Health insurance policies vary substantially with respect to the benefits they provide. The primary types of health insurance policies are:
- Hospital income policies provide a pre-determined amount of income (selected by the insured) for each day of a hospital stay. The policy pays the selected amount for a certain number of days. These policies do not pay medical or surgical expenses. Hospital income policies typically pay anywhere from $100 to $800 per day depending on the amount of premium the insured wants to pay.
- Basic hospital and surgical policies pay for hospital expenses (room, board, and basic miscellaneous hospital expenses) up to a specified dollar amount for a stated number of days. In addition, they pay for surgical expenses as determined by a schedule of benefits or a relative value schedule for services.
- Major medical policies provide a wide range of benefits and have annual deductibles and co-insurance. They normally have a common accident provision and a deductible carryover provision. (The carryover provision means that expenses in the last three months of a year are carried over to the next year to help meet deductibles in that year). Major medical policies have “stop loss” and maximum out-of-pocket limits. These policies are normally written on an 80/20 basis where the insured is responsible for the first 20 percent, and the insurer pays all costs above that. In policies with a “stop loss” clause, the insurer is responsible for all costs above a specified stop loss amount.
- Limited policies (dread disease policies) are usually written to cover a limited group of diseases, such as cancer, stroke, heart failure, etc. Policies and benefits vary among companies, but all pay a stated sum if an insured person contracts any of the listed diseases. Managed Care
Managed care plans are systems of health care delivery. Through these plans, people receive health care services and treatment. They share the cost of the service and treatment with the managed care provider. Managed care providers include health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Managed care is also designed to lower the cost of medical expenses through the use of several control functions, including:
- Prospective review (pre-admission certification)
- Controlled access to providers (use of primary care physicians)
- Reductions in the length of hospital stays
- Comprehensive case management
- Elimination of duplication
- Discounted fees to providers (using preferred providers, PPOs)
- Increase in outpatient care, home health care, community care, and nursing home care
- Peer reviews
- Concurrent case reviews
A preferred provider organization (PPO) is a managed care arrangement made up of a network of health care providers. This group contracts with a sponsoring organization—an employer, an insurer, or a third-party administrator—to provide health care services. These services are offered at negotiated reduced fees to the sponsoring organization’s members or employees. In return for their agreement to offer the lower cost health care services, health care providers receive:
- Increased patient volume
- Prompt payment guarantees
Physicians, hospitals, and clinics are all examples of the kinds of health care providers that contract with a PPO. Providers who become part of a PPO are required to accept the PPO’s previously negotiated fee as full payment for services. Not surprisingly, because managed care’s goal is to control health care costs, that negotiated fee is normally below the usual, customary, and reasonable (UCR) level for the area. Most PPOs, like traditional indemnity plans, charge deductibles and coinsurance amounts. However, these amounts are applied to the lower, negotiated rates. As a result, PPO members who use PPO-contracted providers have lower out-of-pocket costs.
Exclusive Provider Organizations
Exclusive provider plans (EPOs) are similar to PPOs in both their structure and in how they function. An exclusive provider organization differs from a traditional PPO in being smaller and more exclusive. They normally employ a more restrictive selection and credentialing process. Also, in such plans, the enrollee must use the designated health care providers to receive benefits. There typically is no freedom of choice with respect to the health care provider from which an insured may obtain services.
Health Maintenance Organizations
Health maintenance organizations (HMOs) were designed to control costs through managed care and case management. There are several different types of HMOs, but all are organized for the same purpose. HMOs can be recognized by the following features:
- They are service organizations. Fees are paid directly to the providers.
- The care is prepaid. Fees that are paid by enrollees are used to pay the providers directly.
- They are organized to contain the cost of medical services.
- They may be profit-making or nonprofit.
- They must be certified by a state’s Department of Insurance.
Rules for HMOs
HMOs must also follow certain rules:
- Enrollee coverage cannot be canceled due to health conditions.
- HMOs cannot use names that would lead someone to believe that they are insurance companies.
- Physicians cannot be denied staff privileges at hospitals because they work with HMOs.
- HMOs must be certified by a state’s Department of Insurance and must comply with state regulations.
