Life & Health Chapter 14 | Health Chapter 5: Health Insurance Providers
CHAPTER SUMMARY: HEALTH INSURANCE PROVIDERS
Blue Cross and Blue Shield (Service Providers)
▪ In return for a premium, service providers offer subscribers health care services from participating providers.
▪ Local Blue Cross and Blue Shield plans (loosely affiliated through their national association) are the dominant U.S. health insurers.
▪ The Blues provide benefits on a service basis, which means that they pay the provider directly for the subscriber’s medical treatment.
▪ Blue Cross pays for hospital care, while Blue Shield covers physician fees.
▪ Traditional service provider plans are considered prepaid because subscribers pay a fixed monthly fee for covered medical services.
▪ Participating health care providers contractually agree to provide services to subscribers for specific costs.
Traditional Medical Insurance Policies
(Commercial Insurance Companies)
▪ Consumers receive health care services from medical professionals, and insurance carriers cover the cost by reimbursing consumers.
▪ The right of assignment allows insurers to pay providers directly.
▪ These plans are referred to as indemnity plans because they indemnify the insured.
▪ Traditional indemnity plans are national in scope.
Managed Care – Definition and Characteristics
▪ Managed care (Medical Cost Management) is the process of controlling how policy owners utilize their policies.
Medical Cost Management
Mandatory Second Opinions
▪ Required before elective surgery to reduce unnecessary procedures for full coverage.
▪ The insured must pay more out-of-pocket if no second opinion is obtained.
Preventive Care
▪ Managed care programs also help lower health care costs by encouraging preventive care.
Ambulatory Surgery
▪ Many surgeries can be outpatient procedures.
▪ Ambulatory surgical centers are an economical venue because of their lower overhead expenses.
Case Management (Utilization Review)
▪ Through utilization review, insurers are able to monitor potentially large claims as they develop to discuss treatment alternatives.
Precertification (Prospective)Review
▪ A prospective review involves analyzing a case before admission to determine the necessary treatment.
▪ A goal of the prospective review is to reduce the length of hospitalizations.
Concurrent Review
▪ Concurrent reviews occur as care is being provided.
▪ Concurrent reviews monitor the appropriateness of care to keep costs low while still providing effective care.
Retrospective Review
▪ Retrospective reviews of medical records occur after treatment.
▪ Insurers can use the results to approve or deny coverage or review coverage guidelines and to do so retroactively.
Managed Care Networks
Health Maintenance Organizations (HMOs)
▪ HMOs offer subscribers comprehensive prepaid health care services.
▪ A distinctive characteristic of HMOs is that they organize and deliver the covered health care services as well as insure them.
▪ A variety of organizations may sponsor HMOs.
Characteristics of HMOs
▪ HMOs must provide 24/7 access to their subscribers.
▪ HMOs must provide a 30-day open enrollment period.
Federal Requirements for HMOs
▪ Employers must meet the following requirements and guidelines to be eligible to offer an HMO:
‒ Have at least 25 employees
‒ Contribute to the plan
‒ Stress preventive care
‒ Maintain minimum reserves
▪ Employer HMOs must use community-rated premiums and charge no more than commercial insurance plans.
Key HMO Characteristics for Consumers
Comprehensive Care
▪ HMOs provide comprehensive healthcare, including:
‒ Hospitalization, in-hospital services, and surgery
‒ Medical treatment, including outpatient care
‒ Diagnostic and therapeutic services
‒ Nursing services and home health care
‒ Substance abuse treatment
‒ Prescription drugs
▪ HMOs cover the essential health services as defined in the Affordable Care Act.
▪ HMO services don’t typically include dental coverage or vision care (corrective lens, etc.)
Prepaid Care
▪ Subscribers pay a fixed periodic fee.
▪ There are some co-payment requirements.
▪ Traditionally, provider compensation was capitated without regard to the amount of care given.
Preventive Care
▪ HMOs are known for stressing preventive care.
Funding
▪ Insurers may sponsor HMOs.
▪ HMOs may also be self-contained or self-funded.
Primary Care Physicians (“Gatekeepers”)
▪ Subscribers select primary care physicians (PCPs) or “gatekeepers.”
▪ The PCP controls all referrals for specialized care.
Local or Regional Networks
▪ HMO networks are local or regional but not national.
Emergency Care
▪ Emergency care is available in-network and covered out-of-network if life-threatening
HMO Structures
HMOs use different models to deliver subscriber services, which can be described as either a closed panel or an open panel model.
▪ If an HMO consists of a physician’s group or salaried employees who work out of the HMO’s facility, it is a closed panel network.
