Chapter 9 Medical Expense Plans and Concepts

Payment and Benefit Structure: Annual Limit

The maximum a policy will pay for covered losses per year

Types of Limited Policies:

Accidental death and dismemberment Limited Accident Critical illness (Dread disease or limited sickness plans) Hospital income or Indemnity (Cash Payment) Blanket Credit Insurance (credit disability insurance)

HMO Annual open enrollment

After an HMO has been in operation for 24 months, it may have an annual open enrollment period of at least 1 month during which it accepts enrollees up to the limits of its capacity.

Payment and Benefit Structure: Scheduled Payment

A health plan with limits as to what will be paid for covered expenses. These plans are most associated with covering day to day losses based on a specified or flat dollar amount. Scheduled benefit plans are not designed to cover catastrophic losses and have limited annual benefits.

Major Medical Policy: Stop Loss provision (may also be called stop loss limit)

A maximum dollar limit set on the coinsurance to limit the out-of-pocket expense that an insured can incur in a policy year. This may or may not include the deductible. Once the out-of-pocket limit has been reached, the stop loss provision kicks in and the policy will cover 100% of covered losses for the balance of the year

Subscriber

A person applying for coverage through a service provider.

Insured

A person applying for coverage through an indemnity provider.

Classification of Healthcare Plans: Self-Insured (Self-Funded) Plan

A plan offered through employers, associations, or unions who pay claims out of their own funds instead of funding claims through an insurer.

Medical Expense Benefits and Provisions: Prescription Drugs

A prescription drug benefit is most often found in a group health insurance policy. However, some individual health insurance policies may integrate benefits with a medical plan or provide benefits for an additional cost. This benefit may be written requiring a small copayment, a flat amount, or an out-of-pocket percentage for each prescription.

Major Medical Policy: Coinsurance

After the annual deductible has been met, the coinsurance feature applies. Coinsurance is a cost sharing feature and is stated as a percentage of sharing between the insurer and the insured, such as 80/20, 70/30, 60/40. The insurer pays the larger amount

Newborn Infant Coverage

All individual and group health insurance policies, written on an expense-incurred basis, providing coverage for dependents of the insured must provide coverage for the insured's newborn child from the moment of birth. Adopted children are covered at the date of placement for adoption. The coverage must include injury and sickness, including the necessary care and treatment of medically diagnosed congenital defects and birth abnormalities. Notification of birth or adoption and payment of the required premium must be within a month (30-31 days) after the date of birth or adoption, in order to continue coverage; otherwise, the coverage is only for the first month.

Exclusive Provider Organization (EPO)

An EPO is a type of PPO that REQUIRES a subscriber to seek treatment from a network provider. Unlike an HMO, use of a primary care physician and referral to a specialist are not required and the provider is paid a negotiated fee-for-service

Major Medical Policy: Deductible

An initial amount the insured must meet per year before benefits are paid. This applies as per person or family. Deductibles can vary in cost and are designed to allow the insured to assume a portion of the risk. Changing the deductible will affect the premium cost. Higher deductibles result in a lower premium.

Basic Health Insurance Policy

Basic Expense Policies traditionally cover an insured for doctor visits while in the hospital (medical expense),the charges for room and board while hospitalized (hospital expense) and can be expanded to include payment for office visits, diagnostic x-rays, laboratory charges, ambulance, and the cost of the operating room (miscellaneous expense), and the surgeon's fees associated with surgery (surgeon's expense). For an additional premium, maternity benefits may also be provided. Basic Expense Policies typically do not cover routine vision or dental care. The insured is free to choose any physician, surgeon, hospital, or other health care provider. Referrals to specialists are not a requirement for coverage. These policies specify the benefit limit for covered expenses as either a flat dollar amount or a schedule of benefits. The benefit limit may be less than actual expenses incurred. Basic plans do not have a deductible; therefore, they are known as providing "First Dollar" coverage.

