Understanding Your Medical Insurance: A Health Plan Primer

Episode In Depth

In this episode, we discuss health insurance coverage with an eye toward understanding carrier positions, avoiding denials, or what areas are open to appeal.

Under the law, you are required to receive a Summary of Benefits and Coverage (SBC) which gives the basics of your medical coverage and provides examples. Still, not everything is covered in detail.

The document that does cover everything is usually more than 125 pages long – and even then, lacks context, examples, and even a thorough explanation of some of the terminology. This is called the Evidence of Coverage (EOC)

A lot of the definitions now, the way they are described and the plan designs that apply, have come about due to the passage of the Affordable Care Act (ACA), sometimes referred to as “Obamacare.” Under the ACA, four different plan designs are sold in the market, with some minor variations allowed within a certain class. Those classes are Platinum, Gold, Silver, and Bronze plans. Others are being suggested (e.g., Copper) to allow a “skinnier” version of a medical plan with less required provisions included.

In addition to an SBC or EOC, the other document with which to contend is the Explanation of Benefits (EOB). This is produced to show evidence of claim submission and how the final payment details are derived, along with where payment has been directed. The EOB is often mailed, but some carriers provide patients access to their own portal online, under which they can review and print the EOB.

Primary Medical Insurance Terminology

Deductible

This is the dollar amount for which a patient is responsible in a given plan year.
Most of the time, the “plan year” is simply the calendar year, but that is not always true.
After the deductible is met, the plan typically pays a percentage of claims to an upper limit.

Example:
Your plan has a calendar year deductible of $250 and your claim is for $500.
You pay $250. After that, the carrier pays according to its coinsurance or
copayment schedule.

Coinsurance

After the deductible is met, the carrier pays a percentage of the claim. This can vary by plan design and whether you are using a listed provider (PPO) or not. Usually this is 80% when using a PPO provider and 50% if the provider is unlisted, but there are a host of variations.

Example:
Plan has a calendar year deductible of $250 and coinsurance of 80%.
Your claim is for $500
You pay $250 – the deductible. The carrier pays 80% of the next $250, or $200. You owe $50.
Therefore, you pay $250 (deductible) plus $50 (coinsurance) for a total of $300.

Copayment

Not every medical expense is subject to a deductible. A co-payment is simply a dollar amount that is paid, as the maximum amount due, for a particular medical service. They most often apply to office visits, hospitalization (usually with an HMO) and prescription drugs. There may or may not be a deductible that needs to be met before a co-payment is made – that is usually seen with regard to prescription drug coverage. Typically, the co-payment is stated and paid and there is no more financial responsibility for you as the patient. So, it’s important to read your SBC carefully to know when and how co-payments will apply.

Example:
You have a $10 Co-Payment for an office visit. When you see your doctor, you pay $10

This is not, however, that simple. The co payment is for the “visit” only. If the doctor “codes” other services (e.g., a lab test) that charge may go to the deductible.

Here is where things get a bit tricky, not least because it goes by three different names: Out of Pocket Maximum, Liability Limit or Coinsurance Limit – what they all mean is “what is the most I have to pay if I have a major claim or claims?” There is one number that represents a combination of copayments, deductibles and coinsurance paid during the plan year.

Example:
You have a policy with a $500 deductible, 80% coinsurance and a maximum of $5,000
You have a medical claim of $100,000 which involved a hospitalization.

You pay the first $500 (your deductible)
You pay 20% of the next $22,500, or $4,500
Adding your deductible of $500 and the 20% coinsurance equals $5,000 – your maximum.

What if you had an office visit copayment of $10 and had 10 visits before your hospitalization?
You pay $100 (10 x 10 for copayments)
You pay the first $500 (your deductible)
You pay 20% of the next $22,000, or $4,400
That’s a total of $5,000

One final note. At times, there are additional deductibles applied just to prescription drugs.
These are also counted toward the out-of-pocket maximum during the year.

Maximum Benefit

Next on our list of key things about which you need to be aware is called Maximum Benefit

While ACA guidelines have largely removed a lifetime or annual maximum benefit allowance, there are some older plans that are not regulated by the ACA that may have an upper limit.
If not on a lifetime basis, sometimes there are internal maximums (notably with psychiatric care) with which to contend. These are usually clearly marked in your SBC or similar outline.

One of the best improvements in coverage occurred as a result of the passage of the Affordable Care Act, sometimes referred to as Obamacare – the requirement that all small group plans, and Medicare, cover preventive care – without a copayment, without a deductible and without coinsurance. The services, however, must be strictly preventive. Examples are screenings for breast cancer, colon cancer, blood pressure, diabetes, and cholesterol. It also covers well baby and well child visits.

It is important to be aware that these follow guidelines provided by the various medical governing bodies. If services are rendered outside these guidelines, the service is considered diagnostic and thus subject to the deductible and coinsurance.