▪ If an HMO provides services through a network of physicians seeing subscribers in their own offices, that organization is defined as an open-panel HMO.
Staff Model (Closed Panel)
▪ Medical care is provided by physicians and hospitals that participate in the HMO (employed by the HMO).
Group (Practice) Model (Closed Panel)
▪ The group model offers subscribers a variety of services.
▪ HMO pays the group a capitation or a predetermined fee.
▪ The group pays the physicians for their services.
Network Model (Closed Panel)
▪ Similar to the group model, but it includes more than one group of physicians.
Individual or Independent Practice Association (IPA) (Open-Panel)
▪ An IPA delivers services using a network of physicians who work out of their own facilities on a part-time basis.
Preferred Provider Organizations (PPOs)
▪ PPOs offer medical insurance but not care.
▪ PPOs sponsor a network of health care providers.
▪ Network (preferred) providers contract with the PPO to offer discounted services to PPO subscribers in return for referrals.
PPO Characteristics
Financing Healthcare Only versus Financing and Delivery
▪ PPOs don’t assume the role of a healthcare provider.
▪ PPOs assemble networks and finance care.
▪ PPO contract prices represent a discount of what may be considered “usual and customary.”
Fee-for-Service
▪ PPOs operate on a fee-for-service basis.
▪ PPOs often require subscribers to pay a percentage of their medical costs, which is referred to as
co-insurance.
In-Network versus Out-of-Network
▪ PPOs provide reduced coverage for out-of-network services, often in the form of increased co-insurance.
▪ Out-of-network providers are not obligated to charge discounted, in-network rates.
Direct Access to Any Provider
▪ The traditional PPO model doesn’t require primary care physician referrals to in-network specialists.
PPO Innovations and Options
▪ PPOs can include dental care and long-term care in the form of nursing services.
Point-of-Service (POS) Plans
A POS plan combines indemnity (traditional major medical) plan features with those of an HMO. It allows subscribers to choose either in-network or out-of-network providers.
In-Network Coverage Within the POS network, the care model resembles an HMO.
▪ The insured’s PCP coordinates all care for the insured.
▪ Subscribers must follow the referral requirements to receive full in-network coverage.
Out of Network Coverage Insureds who receive out-of-network care pay a higher share of the cost.
▪ Subscribers pay a substantial co-insurance percentage.
▪ POS plans don’t necessarily base their payments on average market prices (usual and customary costs). Instead, they calculate their coverage based on their lower in-network costs.
Exclusive Provider Organizations (EPOs)
An EPO is a hybrid of an HMO and a PPO.
▪ Like a PPO, an insured doesn’t need a referral to obtain care from an in-network specialist.
▪ Like an HMO, an insured is responsible for paying out-of-pocket for care from an out-of-network provider.
Group Insurance Plans
▪ Group health insurance is a class of policy rather than a provider.
▪ Since it’s a distinct source of coverage, the entire class of policies can be treated as a distinct provider.
Basic Group Plan Characteristics
▪ The nature of the sponsoring group must be acceptable.
▪ State laws specify the minimum number of persons to be covered under a group policy.
▪ Employers may differentiate benefits according to employee class (union versus non-union, full-time versus part-time, etc.)
▪ Employers cannot discriminate against individuals within a class.
Eligible Groups
▪ To qualify, the group must be a natural group.
▪ The term “natural group” means that it must have been formed for some reason other than to obtain insurance.
▪ Taft-Hartley Trusts are formed as a result of collective bargaining between a labor union and an employer. The law prohibits employers from directly paying funds to a labor union to provide group health insurance to its members.
Policy Ownership
▪ Insurers issue the policy—referred to as a master contract—to the employer or the other sponsoring organization.
▪ The sponsor is considered the master policy owner.
▪ Covered individuals receive a certificate of insurance.
▪ Participants also receive an outline or benefit booklet.
▪ Typically, group benefits are more extensive than those provided under an individual health plan.
Lower Cost
▪ Under a group health plan, the cost of insuring an individual is lower because of lower administrative and selling expenses.
Consolidated Administration
▪ Administrative costs are lower because the carrier covers multiple individuals under one contract.
▪ The master contract holder provides services to participants.
Predetermined Benefits
▪ The sponsor predetermines benefits for individual insureds, which simplifies underwriting and administrative costs.
Increased Persistency
▪ When a person drops an individual policy, the contract is lost.
▪ When an individual leaves a group, the master contract remains in force
Underwriting and Risk Management
▪ Factors such as the group’s claim experience and the ages of group members help determine premiums.
▪ Insurers set premiums by using a large group’s experience rating or a small group’s community rating.