The Basic insurance policy characteristics are:

Basic medical expense Basic hospital expense Basic surgical expense

Payment and Benefit Structure: Usual, Customary, Reasonable (UCR)

Benefits are not scheduled, but are based on the average fee charged by all providers in a given geographical area. Many insurers pay the (UCR) amount and the balance of any overcharges or costs of any disallowed services are the insured's responsibility

Dental Insurance: Scheduled (Basic) Plan

Benefits are paid based on a schedule of procedures Benefit maximums are commonly paid on an amount lower than the usual, customary, and reasonable dental charges.

Dental Insurance: Nonscheduled (Comprehensive) Plan

Benefits are paid on a usual, reasonable, and customary basis. Dentures are a major dental expense and would be paid using this benefit provision

Blue Cross and Blue Shield Associations (BCBS)

Blue Cross and Blue Shield are prepaid plans, with plan subscribers paying a set fee, usually monthly, for the services of doctors and hospitals at a predetermined price (negotiated fee). Blue Cross is a hospital service plan with a contractual agreement with the hospital. Blue Shield is a physician service plan with a contractual agreement with the physicians. In most states, the Blues are considered not-for-profit organizations and are regulated under special legislation. They are also given some special consideration by the IRS. The Blues have traditionally offered benefits in the form of services, not indemnity or reimbursement plans. The payments are made directly to the providers under a contractual agreement (fee for service).

Dental Insurance: Combination plans

Combines the benefits of both the Basic and Comprehensive plans. Some procedures are paid based on a schedule while others are paid on a usual, customary, and reasonable basis

Comprehensive Major Medical Policy

Comprehensive Major Medical insurance coverage combines the features of the Basic and Major Medical policy into a single policy. Benefits provide for reimbursement of covered expenses on a "usual, customary, and reasonable" basis. The insured has the freedom to choose any hospital, physician, or surgeon, or other health care providers. This policy requires an initial Flat Deductible that is paid before the Basic plan begins to provide coverage. An additional Integrated Deductible must be met before the Major Medical benefits are payable. This policy provides the most comprehensive coverage of all medical expense plans.

Standard HMO Modes: Staff Model (Closed-Panel)

Contracting physicians are paid employees working on the staff of the HMO. They generally operate in a clinic setting at the HMO's physical facilities. As hospital services are required, staff doctors and HMO administrators arrange for these services. The staff model is considered closed panel since the providers do not work outside of the HMO and subscribers must use the providers on staff for treatment, with very few exceptions. Unlike the group model, practitioners in the staff model are under no financial risk. The HMO, as the employer, takes the risk.

Dental Insurance: Choice of providers

Conventional insured plans offered by insurers • Dental service plans • Blue Cross/Blue Shield • Managed care plans or prepaid dental plans.

Mental Illness and Substance Abuse

Coverage for mental illness and substance abuse will be subject to the same deductibles and coinsurance factors as those that apply to any physical illness. It is provided on an inpatient and outpatient basis and includes the treatment of alcohol abuse and chemical dependency. Many plans will have limitations on the benefits provided on an outpatient basis.

Types of Limited Policies: Credit Insurance (Credit disability Insurance)

Covers a debtor, with the creditor receiving benefits to pay the debt if the debtor becomes disabled as defined in the policy. It is commonly sold as a group plan, however, individual contracts may be written. Coverage may not exceed the total amount of the debt or the amount of the monthly payment.

Major Medical Policy:

Deductible Coinsurance Stop Loss Provision (may also be called stop loss limit) Common Accident Deductible Family Deductible Carryover Provision

Dental Insurance: Types of Dental Care

Endodontics - Services covering dental pulp care and root canals • Orthodontics - Services for teeth alignment and other irregularities of the teeth • Periodontics - Services for the treatment of gum problems and disease • Prosthodontics - Services provide bridgework and dentures • Restorative Care - Services to restore the functional use of natural teeth • Oral Surgery - Surgical treatment of diseases, injuries and jaw defects Benefits may be payable on a Scheduled plan, a Nonscheduled plan or a combination of both.

