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Chapter 10

Traditional Medical Expense Plans

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Traditional Providers

• Insurance companies• Blue Cross and Blue Shield• Self-funding (covered in more

detail in chapter 16)

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Blue Cross and Blue Shield

• Blue Cross established by hospitals; Blue Shield by physicians

• Each had national governing boards which eventually merged

• 41 plans in existence; some are only Blue Cross or Blue Shield, but most are both

• Many plans operate in a single state, but several plans are multistate

• Boards now dominated by nonproviders such as labor unions, consumer organizations, foundations, and the general public

• Traditionally not-for-profit, but several plans have changed to for-profit status

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Insurance Companies

• Most coverage is written by life insurers; few companies specialize in health insurance only

• Write more coverage than the Blues

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Comparison of Insurers and the Blues—

• Traditionally There Were Significant Differences, But as Time Goes on They Are Becoming More Alike

• Regulation and taxation• The Blues are usually regulated

under special legislation and are often exempt from premium taxation but are subject to other more stringent regulations, such as prior approval of rates

• The Blues have more favorable income tax treatment, but they are no longer exempt

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Form of benefits

• Traditionally the Blues have provided service benefits, and insurers have provided indemnity

• Service benefits• Services promised to subscribers• Provider under contractual agreement to

provide services• Usually no claim forms

• Indemnity benefits• Insured gets treatment and submits copy

of bill to insurer• Insurer reimburses insured (or other

party if benefits assigned)• Some of the Blues now have some

indemnity plans while some insurers have arrangements involving service benefits

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Types of benefits

• Little difference any more; both write all types of medical expense coverage

• Insurers have slight advantage in that they are more likely to be able to handle other benefit programs of the employee

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Reimbursement of providers

• The Blues pay hospital on a per diem basis not actual charges

• The Blues often receive hospital discounts which in effect forces non-Blue patients to pay more

• The Blues often reimburse physicians at less than actual charges, as do many insurers under their managed care plans

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National coverage

• While insurers once had competitive edge, it now rests with the Blues• Flexibility: Insurers typically

offer employers more flexibility in designing own contract

• Rating: little difference because the Blues now also use experience rating for larger groups

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Marketing

• The Blues have lower acquisition expenses; most coverage is sold by salaried employees

• The Blues now often use agents to sell coverage, but commission rates are less than those of insurance companies

• Today’s environment: Insurers and the Blues are heavily into managed care

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Hospital Expense Benefits

• Room and board• Covers semiprivate room,

meals, and routine services provided to all patients

• Duration of benefits can vary from 31 to 365 days

• Amount of benefit can be expressed as

• Flat amount or• Cost of semiprivate

accommodations

• Additional benefits often provided for intensive care

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Other charges

• These include items like drugs, operating room charges, and X-rays

• Methods for determining benefits• Full coverage up to dollar

maximum• Full coverage up to dollar

maximum and partial coverage for some additional expenses

• Full coverage as long as room-and-board benefits are payable

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Outpatient benefits

• Facility charges for surgery• Emergency room treatment

within a specified period following an accident

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Surgical Expense Benefits

• Covers physicians’ charges associated with surgery

• Surgery defined to include items such as suturing, electrocauterization, and treatment of fractures or dislocations

• Covers both inpatient and outpatient surgery; latter may be encouraged by higher benefits

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Benefits

• Newer contracts cover assistant surgeons and anesthesiologists as well as primary surgeon

• Benefit amounts may be based on• Fee schedule• Reasonable-and-customary

charges—typically up to some percentile of charges within a geographic region

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Physicians’ Visits Expense Benefits

• Covers charges of physicians other than surgeons

• May be for in-hospital visits only or for both in-hospital and out-of-hospital visits

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Types of Major Medical Coverage

• Supplemental—an add on to basic coverage• Covers expenses not within

scope of basic coverage• Covers expenses no longer

covered under basic coverage because benefits exhausted

• Covers expenses excluded by basic coverage

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Comprehensive—incorporates basic coverage

• Most new plans are comprehensive which are easier to administer and communicate than are supplemental plans.

• Reasons for using supplemental• To use more than one provider of

coverage. Most often an insurance company plan to supplement basic coverage provided by the Blues

• To provide first dollar coverage• To use different employer contribution

rates for the basic coverage and the major medical coverage

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Figure 10.1

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Figure 10.2

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Covered Major Medical Expenses

• Types (some examples)• Hospital room, board, and other

charges• Possibly benefits for care in other

facilities or at home• Outpatient surgical center charges• Physicians• Prescription drugs• Therapy• X-rays and laboratory services• Artificial limbs and organs• Medical supplies and equipment• Ambulance services

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Exclusions (some examples)

• Occupational injuries or diseases to extent covered by workers’ compensation

• Services furnished by governmental agencies

• Cosmetic surgery, except as required by the Women’s Health and Cancer Rights Act, unless it corrects an accidental injury or birth defect

• Most routine physical exams• Convalescent, custodial or rest

care

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Exclusions examples (cont.)

