The subject matter of Chapter 6 is traditional fee-for-service insurance, sometimes referred to as indemnity, private, or commercial insurance. Traditional, indemnity, fee-for-service, private, commercial, self-insurance—Emilio and Latisha are amazed that so many different terms can be interrelated. Blue Cross and Blue Shield insurance is a type of insurance they are both familiar with. As Emilio put it, “Who hasn’t heard of ‘The Blues’?” Emilio’s parents currently have a Blue Cross and Blue Shield health insurance policy, and Emilio is still covered on it. Latisha’s husband has a family plan with Liberty Value Insurance Company, a commercial carrier, through his employer. The term “commercial” did not have much meaning to Latisha until now, and she is looking forward to learning more about it.

Fee-for-service (FFS), or indemnity, insurance is a traditional type of healthcare policy. The insurance company pays fees for the services provided to the individuals covered by the policy. As discussed in an earlier chapter, this type of health insurance offers the most choices of physicians and hospitals. Typically, patients can choose any physician they want and can change physicians at any time. Additionally, they can go to any hospital in any part of the United States and still be covered. The “Blues”—Blue Cross and Blue Shield—are the best-known providers of fee-for-service health insurance, although they are not the only ones.

To review, we know why people need health insurance. Today’s healthcare costs are continually rising, and individuals need to protect themselves from catastrophic financial losses that result from serious illnesses or injuries. If you have health insurance, a third-party payer covers a major portion of your medical expenses. A third-party payer is any organization (e.g., Blue Cross and Blue Shield, Medicare, Medicaid, or commercial insurance company) that provides payment for specified coverages provided under the health insurance plan. Many Americans obtain health insurance through their employment, through what is referred to as group insurance. Group insurance is a contract between an insurance company and an employer (or other entity) that covers eligible employees or members. Group insurance is generally the least expensive kind. In many cases, the employer pays part or, in some cases, all of the cost.

If an employer does not offer group insurance or if the insurance offered is very limited, a wide variety of individual, private policies is available. Two basic categories are available in individual health insurance—a FFS plan and some type of managed care plan. A managed care plan typically involves the financing, managing, and delivery of healthcare services and is comprised of a group of providers who share the financial risk of the plan or who have an incentive to deliver cost-effective, but quality, service. It is important that people weigh the options carefully when choosing an individual healthcare plan because coverage and costs and how comprehensive the coverage is vary considerably from one insurance company to another.

HIPAA Tip

Although HIPAA makes it much easier for an individual to get health insurance from a new employer when switching jobs, it does not guarantee the same level of benefits, deductibles, and claim limits the individual might have had under the former employer’s health plan.

Looking more closely at these two broad categories of insurance, we find four basic types of plans, as follows:

1. Traditional FFS/indemnity plans

2. Preferred provider organization (PPO) plans

3. Point-of-service (POS) plans

4. Health maintenance organization (HMO) plans

No one type of healthcare plan is universally better than the other. It depends on an individual’s (or group’s) needs and preferences. FFS health plans can cover everything, but the tradeoff is the cost. The autonomy, or the freedom to choose what medical expenses will be covered, offered by FFS plans is attractive to some, whereas others prefer the lower costs associated with most types of managed care.

Traditional FFS insurance is gradually becoming less popular as managed care moves to the forefront in healthcare. For individuals who value autonomy and flexibility of choices and can afford to spend a little extra money for the type of coverage they prefer, however, an individual health insurance policy may be the best plan.

FFS healthcare offers unlimited choices. The policyholder (the individual in whose name the policy is written) controls the choice of physician and facility, from primary caregiver to specialist, surgeon, and hospital. Flexible coverage offered by the FFS usually allows immediate treatment for medical emergencies or unexpected illness. FFS health plans do have restrictions, however. Often, they do not cover preventive medicine, so the costs of checkups, routine office visits, and injections (among a few other services) are likely to be the patient’s responsibility. This can make FFS insurance impractical for a large family that requires many routine visits and a lot of preventive care. The Patient Protection and Affordable Care Act (March 2010), a part of the new Healthcare Reform legislation, has changed this situation. For those who purchased or joined a new plan on or after September 23, 2010, the insurance company must cover certain recommended preventive services without charging out-of-pocket costs. Under this act, services such as mammograms, colonoscopies, immunizations, prenatal and new baby care are also covered, and insurance companies will not be allowed to apply deductibles, copayments or coinsurance for these services.

Imagine This!

Maria Solaris is 52 years old and has worked out of her home as a self-employed health insurance professional for 10 years. In January 2011, Maria became employed at Mid-Prairie Health Clinic; she joined the clinic’s group health plan, which had a $1000 deductible clause in the policy. Because of a family history of colon cancer, Maria decided to have a colonoscopy in February of that same year. In keeping with the rules of the new healthcare reform bill, even though she had not yet met her deductible, the clinic’s policy paid for the procedure in full.