Group Underwriting
▪ Group insurers establish premiums based on the average level of risk in a prospective group.
‒ The aggregate rate of losses or claims is referred to as the group’s experience rating.
‒ Insurers use the surrounding community to gauge small group risks and assign a community rating to the group and the surrounding area.
▪ Other group underwriting considerations include:
‒ The reason for a group’s existence
‒ Group stability – among members
‒ Group persistency – with carriers
‒ Method of determining benefits
‒ How eligibility is to be determined
‒ Whether the group plan is contributory or non-contributory
‒ The group’s business and the employees’ occupations
Individual Eligibility
▪ Commonly imposed eligibility requirements include:
‒ Full-time workers only (30 or more hours per week)
‒ A probationary period of at least one to three months before the individual qualifies to enroll for coverage under the group plan.
Enrollment Period
▪ Once an employee is eligible for coverage, she has a limited enrollment period, during which time she can elect coverage.
▪ Enrollment periods are 31 days unless otherwise indicated by state law.
▪ If an employee doesn’t elect coverage during the enrollment period, a late enrollment will require the employee to provide evidence of insurability.
▪ Change of life events (e.g., marriage or birth of a child) allows individual participants a special enrollment period.
Participation Requirements
▪ Minimum participation requirements help insurers avoid adverse selection.
▪ If participation levels drop, an insurer may terminate the plan.
Contributory Plans
▪ Employees pay a portion of contributory plan premiums.
▪ Contributory plans require 75% of eligible employees to participate.
Non-Contributory Plans
▪ Employers pay all premiums for non-contributory plans.
▪ Non-contributory group plans require 100% participation by eligible members.
State Variations
▪ The above participation percentages are benchmarks. State requirements vary.
Alternative Forms of Group Insurance
Multiple Employer Trusts (METs)
▪ A Multiple Employer Trust (MET) is a method of marketing group benefits to employers with a small number of employees; it combines multiple employers (10 or more) into a single insurance pool.
▪ The MET holds the master contract, not the members (employers).
▪ Employers that are seeking coverage for employees must join the trust.
▪ METs typically fund benefits with an insurance contract that’s purchased from an insurance company.
▪ A MET may be insured and administered by a third-party administrator (TPA).
▪ METs are also referred to as 501(c)(9) trusts after the relevant section of the Internal Revenue Code.
▪ Partially self-funded trusts limit potential losses by purchasing stop-loss insurance.
▪ State regulations pertaining to METs vary.
Multiple Employer Welfare Arrangements (MEWA)
▪ A Multiple Employer Welfare Arrangement (MEWA) is similar to a MET, and, at times, the words are used interchangeably.
▪ MEWAs are tax-exempt entities.
▪ MEWAs consist of two or more employers that have joined together to provide affordable health benefits for their employees on a self-funded (or self-insured) basis.
▪ Employees who are covered by a MEWA are required by law to have an employment-related common bond.
▪ The law treats MEWAs as “employee welfare benefit plans” and subjects them to the Employee Retirement Income Security Act (ERISA) mandates, which often supersedes state insurance department requirements.
Self-Insurance
▪ “Self-insurance” does NOT mean “no insurance.”
▪ Many self-insuring employers cap their financial risk by purchasing stop-loss coverage from an insurance company.
▪ A stop-loss policy reimburses the employer if covered claims exceed the policy’s risk retention limit.
Administration Services Only (ASO)
▪ With ASOs, employers purchase services from an insurer or third-party administrator (TPA).
▪ Self-funded plans commonly use an insurer as a TPA.
Small Employer Group Insurance
▪ A small employer is generally defined as a business with a range of employees from two to 50.
▪ All employees must have access to coverage.
▪ The level of coverage must reflect general group insurance requirements.
Franchise (Wholesale) Health Plans
▪ Franchise plans provide coverage to association members.
▪ They can cover groups that don’t qualify for true group insurance.
▪ Each franchise plan participant receives an individual policy.
▪ Each participant must complete a separate policy application.
▪ Rates are discounted.
Regulations That Apply to Group Insurance
▪ When a group policy covers individuals in multiple states, the state in which the master contract is delivered becomes the state of jurisdiction.
▪ The contract must only conform to the laws and regulations of that one state of jurisdiction.
▪ The producer will generally deliver a group health insurance policy to the location of the employer.
▪ Federal regulatory requirements apply regardless of state lines.
Termination of a Group Plan
▪ An employer or fiduciary must provide 45-days’ notice of termination of the plan to all who are covered.
▪ If a group health plan terminates, employees may convert to an individual health plan without evidence of insurability.
Impact of Termination on Covered Individuals Unless state law intervenes, coverage for an employee and dependents ends on the date that employment is terminated.