Major Medical Policy: Carryover Provision

Expenses that did not satisfy the previous year's deductible and were incurred in the last 3 months of that year are used towards satisfying the current year's deductible.

Dependent Child Coverage (Limiting Age Law)

Federal law requires that every policy providing coverage for a dependent child extends coverage up to age 26 (through age 25). This includes natural children, adopted children, married or unmarried, even if eligible for other insurance. There is no requirement for a dependent child to be enrolled as a full time student to qualify.

Standard HMO Modes

Group Model Staff Model ( Closed-Panel) Independent Practice Association (IPA) Model (Open-Panel)

HMO's Basic health care:

HMOs are required to provide basic health care services including the usual physician, hospitalization, laboratory, x-ray, urgent care, emergency and preventive services, and out-of-area coverage for emergency care. Payments are provided to member hospitals on a predetermined basis. Emergency care outside of the network must be covered for necessary services at the nearest emergency room. Physician services include care provided by a primary care physician or primary care provider (PCP) also known as a Gatekeeper. This is a physician who provides both the first contact for a person with an undiagnosed health concern as well as continuing care of varied medical conditions. An HMO will require subscribers to seek treatment through a PCP before seeing a specialist

Major Medical Policy: Family Deductible

If a family is insured, a maximum of 2 or 3 deductibles will satisfy the deductible requirement for the entire family per calendar year.

Major Medical Policy: Common Accident Deductible

If several family members are injured in the same accident, only one deductible is applied.

Types of Limited Policies: Limited accident

Provides benefits for accidental injuries associated with specific events, such as traveling out of the country or on a common carrier.

Limited Policies

Limited health exposures are generally covered by limited policies that specify the exposure to be covered and the amount of the corresponding benefit, such as prescription drugs, vision care, etc. State laws require that the agent/insurer make special note or reminder to the insured regarding the fact that the policy pays only under stipulated conditions.

Payment and Benefit Structure: Blanket Payment

Maximum dollar limit set, with no itemizing of costs, used for groups covered under a blanket policy for a specified period or event.

Payment and Benefit Structure: Prepaid

Medical benefits are provided to a subscriber in exchange for predetermined monthly premiums paid in advance.

Types of Limited Policies: Critical Illness (Dread disease or limited sickness plans)

Provides specific benefits for a specified sickness, such as Cancer Plans and Heart Disease Plans.

Medical Expense Benefits and Provisions: Maternity Benefits

Medical plans will usually cover the "complications of pregnancy" as an illness, but normal birthing costs may be limited or excluded. Maternity benefits typically provide 96 hours of inpatient care following a caesarean section birth. Normal birth inpatient care is 48 hours. A shorter stay may be allowed if approved by the attending physician

Medical Expense Insurance Optional Benefits: Maternity Rider

Medical plans will usually cover the "complications of pregnancy" as an illness, without paying the extra premium for this rider. Normal birthing costs are paid only with this rider added. If the rider is added, a health plan must provide 96 hours of inpatient care following a caesarean section birth. Normal birth inpatient care is 48 hours. A shorter stay may be allowed if approved by the attending physician.

Medical Expense Insurance Optional Benefits: Hearing

Most insurance plans do not cover the cost of hearing aids. Some insurance programs and supplemental programs do provide hearing aid coverage. A few health insurance plans allow you, for an extra premium, to add additional hearing coverage.

