Health insurance basics
Introduction
Much like the rest of the healthcare world, the health insurance industry has its own vocabulary. It is important for you, as a medical assistant, to become familiar with the terminology associated with health insurance, as patients may ask you to explain things even if you are working on the clinical side of medical assisting.
Benefits are also an area that can be very confusing for patients. Having that basic understanding of health insurance benefits will make you a better advocate for your patients.
Basic insurance terminology
A health insurance policy is purchased with a premium or payment. The premium can be paid by an individual, an employer, or a combination of employer contribution and individual (employee) contribution.
The policy is considered a legal contract and will stay in force as long as the premium is being paid. The policy will specify exactly what services are covered. The more services that are covered, the higher the premium cost. The person responsible for the payment of the premium is referred to as a subscriber.
Regardless of who pays the premium, most policies require the patient to pay a portion of the healthcare expenses. This is referred to as cost-sharing, which includes the following:
- Deductible: A set dollar amount that the policyholder must pay before the insurance company starts to pay for services. It can be as low as $100 and as high as $5000. The higher the deductible, the lower the premium.
- Co-insurance: After the deductible has been met, the policyholder may need to pay a certain percentage of the bill, and the insurance company pays the rest. A typical split is 80/20 - the insurance company pays 80%, and the policyholder pays 20%.
- Copayment: A set dollar amount that the policyholder must pay for each office visit. Copayments may differ for different types of office visits. For example, there can be one copayment amount for a primary care provider and a different copayment amount (usually higher) to see a specialist or to be seen in the emergency department.
- Out-of-pocket maximum: The most the policyholder can be required to pay for covered services in a plan year. Deductible, co-insurance, and copayment amounts all count toward it; premiums do not. Once the policyholder reaches this limit, the insurance company pays 100% of the cost of covered services for the rest of the year.
The policy will specify the dollar amounts for the deductible, co-insurance, and copayment.
In order for the insurance carrier to pay for services, a claim must be submitted. The insurance company then reviews the claim to determine if the services provided are covered under the policy. It is important for a medical assistant to be familiar with the different types of insurance so that claims can be submitted accurately. This will result in faster payment for the healthcare facility.
Benefits
The Affordable Care Act requires most health plans - non-grandfathered plans sold in the individual and small-group markets - to cover essential health benefits. (Grandfathered plans and large-group or self-insured employer plans are generally not subject to this requirement.) There are 10 categories of essential health benefits:
- Ambulatory patient services
- Hospitalization
- Mental health and substance use disorder services
- Prescription drugs
- Preventive and wellness services and chronic disease management
- Emergency services
- Maternity and newborn care
- Rehabilitative and habilitative services and devices
- Laboratory services
- Pediatric services, including oral and vision care
In addition to the essential health benefits, an insurance policy may cover other services. For a group policy, an employer can pick and choose the benefits it wants for employees, such as vision or dental coverage. Medical assistants should contact an insurance company to determine if certain services are covered under a patient’s policy.
Health insurance in the United States comes in two types - government plans and private plans - and follows two basic models: traditional (fee-for-service) insurance and managed care organizations. You’ll find both models offered in employer group plans and individual plans alike.
Traditional health insurance
Traditional health insurance plans pay for all or a share of cost of covered services, regardless of which provider, hospital, or other licensed healthcare provider is used. Because providers are paid for each office visit, test, procedure, or other services they deliver, traditional insurance plans are often called fee-for-service plans. This was the first type of health insurance. Traditional health insurance plans provide the most flexibility for the patient but are also the costliest option.
Policyholders of fee-for-service plans and their dependents choose when and where to get healthcare services. When the policy is purchased, the subscriber is often given a fee schedule, which explains the benefit payment amounts. Benefits are usually paid to the insured unless that person has authorized payment to be made directly to the provider. This is referred to as the assignment of benefits.
The fee schedule amounts can be determined by a process called usual, customary, and reasonable (UCR). UCR is the amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar service.
Value-based payment
Traditional fee-for-service insurance, as described above, pays a provider a separate fee for every visit, test, or procedure performed, so the provider’s payment rises with the volume of services delivered regardless of whether those services actually improve the patient’s health. Value-based payment takes a different approach: it ties what a provider is paid to the quality of care delivered, the outcomes patients experience, and the overall cost of that care, rather than to how many services were rendered. The Centers for Medicare & Medicaid Services (CMS) Innovation Center describes value-based care as healthcare “designed to focus on quality of care, provider performance and the patient experience.” The goal is to reward providers for keeping patients healthy and catching problems early, instead of simply rewarding more treatment regardless of whether it helped the patient.
Several common arrangements fall under this model:
- Pay-for-performance: Payments are adjusted up or down based on how well a provider performs on quality measures. Medicare’s Merit-based Incentive Payment System (MIPS) is one example.