Choice does not come cheap. Although it is hard to predict the annual cost of healthcare under a FFS insurance plan, a few costs are relatively standard, as follows:

• A periodic payment (monthly or quarterly), called a health insurance policy premium

• A yearly deductible (out-of-pocket payment) before the health insurance carrier begins to contribute

• A per-visit coinsurance, or percentage of healthcare expenses

As a rule, healthcare services that are not covered by the health insurance policy (e.g., checkups) do not count toward satisfying the deductible. FFS health plans are not all created equal. There are three levels of coverage available:

1. Basic health insurance, which includes:

• Hospital room and board and inpatient hospital care

• Some hospital services and supplies, such as x-rays and medicine

• Surgery, whether performed in or out of the hospital

• Some physician visits

2. Major medical insurance, which includes:

• Treatment for long, high-cost illnesses or injuries

• Inpatient and outpatient expenses

3. Comprehensive insurance, which is a combination of the two.

The cost of the FFS plan varies with the level of coverage chosen—the better the coverage, the higher the premiums, and the higher the deductible, the lower the premium. Although indemnity health insurance plans offer choice and security, these advantages are reflected in the cost of the coverage.

What Did You Learn?

1. Name the four basic types of insurance plans.

2. What main advantage does an individual (private) insurance plan offer?

3. What preventive services must be covered under the new Healthcare Reform legislation without the insurance company’s applying deductibles, copayments, or coinsurance?

4. List the various levels of coverage available under an FFS plan.

How a fee-for-service plan works

With an FFS type of plan, the policyholder pays a periodic fee, or premium. In addition to the premium, an out-of-pocket amount must be paid before the insurance payments begin. This is called the deductible. In a typical plan, the deductible might be anywhere from $100 to $10,000. Most family plans require the deductible be paid on at least two people in the family. The deductible requirement applies each year of the policy, and not all healthcare expenses count toward the deductible—only the expenses specifically covered by the policy. After the deductible for the year has been met, the policyholder or dependents share the cost of services with the insurance carrier. The patient might pay 20% of covered expenses incurred that qualify for reimbursement under the terms of the policy contract, whereas the insurer pays 80%. This type of cost sharing is referred to as coinsurance.

Most FFS plans have an insurance cap (in some plans, it is called a “stop loss”), which limits the amount of money the policyholder has to pay out of pocket for any one incident or in any one year. The cap is reached when out-of-pocket expenses for deductibles and coinsurance total a certain amount. This amount may be $1000 or $5000. After the “cap” is reached, the insurance company pays the reasonable and customary amount in excess of the cap for the items the policy says it will cover and coinsurance provision does not apply. (The cap does not include the premiums.)

Prior to the Healthcare Reform Act, many FFS policies had a lifetime maximum cap, an amount after which the insurance company would not pay any more of the patient’s medical bills. It could be a “per incident” cap or a “lifetime” cap, depending on the policy. These caps were typically quite high, ranging from $500,000 to $2 million. One of the provisions of healthcare reform was the removal of these lifetime caps on insurance.

Most insurance plans pay the reasonable and customary fee for a particular service. The term “reasonable and customary” is used to refer to the commonly charged or prevailing fees for health services within a geographic area. A fee is generally considered to be reasonable if it falls within the parameters of the average or commonly charged fee for the particular service within that specific community. If the healthcare provider charges $1000 for a specific procedure, but most other providers in the same geographic area charge only $600, the policyholder may be billed for the $400 difference. If the provider is a participating provider (PAR), one who participates through a contractual arrangement with a healthcare service contractor in the type of health insurance in question, he or she agrees to accept the amount allowed by the carrier as payment in full. The policyholder does not have to pay the $400 difference—it is adjusted off, which means the provider absorbs this difference in cost.

Imagine This!

Jim Benson is seen in Dr. Mueller’s office for the removal of a benign cyst of the right hand and is charged $125 for the procedure; however, his insurance carrier’s allowed fee for this procedure is only $95. Jim has a 20/80 coverage plan and has met his yearly deductible. The difference between the two charges, or $30, is deducted from the original charged amount, resulting in an insurance payment of $76. If Dr. Mueller is a PAR with Jim’s insurance carrier, the $30 difference between the original charge and the insurance carrier’s allowed charge would have to be adjusted off of Jim’s bill. If Dr. Mueller is nonPAR, he could bill Jim for this difference. Jim is still responsible for his 20% share of the allowed charge, or $19.

Stop and Think

Dr. Mueller, a family practitioner, asks you, his health insurance professional, for your opinion as to whether or not he should sign a contract and become a PAR for Western United Insurance. Olympia Products, a manufacturing plant employing 1350 people in the same city, has a group policy with Western United. What is your opinion?

What Did You Learn?

1. What is an “insurance cap”?

2. How is a “lifetime maximum cap” different from an “insurance cap”?

3. With a PAR, what happens to any balance owing after the patient has paid his or her deductible and coinsurance and the insurer has paid the “allowable” fee?

Health care reform and preexisting conditions

We talked about preexisting conditions in Chapter 4—physical or mental disorders that existed before a health insurance policy was issued for which the applicant (or one of his/her dependents) received treatment by a healthcare provider. Preexisting conditions are excluded from coverage under some policies, or a specified length of time must elapse before the condition is covered, typically anywhere from 30 days to 2 years. The Patient Protection and Affordable Care Act changed the preexisting condition requirements. Effective September 2010, children younger than 19 years with preexisting conditions may not be denied access to their parents’ health plan because of a preexisting condition. In line with this change, insurers are no longer allowed to insure a child and, at the same time, exclude healthcare services for that child’s preexisting condition. Beginning in 2014, this provision will apply to adults as well. Until 2014, however, the preexisting condition exclusion factor is still applicable for adults, and health plans may issue a policy conditionally by providing a preexisting condition exclusion period.