by the insured’s plan. If the PIP benefits are exhausted a claim may be submitted to the individual’s medical insurance plan.
Hospitals require patients in need of health care services related to an automobile accident to provide information regarding the automobile insurance, such as the insurance company name, the policy number, and the name of the insured. The hospital will submit a claim to the automobile insurance company outlining charges for services rendered. The claim must be completed accurately with information required to tell the payer the claim is for services related to an automobile accident.
Workers’ compensation insurance is generally paid for by employers to cover the cost of medical services for injuries that occur on the job. Workers’ compensation insurance is regulated by the state and federal government. Workers’ compensation laws vary by state. State laws require employers with a specified number of employees to provide insurance for work-related injuries. Workers suffering from work-related injuries or diseases are entitled to benefits for lost wages and medical expenses arising as a result of the injury or disease.
Hospital procedures for workers’ compensation cases vary according to plan. All workers’ compensation cases require a Notice of Injury report to be filed with the employer within a specified period of time. The hospital will submit a claim that summarizes all charges for services required to treat the work-related injury. The payer may require a written report of the patient’s medical condition and treatment. The information submitted by the hospital is used by the payer to verify that the injury was work related.
The health insurance industry has evolved over the past decade and the government has become the largest payer of health care services. In the 1960s a growing concern over the rising cost of health care and limited access to care for the poor and elderly resulted in the implementation of several federally sponsored government health insurance programs. In 1965, through an amendment of the Social Security Act of 1935, health insurance for the aged, called Medicare, was implemented. Another program, Medicaid, was implemented to provide coverage for health expenses to low-income individuals. In 1966, the U.S. Congress created the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), now known as TRICARE, to provide coverage for medical care provided to individuals in the military. Government health care expenditures have increased exponentially over the years. As the largest payer of health care services, the government sets the pace in the health care industry by establishing policies regarding provision of care, processing claims, and payment for services (Figure 11-6).
Hospitals provide health care services to members of various government-sponsored programs. It is important for hospital billing and coding personnel to gain an understanding of various elements of each program. This section provides an overview of key factors in billing for services covered under Medicare, Medicaid, TRICARE, and the Civilian Health and Medical Program of the Veterans Administration (CHAMPVA), including administration, eligibility, coverage, plan options, and coordination of benefits.
Medicare is a federally funded program implemented under Title XVIII of the Social Security Act of 1965 to provide coverage for health care services to the elderly and other specified groups. The purpose of the program is to provide coverage for health care services provided to the following:
Medicare is administered by the Centers for Medicare and Medicaid Services (CMS), a federal agency within the Department of Health and Human Services (DHHS). CMS was formerly known as the Health Care Financing Administration (HCFA). CMS is responsible for three national health care programs that benefit over 81 million Americans:
Two divisions within CMS that are chiefly responsible for the Medicare program are the Center for Medicare Management and the Center for Beneficiary Choices as illustrated in Figure 11-7. The Center for Medicare Management is responsible for the oversight of traditional fee-for-service Medicare. It serves as the focal point for all interactions with health care providers, intermediaries, and carriers for issues relating to CMS policies and operations. Responsibilities of the Center for Medicare Management include the management of fee-for-service administrative contractors and the development of policies regarding coding and payments.
The Center for Beneficiary Choices manages Medicare Advantage Plans, consumer research, and grievance and appeal functions for the Medicare program. The division serves as the focal point for all interactions with beneficiaries, their families, caregivers, health care providers, and others operating on their behalf concerning improving the beneficiaries’ ability to make informed decisions about their health and about program benefits administered by CMS.
A Medicare Administrative Contractor (MAC) is an insurance company or other entity that contracts with the Federal government to handle functions related to enrollment and processing of claims for the Medicare program. Medicare contractors were previously known as fiscal intermediaries (FI) or Medicare carriers. CMS published a notice of change, effective October 1, 2005, stating fiscal intermediaries will be replaced with new contractors referred to as Medicare Administrative Contractors (MAC). From 2006 to today, CMS has awarded contracts through competitive procedures to MACs in 15 jurisdictions. To further improve effectiveness and efficiency, the original 15 jurisdictions are being consolidated into 10 jurisdictions. Contractors may be awarded the contract for Medicare Part A and/or Medicare Part B. Additionally, Medicare awards specialty contracts for durable medical equipment, home health, and hospice. Medicare Administrative Contractors (MAC) may vary by jurisdiction, for example First Coast Service Options, a division of Blue Cross and Blue Shield, is the MAC for jurisdiction “N,” and Noridian Administrative Services is the MAC for jurisdiction “F.” Figure 11-8 illustrates the 10 jurisdictions and provides examples of contractors for several of those jurisdictions. More information regarding MAC jurisdictions can be found on the CMS Web site.