- HMOs cannot pay commissions to unlicensed agents.
- HMOs are bound to confidentiality under the Fair Credit Reporting Act.
- HMOs cannot engage in rebating—that is, give anything of significant value as an inducement to enroll individuals in their plans.
Required Services by HMOs
HMOs are required by law to provide certain services to their enrollees. These include inpatient care, outpatient care, preventive care, and emergency care. In the case of emergency care, HMOs must have adequate facilities to provide 24-hour emergency care seven days per week within the service area. They also must pay for emergency care outside the service area until the patient can be transferred. HMOs may provide other services, such as dental, vision, nursing home care, home health care, and any other benefits that they deem appropriate for their enrollees. These additional services are at the option of the HMO.
The following general provisions apply to HMOs but are state-specific and may vary from state to state. These provisions are included in the enrollee’s certificate of coverage:
- Out-of-network services—Referrals must be available to enrollees when necessary services are not available within the network.
- Schedule of services—This must be provided in the enrollee’s certificate of coverage.
- Emergency services—Enrollees must be informed of how and where to get emergency services. The certificate of coverage must outline the enrollee’s responsibilities when obtaining emergency care both inside and outside the service area.
- Service area—The enrollee must be provided with a map of the service area covered by his or her HMO. The map must include all primary and emergency sites.
- Primary care physicians (PCPs)—Each enrollee must be allowed to select his or her own PCP. The PCP’s role is to coordinate and direct members’ health care treatment. Based on this role, the PCP is sometimes known as a “gatekeeper.” This term refers to the PCP controlling members’ access to most specialists. By controlling members’ access to specialists, HMOs limit the use of health care facilities and thereby reduce health care costs.
- Referral physicians—Specialists must be made available for referrals if the required services cannot be performed by the HMO.
Affordable Care Act
Signed into law in 2010, the Affordable Care Act (ACA) had as its stated objective to decrease the number of uninsured Americans and reduce the overall cost of medical care. It provides a variety of mandates, subsidies, and tax credits to employers and individuals to increase overall participation in the program. The ACA also imposes tax penalties for noncompliance. Keep in mind that the ACA applies to medical expense insurance. It does not apply to other forms of health insurance, such as disability income policies and long-term care insurance policies. While its effects are far-reaching, the principal coverage changes brought about by the law included the following:
- Pre-existing condition exclusions are prohibited for health insurance plans other than grandfathered individual health insurance policies.
- Annual and lifetime benefit limits applicable to essential health benefits are prohibited, except with respect to grandfathered individual health insurance policies. However, insurers can still impose annual and lifetime limits on benefits for health care services that are not considered essential health benefits.
- Insurers can rescind contracts only for fraud or intentional misstatement of a material fact, and an insurer’s right to rescind coverage is not limited to the contestable period.
- Patient protections were added when non-grandfathered coverage is provided under a network of health care providers, requiring such plans to:
- permit the designation of any participating primary care provider who is available to accept the individual
- permit the designation of a pediatrician as the primary care provider if the provider participates in the network and is available to accept the child
- eliminate the need for prior authorization or referral for a female to obtain OB/GYN care from an in-network health care professional specializing in obstetrical and gynecological care
- Emergency services requirements were added to eliminate the need for a patient to obtain prior authorization and to prohibit an insurer from imposing additional requirements or benefit limitations on out-of-network service, or impose emergency services cost-sharing exceeding certain limits.
- Insurers are prohibited from denying coverage to children under the age of 19.
- An individual mandate requires all Americans to obtain minimum essential health insurance coverage (whether through a group plan, individual plan, or government plan), with tax penalties for failing to do so.
- Dependent children (married or unmarried) must be covered under a parent’s group medical plan to age 26 (however, the spouse and child of an eligible dependent child do not have to be covered under the parent’s plan).
- Federal subsidies and Medicaid expansion have been added for low-income individuals and families.
- Minimum standards for health insurance policies have been established.
Arguably, the biggest change the ACA brought about was the creation and implementation of health insurance exchanges: single access portals in every state through which individuals and their families, as well as small businesses and their employees, can compare, select, and purchase federally compliant health plans and, if they qualify, receive federal financial assistance to help pay for their coverage.