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  1. 1. Chapter 10 <ul><li>Traditional Medical Expense Plans </li></ul>
  2. 2. Traditional Providers <ul><li>Insurance companies </li></ul><ul><li>Blue Cross and Blue Shield </li></ul><ul><li>Self-funding (covered in more detail in chapter 16) </li></ul>
  3. 3. Blue Cross and Blue Shield <ul><li>Blue Cross established by hospitals; Blue Shield by physicians </li></ul><ul><li>Each had national governing boards which eventually merged </li></ul><ul><li>41 plans in existence; some are only Blue Cross or Blue Shield, but most are both </li></ul><ul><li>Many plans operate in a single state, but several plans are multistate </li></ul><ul><li>Boards now dominated by nonproviders such as labor unions, consumer organizations, foundations, and the general public </li></ul><ul><li>Traditionally not-for-profit, but several plans have changed to for-profit status </li></ul>
  4. 4. Insurance Companies <ul><li>Most coverage is written by life insurers; few companies specialize in health insurance only </li></ul><ul><li>Write more coverage than the Blues </li></ul>
  5. 5. Comparison of Insurers and the Blues— <ul><li>Traditionally There Were Significant Differences, But as Time Goes on They Are Becoming More Alike </li></ul><ul><ul><li>Regulation and taxation </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul><ul><ul><ul><li>The Blues have more favorable income tax treatment, but they are no longer exempt </li></ul></ul></ul>
  6. 6. Form of benefit s <ul><li>Traditionally the Blues have provided service benefits, and insurers have provided indemnity </li></ul><ul><ul><li>Service benefits </li></ul></ul><ul><ul><ul><li>Services promised to subscribers </li></ul></ul></ul><ul><ul><ul><li>Provider under contractual agreement to provide services </li></ul></ul></ul><ul><ul><ul><li>Usually no claim forms </li></ul></ul></ul><ul><ul><li>Indemnity benefits </li></ul></ul><ul><ul><ul><li>Insured gets treatment and submits copy of bill to insurer </li></ul></ul></ul><ul><ul><ul><li>Insurer reimburses insured (or other party if benefits assigned) </li></ul></ul></ul><ul><li>Some of the Blues now have some indemnity plans while some insurers have arrangements involving service benefits </li></ul>
  7. 7. Types of benefits <ul><li>Little difference any more; both write all types of medical expense coverage </li></ul><ul><li>Insurers have slight advantage in that they are more likely to be able to handle other benefit programs of the employee </li></ul>
  8. 8. Reimbursement of providers <ul><li>The Blues pay hospital on a per diem basis not actual charges </li></ul><ul><li>The Blues often receive hospital discounts which in effect forces non-Blue patients to pay more </li></ul><ul><li>The Blues often reimburse physicians at less than actual charges, as do many insurers under their managed care plans </li></ul>
  9. 9. National coverage <ul><li>While insurers once had competitive edge, it now rests with the Blues </li></ul><ul><ul><li>Flexibility: Insurers typically offer employers more flexibility in designing own contract </li></ul></ul><ul><ul><li>Rating: little difference because the Blues now also use experience rating for larger groups </li></ul></ul>
  10. 10. Marketing <ul><ul><li>The Blues have lower acquisition expenses; most coverage is sold by salaried employees </li></ul></ul><ul><ul><li>The Blues now often use agents to sell coverage, but commission rates are less than those of insurance companies </li></ul></ul><ul><li>Today’s environment: Insurers and the Blues are heavily into managed care </li></ul>
  11. 11. Hospital Expense Benefits <ul><li>Room and board </li></ul><ul><ul><li>Covers semiprivate room, meals, and routine services provided to all patients </li></ul></ul><ul><ul><li>Duration of benefits can vary from 31 to 365 days </li></ul></ul><ul><ul><li>Amount of benefit can be expressed as </li></ul></ul><ul><ul><ul><li>Flat amount or </li></ul></ul></ul><ul><ul><ul><li>Cost of semiprivate accommodations </li></ul></ul></ul><ul><ul><li>Additional benefits often provided for intensive care </li></ul></ul>
  12. 12. Other charges <ul><li>These include items like drugs, operating room charges, and X-rays </li></ul><ul><li>Methods for determining benefits </li></ul><ul><ul><li>Full coverage up to dollar maximum </li></ul></ul><ul><ul><li>Full coverage up to dollar maximum and partial coverage for some additional expenses </li></ul></ul><ul><ul><li>Full coverage as long as room-and-board benefits are payable </li></ul></ul>
  13. 13. Outpatient benefits <ul><li>Facility charges for surgery </li></ul><ul><li>Emergency room treatment within a specified period following an accident </li></ul>
  14. 14. Surgical Expense Benefits <ul><li>Covers physicians’ charges associated with surgery </li></ul><ul><li>Surgery defined to include items such as suturing, electrocauterization, and treatment of fractures or dislocations </li></ul><ul><li>Covers both inpatient and outpatient surgery; latter may be encouraged by higher benefits </li></ul>