Coverage provided under the Medicare program is defined in four parts: Medicare Part A, Part B, Part C, and Part D, as illustrated in Figure 11-9. Each part of Medicare provides benefits for specific services.
Medicare Part A is referred to as “hospital insurance” because it provides coverage for medically necessary inpatient care provided in a hospital, skilled nursing facility, or a psychiatric facility. Coverage for hospice, home health care, and blood is also provided under Medicare Part A. Medicare Part A coverage is automatically assigned to individuals who are retired and receiving Social Security, railroad retirement beneficiaries, and individuals who are receiving Social Security disability benefits. Medicare Part A does not require the beneficiary to pay a premium unless he or she does not meet the Medicare 10-year covered employment requirement.
Medicare Part A benefits are paid based on a benefit period. A benefit period begins on the first day a patient is admitted to the hospital, as defined by Medicare. The period ends when the patient has not been in the hospital for 60 consecutive days. This period is also referred to as an episode of care. Major categories of coverage under Medicare Part A are:
2. Skilled nursing facility care provided by a Medicare-approved nursing facility. Nursing facility services are covered when the patient is admitted to a nursing facility from a hospital after a minimum stay of 3 days in the facility.
Medicare beneficiaries are required to pay a Medicare Part A deductible and coinsurance. Deductible and coinsurance amounts may change annually. The Part A deductible for 2013 is $1,184.00. The Part A coinsurance requirement is $296.00 per day for inpatient hospital days 61 to 90. The coinsurance requirement for inpatient hospital days 91 to 150 is $592.00 per day. Medicare beneficiaries are entitled to Lifetime reserve days. Lifetime reserve days are 60 days of hospitalization, per lifetime, that the beneficiary may use Reserve days at his or her discretion. Lifetime reserve days may be used to cover patient stays beyond 90 days. The patient is responsible for all hospital charges for stays over 150 days, beyond lifetime reserve days. Table 11-2 illustrates Medicare Part A covered services, amounts paid by Medicare, and the patient’s responsibility for the major classifications of coverage.
|Services||Benefit||Medicare Pays||Patient Pays|
Semiprivate room and board, general nursing, and miscellaneous hospital services and supplies
(Medicare payments are based on benefit periods)
Includes: hospitalization in a hospital, psychiatric, rehabilitation, or long-term care facility
|First 60 days||All but $1,184||$1,184 deductible|
|61st to 90th day||All but $296 a day||$296 a day|
|60 reserve days benefit†||All but $592 each day after 90||$592 a day|
|Beyond 150 days||Nothing||All costs†|
|Skilled Nursing Facility Care|
Patient must have been in a hospital for at least 3 days and enter a Medicare-approved facility generally within 30 days after hospital discharge‡
(Medicare payments based on benefit periods)
|First 20 days||100% of approved amount||Nothing|
|21st to 100th day||All but $148.00 a day||Up to $148.00 a day|
|Beyond 100 days||Nothing||All costs|
|Home Health Care|
Part-time or intermittent skilled care, home health aide services, durable medical equipment and supplies, and other services
|Unlimited as long as Medicare conditions are met and services are declared “medically necessary”||100% of approved amount; 80% of approved amount for durable medical equipment||Nothing for services; 20% of approved amount for durable medical equipment|
Pain relief, symptom management, and support services for the terminally ill
|If patient elects the hospice option and as long as doctor certifies need||All but limited costs for outpatient drugs and inpatient respite care||Limited cost sharing for outpatient drugs and inpatient respite care|
|Blood||Unlimited if medically necessary, after the first 3 pints||All but first 3 pints per calendar year§||For first 3 pints|