However, other termination possibilities include:
▪ An employee ceases to be eligible (regardless of the reason)
▪ The master policy is surrendered or canceled
▪ An employee fails to make a required contribution
▪ The end of a continuation of benefits period for employees and dependents that follows the termination of a person’s employment
Continuation and Conversion
Extension of Benefits An extension of benefits covers open, existing claims when an employee or dependent is sick or disabled at the time the insured’s group membership ends.
▪ This extension does not cover new claims.
▪ Disability benefits will continue until the disability ends.
▪ Medical insurance offers coverage that continues to pay for hospitalization or medical care, but generally not for more than 12 months.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
▪ COBRA mandates that employers must provide employees and their beneficiaries with group health coverage following a qualifying event.
▪ COBRA eligibility begins as soon as an employee qualifies for coverage under their employer’s group medical plan.
▪ COBRA temporarily continues group insurance; it doesn’t convert coverage to an individual plan.
Covered Employers
▪ COBRA covers employers that have 20 or more employees.
▪ These companies are referred to as “COBRA Groups.”
Qualifying Events
▪ The law defines the following as qualifying COBRA events:
‒ The insured employee dies
‒ The insured employee divorces a covered spouse
‒ An insured dependent becomes too old to be covered under the group plan
‒ The insured employee qualifies for Social Security disability benefits
‒ The employee leaves, resigns, retires, or is terminated for any reason other than gross misconduct
Notification Period
▪ Employers must notify employees or their dependents when the insured employee becomes eligible for COBRA.
▪ The law requires employers to give notice no later than 14 days after the qualifying event.
Decision Period
▪ Employees have 60 days to decide whether to accept COBRA.
▪ The right to elect COBRA expires after 60 days.
▪ This 60-day decision period begins on the later of the qualifying event’s date or the insured’s receipt of the notice.
The Benefit Period – COBRA
18 Months: Loss of Employment
▪ Provides benefits for covered employees and dependents after the covered employee separates from their employer.
36 Months: Loss of Dependent Benefits
▪ Provides benefits for covered dependents for the following qualifying events:
‒ The employee dies
‒ The employee divorces a covered spouse
‒ A child’s coverage ceases, especially when she reaches the plan’s age limit
29 Months: Loss of Benefits due to Disability
▪ COBRA covers insureds that qualify for Social Security disability.
▪ COBRA provides benefits during the five-month Social Security Disability waiting period plus the
24 months until the individual can qualify for Medicare.
COBRA Premiums
▪ Beneficiaries pay the insurer’s COBRA claim unit.
▪ Beneficiaries must pay the entire group premium plus an additional 2% administration fee.
▪ In total, the terminated employee pays 102% of the premium.
▪ The ex-employee pays 102% of the employer’s group premium for one person, not the standard employee contribution.
Conversion
▪ Group plans also provide a conversion privilege.
▪ COBRA beneficiaries can convert their group coverage to an individual policy when benefits end.
▪ Beneficiaries typically have 31 days to decide.
Health Insurance Portability and Accountability Act (HIPAA)
▪ HIPAA prevents insurers from imposing new preexisting condition exclusions when employees change employers.
▪ Previous coverage will satisfy any exclusionary period if there’s no gap in coverage of 63 days or more.
▪ The previous qualifying insurance is referred to as “creditable coverage.”
▪ HIPAA requires plan sponsors to provide a Notice of Privacy Practices to their subscribers at the time of enrollment and then every three years thereafter.
Pregnancy Discrimination Act
▪ As an amendment to the Civil Rights Act of 1964, this act requires insurers to treat pregnancy, childbirth, or related conditions like other health-related conditions.
▪ Plans must cover abortions if the mother’s life is in danger.
▪ Insurers must treat pregnancy as a disability to the degree that it impairs the insured’s ability to perform her duties. Employer benefit plans must do the same.
Special Regulations for Small Group Health Insurance
▪ Small groups have up to 50 employees (only 25 in some states).
▪ Small group benefit plans must:
‒ Offer coverage to all eligible employees and dependents.
‒ Not discriminate against an employer due to the nature or category of the business.
▪ Insurers must renew coverages unless the employer fails to pay the premium, engages in fraud, fails to meet participation or contribution requirements, or closes the business.
▪ Insurers may withdraw from the small group market.
▪ Plans must also offer standard and essential types of benefits.
▪ Insurers can change rates annually to reflect changes in the group.
▪ Carriers marketing small employer health plans must offer at least two health plans to the employer (basic and standard).
Insurers cannot refuse to cover a group because of an individual group member’s health history.