- Bundled (episode) payment: A single payment covers all the services delivered for an entire episode of care, such as a hip or knee replacement, instead of billing each service separately.
- Shared savings: A group of providers, such as an accountable care organization (ACO), shares in the savings it generates when it meets quality standards while spending less than expected.
Value-based payment matters to you as a medical assistant because the quality measures behind these arrangements are pulled directly from the patient record. Thoroughly documenting screenings, immunizations, blood pressure readings, and patient education, scheduling timely follow-up visits, and reminding patients of overdue preventive care all directly affect what the practice is paid under these arrangements.
Managed care organizations
Managed care organizations (MCOs) are health insurance companies whose goal is to provide quality, cost-effective care to their members. MCOs negotiate reduced rates with contracted providers and hospitals. In return, the managed care plan increases the provider’s patient load. Many MCOs require the patient to choose a primary care provider (PCP) who coordinates the patient’s care. Managed-care plans can also require referrals for their patients to be treated by a specialist, thus limiting patient access to more expensive care. The preauthorization process can further control patient care costs. Medical care, testing, or medication therapy is provided only when it is justified by the health insurance plan. It is important for medical assistants to be familiar with the various models of managed care to understand their effects on healthcare costs fully.
Models of managed care organizations
Patient care is coordinated through a network of providers and hospitals. There are different types of managed care plans, such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), exclusive provider organizations (EPOs), and point-of-service (POS) plans. They provide healthcare in return for scheduled payments and coordinate healthcare through a defined network of PCPs, hospitals, and other providers.
Health maintenance organization
HMOs are health plans that are regulated by HMO laws, which require them to include preventive care as part of their benefits package. The goal of the HMO health insurance plan is to reduce the cost of healthcare while still providing quality healthcare. HMO plans typically have the lowest monthly premiums among other health insurance plans. The patient’s out-of-pocket expenses are also very low. Patients are typically not required to pay a deductible or co-insurance.
Patients are required to select a PCP, who acts as the gatekeeper to more specialized care. The insurance plan will not pay for services that are not included in its provider network; patients are 100% financially responsible for medical expenses incurred outside the HMO network of providers. For example, patients wanting to visit the dermatologist for eczema must visit their PCP first; they would be fully responsible financially if they made an appointment with a dermatologist directly. The PCP can either treat patients or refer them to a specialist.
PCPs receive financial incentives when they reduce the cost of patient care. In the earlier example, prescribing medicine to the patient is more cost-effective than referring the patient to a specialist. HMOs typically require the following:
- Referrals from the PCP to specialists
- Pre-certification and preauthorization for hospital admissions, outpatient procedures, and treatments
HMOs can be set up using several models. The payment structure can be different for each of those models.
Preferred provider organization
A preferred provider organization (PPO) contracts with a network of providers and hospitals that agree to discounted rates for the plan’s members. Unlike an HMO, a PPO does not require the patient to select a PCP, and a referral is not needed to see a specialist. A PPO also pays for care received outside the network, but the patient is responsible for a larger share of the cost, through a higher deductible, a higher co-insurance percentage, or both. In exchange for that flexibility, PPO premiums are typically higher than HMO premiums.
Exclusive provider organization
An exclusive provider organization (EPO) combines features of the other two models. As with a PPO, the patient usually does not need a referral to see a specialist. As with an HMO, the plan pays only for care delivered inside the network, and the patient is responsible for the full cost of out-of-network care except in a true emergency. EPO premiums generally fall between HMO and PPO premiums.
Point-of-service plan
A point-of-service (POS) plan combines the other two models and lets the patient choose between them each time care is needed - at the point of service. As with an HMO, the patient selects a PCP and needs a referral to see a specialist, and care delivered inside the network costs the least. As with a PPO, the plan does pay for care received outside the network, but at a lower rate, so the patient carries a higher deductible and co-insurance for going out. POS premiums generally fall between HMO and PPO premiums.
Health insurance plans typically cover health services and procedures that are deemed medically necessary. Medically necessary services are those that are proper and needed for the diagnosis or treatment of the medical condition. Most insurance policies do not cover elective procedures. Elective procedures are medical procedures that are not deemed medically necessary, such as a facelift or another cosmetic procedure. The Affordable Care Act (ACA) states that health insurance plans must cover preventive care. Preventive care includes services provided to help prevent certain illnesses or that lead to an early diagnosis. Insurance companies must cover preventive care services and cannot impose cost-sharing for those services.
Preventive care services
Examples of covered preventive care services include:
- Blood pressure and cholesterol screening
- Immunization vaccines
- Colorectal cancer screening
- Diabetes (type 2) screening
- Tobacco use and alcohol misuse screening
- Obesity screening and counseling