• Dental care except treatment because of injury to natural teeth or hospital charges associated with confinement for dental surgery

• Routine eye examinations• Preexisting conditions: Usually defined

as condition for which treatment was received within 3 months prior to eligibility for coverage; exclusion ceases after earlier of (1) 3 consecutive months without treatment or (2) 12 months of coverage under the contract (HIPAA rules for preexisting conditions are covered in chapter 14)

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Table 10.1

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Limitations (some examples)

• Hospital room and board: cost above semiprivate accommodations

• Extended-care facilities, home health-care benefits, hospice benefits: daily dollar limitations and/or limited durations

• Mental and nervous disorders, alcoholism, and drug addiction

• Inpatient benefits traditionally limited by duration; outpatient benefits limited by coinsurance and dollar amounts per visit or annually

• Under Mental Health Parity Act, employers with more than 50 employees cannot have plans that have dollar limits on mental health benefits less than those applying to other health benefits; the act allows other types of limitations and does not apply to benefits for alcoholism or drug addiction

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Major Medical Deductibles

• Definition: The initial amount of covered expenses an individual must pay before benefits are paid

• Types• Initial: First X dollars• Corridor: $ amount in excess of

basic coverages before major medical pays

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Amounts

• $100 to $500 are common• Sometimes equal to percentage

of salary, subject to maximum• All-causes deductible: Must be

satisfied only once during given period, usually a calendar year

• Per-cause deductible: Must be satisfied for each illness or disability; much less common than all-causes deductible

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Amounts (cont.)

• Family deductible: Maximum amount that family must pay out of pocket before all deductibles are waived

• Most common is to have it satisfied when two or three family members satisfy individual deductibles

• Sometimes a dollar amount

• Common accident provision: No more than one individual deductible must be satisfied if several family members injured in accident

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Frequency

• Usually calendar year

• Expenses to which deductibles apply• Usually one deductible applies

to all expenses• A plan may have two or more

deductibles that apply to separate expenses. Example: $50 deductible for hospital; $100 for other expenses

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Major Medical Coinsurance

• Insured pays a specified portion of medical expenses that exceed the deductible; 75-85 percent is normal

• One coinsurance percentage may apply to all expenses

• Separate coinsurance percentages may apply to different expenses

• When employee has little control over certain expenses

• When there is a desire to provide first-dollar coverage for some expenses

• When there is a desire to encourage the use of cost-effect treatment

• Most policies contain a stop-loss limit which is an amount of covered expense above which insurer pays 100 percent

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Major Medical Maximum Benefits

• Lifetime maximum• Usually varies from $1 million to $2

million, but may be unlimited• Benefits reduce lifetime maximum• Some policies also have internal

lifetime maximums for some types of expenses, such as treatment for mental or nervous disorders

• Per-cause maximum• Used only if deductible on per-cause

basis• Separate maximum applies to each

cause

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Managed Care in Traditional Plans

• Preadmission testing• Done on an outpatient basis prior to

surgery• Paid even if admission cancelled

• Hospital precertification• Patient or physician required to obtain

certification prior to admission or shortly thereafter in case of emergency admission

• Certification determined by reviewer who authorizes length of stay; approval needed for extension of stay

• Benefit usually reduced if procedure not followed

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Second surgical opinions

• Purpose: To eliminate unnecessary surgery

• Voluntary• Second opinion covered,

possibly for larger benefit• Third opinion may be covered if

first two disagree• Mandatory

• Other opinions covered• Benefits reduced if surgery

performed without second opinion or contrary to final opinion

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Alternative facilities for treatment

• Extended-care facility benefits• Requirements to obtain

• Recommeded by physician• Need for 24-hour-a-day nursing care• Within 14 days of prior hospital stay

of at least 3 days or 14 days of prior confinement in extended care facility

• Confined for same or related condition that resulted in hospitalizationb. Benefit may be provided in full or up to specified dollar amount, usually for a specified maximum duration

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Alternative facilities for treatment (cont.)

• Home health care benefits• Must be ordered by a physician

following hospitalization• Coverage includes

• Nursing care• Physical, occupational, and speech

therapy• Medical supplies and equipment

• Benefits usually some percentage of reasonable-and-customary charges up to maximum number of visits or days

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Alternative facilities for treatment (cont.)

• Hospice benefits• For terminally ill person• May be provided in separate facility

or at person’s home• Result in lower expenses than

hospitalization• Birthing center

• Lower cost alternative to hospital• Benefits paid at same or higher level

than if mother hospitalized

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Preapproval of visits to specialists

• Attempts to minimize use of specialists and emergency rooms when treatment can be provided by primary-care physician

• Primary-care physician does not certify visit to specialist, but must be made aware of the visit

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Preventive care (examples)

• Well-baby care• Childhood immunizations• Mammograms• Possibly routine physicals

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Alternative Medicine

• Used by over half the population

• Often recommended by physicians

• Examples• Acupuncture• Chiropractic feedback• Herbal medicine• Hypnosis• Vitamin therapy• Yoga

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Alternative Medicine (cont.)

• Reasons for attractiveness• Patient rapport with practitioners• Involvement of patients in the

development of treatment plans and likelihood of patients to follow treatment plans

• Complications less likely than with traditional medicine

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Cost controls

• Annual or lifetime dollar limits• Limits on number of visits• Treatment only for specified

medical conditions• Referral from primary-care

physicians