Preferred Provider Organizations (PPOs)

PPOs are an arrangement under which a selected group of independent hospitals and medical practitioners become preferred providers in a geographic area. Unlike an HMO prepaid plan, the providers perform services to subscribers and charge a discounted fee-for-service negotiated in advance. Payment is made directly to the provider after treatment is received. The contracting agency or organizer of a PPO might be a commercial insurance company, Blue Cross/Blue Shield, local group of hospitals and physicians, an HMO, large employers, or trade unions. Subscribers have more choices among doctors and hospitals under a PPO arrangement. Subscribers can choose a preferred provider or out of network provider. If an out-of-network provider is utilized, the PPO pays a reduced amount and the subscriber will have a larger out-of-pocket cost. PPOs share the concept of cost reduction by health care management and differ from HMOs in that PPOs do not have separate physical facilities and are less stringently regulated since any group agreeing upon the arrangements may be a PPO.

Payment and Benefit Structure: Cash Or indemnity Payment (Hospital Income)

Pays a specified daily amount up to the stated maximum number of days, or even lifetime. Benefits often double or triple while an insured is confined in an intensive care unit.

Types of Limited Policies: Hospital income or Indemnity (Cash payment)

Pays directly to the insured a specified dollar amount per day during hospitalization. Payment is based solely on the number of days the insured is hospitalized. It pays the daily amount stated in the policy.

The Basic insurance policy characteristics are: Basic Hospital expense

Pays for a hospital room and board (semi-private) with a daily limit of coverage. Miscellaneous hospital expenses are also provided up to a specified limit per day for inpatient x-rays, lab work, operating room expense, medication, and cost of the anesthesia

The Basic insurance policy characteristics are: Basic medical expense

Pays for office visits, diagnostic x-rays, laboratory charges, ambulance and nursing expenses when not hospitalized. Some plans may include coverage for prescription drugs.

The Basic insurance policy characteristics are: Basic Surgical Expense

Pays surgeon and anesthesiologist fees for the cost of a surgical procedure. These policies usually provide benefits based on a surgical schedule to specify benefit limits for each surgical procedure. If a surgery is not listed in the policy, the company will pay based on the coverage of a comparable surgery. Using a relative value scale is another approach that may be used to calculate benefits. This method assigns a number of points and a dollar value per point based on the level and difficulty of a procedure.

Unearned Premium

Portion of a premium for which policy protection has not yet been given.

Earned Premium

Portion of a premium for which protection has already been given.

Common Exclusions from Coverage

Preexisting conditions may be excluded, or subject to a probationary period • Intentionally self-inflicted injuries (suicide) • War or any act of war • Elective cosmetic surgery • Medical expenses payable under Workers' Compensation, or any Occupational Disease Law • Military service and overseas residence • Coverage payable under a government plan • Commission or attempt of a felony

Payment and Benefit Structure: Fee-for-Service

Provides a separate payment to a healthcare provider for each medical service received by a patient.

Types of Limited Policies: Accidental Death and Dismemberment

Provides that the face amount, or principal sum, will be paid if the insured dies due to an accident within 90 days from the date of the accident. The principal sum will also pay if an insured loses total eyesight (both eyes) or the loss of any two limbs, double dismemberment due to an accident. The capital sum, typically 50% of the principal sum, may be paid for the loss of one limb, single dismemberment, or sight in one eye due to and within 90 days of the accident.

Payment and Benefit Structure: Lifetime Limit

The maximum a policy will pay for covered losses during the lifetime of an insured

Payment and Benefit Structure: Per-cause

The maximum a policy will pay for covered losses per claim

HMOs are deemed to be both a health care financing and servicing mechanism. The principal objectives are to reduce medical expenses by:

Stressing preventive medicine through physical exams and diagnostic procedures • Reducing the number of unnecessary hospital admissions • Reducing the average number of days per hospital visit • Reducing duplication of benefits • Saving on administrative costs

Standard HMO Modes: Group Model

The HMO contracts with an independent medical group to provide a variety of medical services to subscribers. Under the agreement, the HMO pays a capitation fee to the medical group entity directly. A capitation fee is a fixed amount paid monthly per subscriber. The medical group will then pay the individual physicians who remain independent of the HMO.