Preventive Care

Certainly, under ACA guidelines, and often found with other plans, there is no co-payment, deductible or co-insurance applied to services that are strictly preventive. These follow guidelines provided by the various medical governing bodies — if services are rendered outside these guidelines, the service is considered diagnostic and thus subject to the deductible, etc. A good example of this is when a mammogram is done for breast cancer screening and they find a shadow and ask for another mammogram. The second one is considered “diagnostic.”

To turn to some of the more challenging items. Heading the list is “Usual, Customary and Reasonable,” or “UCR.” On other words, what do others in a given community or geographic location generally charge for a given service.

As an aside, carriers use the same process and terminology for dental claims.

Preferred Provider Organization (PPO) vs. non-PPO (unlisted providers)

To keep it simple – and general – a PPO level plan pays according to one set of rules (copayments and discounts) and non-PPO, or unlisted providers, are paid at another level. This is not just the absence of copayments (deductibles and percentages are used) and the absence of discounts. There are penalties by design, a reduced fee allowance, or both. This reduced fee allowance is important to note, because here the carriers consider the charges to be the same AS IF the provider were under contract. Thus, a discount is applied even where one did not exist. Some carriers pay unlisted providers at the UCR level, but more often they use the discounted approach, so be careful when reviewing claims for unlisted providers.

There are four circumstances under which a patient may still be paid as if a PPO were used:

1. Emergency: a true “life or death” situation, or when where delay of care would result in additional medical problems (a good example is rapid treatment of a broken leg).
2. Specialist Exception: if the patient needs a particular specialist (e.g. neonatal heart surgeon) and the carrier does not have someone in that category, permission may be given by the carrier to see that unlisted specialist.
3. No Such Providers: this often happens with anesthesiologists. The surgeon chosen may be a listed provider, but the anesthesiologist is not met until the day of the surgery and there is no choice as to who is seen. Also, for this specialty they are rarely registered with a PPO list.
4. General Exceptions: request made to and granted by the carrier.

Of course, there are always exceptions and limitations. Let’s spend a few minutes on
plan limitations:

Medical plans typically have a host of limitations, where the service is covered, but paid according to an internal schedule or a limited number of visits. This happens most often:

1. Chiropractic Care:
   There could be internal maximum dollar amount allowed AND annual visits
   This is sometimes under the heading “physical medicine” and includes physical
   therapy. It’s important to note that it is often the case that the health care professional must be on the PPO list with the carrier, or the service is not covered at all.
2. Mental and Nervous (Psychological Treatment):
   This is the same as we’ve stated for outpatient care. For inpatient care, payment
   depends on whether listed or unlisted doctor or health care professionals are used.
   There are typically limitations, mostly based on medical need, for substance
   abuse (typically only three days), though some plans offer more extensive coverage.In California, there is a list of particular psychological conditions which are treated.
   as “any other medical expense” which means that they are paid according to the
   schedule used for PPO and unlisted providers.
3. Second Surgical Opinion: some elective surgical procedures require a second opinion before the carrier will approve them. These usually involve replacements like joint replacement surgery, spine surgery, and outer appendages – like shoulders.
4. Prior Authorization: a hospital stay often requires approval, not just for the stay itself, but for the number of days that are allowed. Exceptions can be made, either prior to the hospital stay or during (like when complications set in), but the call is required! There are also a number of medications that require prior-authorization.

Emergency Care
In a true emergency, while the penalty for using unlisted providers may be waived, there may also be a separate deductible applied for accessing emergency, or even urgent care, services.

Pre-Existing Conditions
Limitations on medical conditions which existed prior to coverage were largely eliminated by the ACA and various state legislation, but older contracts, or those with large employers, may still have these limitations. Be sure to read your Summary to see if they apply to you.

Coordination of Benefits (COB)
What happens when you or your dependents are covered under more than one medical plan?
We won’t go into detail here, but note that your plan will show what happens when:

1. You have individual and group medical coverage simultaneously. Having two HMO
   plans. They do not coordinate.
2. You have COBRA coverage and a group plan under your current employer.
3. You have two group plans, one through your employer and the other through your partner or spouse. Here several scenarios are possible:
   1. The “primary” plan is the one you have through your employer. They pay first.
   2. If it is your dependent child that is covered under two plans:
      1. In a divorce, the plan held by the custodial parent is considered primary
      2. If both parents are still married, the parent with the earlier birthday (called,
         not surprisingly, the “birthday rule”) in the year has their plan considered
         to be primary. Note this has nothing to do with which parent is the elder –
         it only looks at the earlier of the two birthdays during the year.

Although we tried, we probably did not make this topic easier, but we hope to have made it simpler to understand. Referring to this narrative may be helpful during your next Open Enrollment.