Classification of Healthcare Plans: Indemnity (Reimbursement) Plan

The insured can choose any doctor or hospital without referrals or a primary care physician. The plan requires the insured to pay up front for services, and then submit a claim for reimbursement. The insurer will pay benefits directly to the insured as specified in the policy up to the amount of expenses incurred. Indemnity plans are generally marketed through commercial insurers.

Classification of Healthcare Plans: Service Plan

The plan pays benefits directly to the providers of health care rather than as a reimbursement to the subscriber. Plan participants are called subscribers and pay a premium or subscription fee. Service plan providers include Blue Cross and Blue Shield, Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point of Service plans (POS). The plans can be prepaid or have a contractual agreement with a healthcare provider to accept a negotiated fee for services.

Service Area

The primary geographical area of coverage and service provided by a Health Maintenance Organization (HMO).

Point of Service (POS)

These Plans combine PPO and HMO benefits. Members can choose (at the point of service) which part of the plan to use. If the subscriber stays in network (open-panel HMO), benefits are paid as an HMO. A Primary Care Physician, or gatekeeper, will apply and referrals will be necessary if the plan is being utilized as an HMO. If the subscriber uses an out-of-network provider, they will have a higher out-of-pocket responsibility. This feature is similar to an indemnity plan and the provider will be paid based on a fee-for-service.

Types of Limited Policies: Blanket

This coverage is sold to organizations whose need to cover specific persons varies, such as common carriers, camps, amusement parks, schools, and athletic teams. It may provide disability income and/or medical and surgical benefits as excess coverage over any primary health insurance coverage. Blanket insurance is not individually underwritten and no certificate or policy is issued to anyone other than the contracting organization.

Standard HMO Modes: Independent Practice Association (IPA) model (Open-Panel)

This model gives HMO members the maximum freedom of choice of physicians and locations because the HMO is allowed to contract with a network of independent physicians who are part of an independent practice association. Physicians operate out of their own private offices and subscribers may be individuals the physicians were already treating. Payment to physicians is by capitation (per subscriber) or on a fee-for-service basis negotiated in advance. Since the IPA model contracts with physicians in private practice who also treat non HMO patients, this is considered an open panel plan.

Supplemental Major Medical Policy

This plan provides for Major Medical coverage designed to supplement a Basic Plan. It is written to pay benefits once the Basic Plan benefits are exhausted. The Basic Plan provides first dollar coverage. Once the Basic Plan benefits are exhausted, a Corridor Deductible is required to be paid before the start of coverage under the Supplemental Major Medical plan

Medical Expense Insurance Optional Benefits: Vision Care

This provides for 1 routine annual examination (refraction). It may provide payment for the cost of lenses, frames, contact lenses, but not the cost to replace frames or lenses that are lost or broken. It does not pay for sunglasses or safety glasses. This coverage does not pay for medical expenses incurred from disease or injuries to the eye.

Health Maintenance Organizations (HMOs)

is regarded as a managed health care system providing a comprehensive array of medical services on a prepaid basis, which means little or no out-of-pocket expenses. Members enrolled in managed care plans are called subscribers, as opposed to insureds. All subscribers must live within a specific geographic region called the service area. The HMO has a contract with medical providers within the service area and subscribers must seek treatment from a contracted provider. Typically, the HMO provider is paid a set fee, known as a capitation fee, per enrollee.Coverage will not be provided outside the service area, except in cases of an emergency. HMOs emphasize preventive medicine by providing prepaid routine medical exams, wellness programs, and diagnostic screenings. Early detection of a condition reduces unnecessary procedures, surgeries and hospitalizations.

Dental Insurance: Exclusions

• Purely cosmetic services (unless necessitated by an accident). • Replacement of prosthetic devices. • Duplicate dentures or prosthetic devices. • Oral hygiene instruction or training. • Occupational injuries covered by Workers' Compensation. • Services furnished by or on behalf of government agencies. • Certain services that began prior to the date of coverage.