  15. 15. Benefits <ul><li>Newer contracts cover assistant surgeons and anesthesiologists as well as primary surgeon </li></ul><ul><li>Benefit amounts may be based on </li></ul><ul><ul><li>Fee schedule </li></ul></ul><ul><ul><li>Reasonable-and-customary charges—typically up to some percentile of charges within a geographic region </li></ul></ul>
  16. 16. Physicians’ Visits Expense Benefits <ul><li>Covers charges of physicians other than surgeons </li></ul><ul><li>May be for in-hospital visits only or for both in-hospital and out-of-hospital visits </li></ul>
  17. 17. Types of Major Medical Coverage <ul><li>Supplemental—an add on to basic coverage </li></ul><ul><ul><li>Covers expenses not within scope of basic coverage </li></ul></ul><ul><ul><li>Covers expenses no longer covered under basic coverage because benefits exhausted </li></ul></ul><ul><ul><li>Covers expenses excluded by basic coverage </li></ul></ul>
  18. 18. Comprehensive—incorporates basic coverage <ul><li>Most new plans are comprehensive which are easier to administer and communicate than are supplemental plans. </li></ul><ul><li>Reasons for using supplemental </li></ul><ul><ul><li>To use more than one provider of coverage. Most often an insurance company plan to supplement basic coverage provided by the Blues </li></ul></ul><ul><ul><li>To provide first dollar coverage </li></ul></ul><ul><ul><li>To use different employer contribution rates for the basic coverage and the major medical coverage </li></ul></ul>
  19. 19. Figure 10.1
  20. 20. Figure 10.2
  21. 21. Covered Major Medical Expenses <ul><li>Types (some examples) </li></ul><ul><ul><li>Hospital room, board, and other charges </li></ul></ul><ul><ul><li>Possibly benefits for care in other facilities or at home </li></ul></ul><ul><ul><li>Outpatient surgical center charges </li></ul></ul><ul><ul><li>Physicians </li></ul></ul><ul><ul><li>Prescription drugs </li></ul></ul><ul><ul><li>Therapy </li></ul></ul><ul><ul><li>X-rays and laboratory services </li></ul></ul><ul><ul><li>Artificial limbs and organs </li></ul></ul><ul><ul><li>Medical supplies and equipment </li></ul></ul><ul><ul><li>Ambulance services </li></ul></ul>
  22. 22. Exclusions (some examples) <ul><li>Occupational injuries or diseases to extent covered by workers’ compensation </li></ul><ul><li>Services furnished by governmental agencies </li></ul><ul><li>Cosmetic surgery, except as required by the Women’s Health and Cancer Rights Act, unless it corrects an accidental injury or birth defect </li></ul><ul><li>Most routine physical exams </li></ul><ul><li>Convalescent, custodial or rest care </li></ul>
  23. 23. Exclusions examples (cont.) <ul><li>Dental care except treatment because of injury to natural teeth or hospital charges associated with confinement for dental surgery </li></ul><ul><li>Routine eye examinations </li></ul><ul><li>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) </li></ul>
  24. 24. Table 10.1
  25. 25. Limitations (some examples) <ul><li>Hospital room and board: cost above semiprivate accommodations </li></ul><ul><li>Extended-care facilities, home health-care benefits, hospice benefits: daily dollar limitations and/or limited durations </li></ul><ul><li>Mental and nervous disorders, alcoholism, and drug addiction </li></ul><ul><ul><li>Inpatient benefits traditionally limited by duration; outpatient benefits limited by coinsurance and dollar amounts per visit or annually </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  26. 26. Major Medical Deductibles <ul><li>Definition: The initial amount of covered expenses an individual must pay before benefits are paid </li></ul><ul><li>Types </li></ul><ul><ul><li>Initial: First X dollars </li></ul></ul><ul><ul><li>Corridor: $ amount in excess of basic coverages before major medical pays </li></ul></ul>
  27. 27. Amounts <ul><li>$100 to $500 are common </li></ul><ul><li>Sometimes equal to percentage of salary, subject to maximum </li></ul><ul><li>All-causes deductible: Must be satisfied only once during given period, usually a calendar year </li></ul><ul><li>Per-cause deductible: Must be satisfied for each illness or disability; much less common than all-causes deductible </li></ul>
  28. 28. Amounts (cont.) <ul><li>Family deductible: Maximum amount that family must pay out of pocket before all deductibles are waived </li></ul><ul><ul><li>Most common is to have it satisfied when two or three family members satisfy individual deductibles </li></ul></ul><ul><ul><li>Sometimes a dollar amount </li></ul></ul><ul><li>Common accident provision: No more than one individual deductible must be satisfied if several family members injured in accident </li></ul>
  29. 29. Frequency <ul><ul><li>Usually calendar year </li></ul></ul><ul><li>Expenses to which deductibles apply </li></ul><ul><ul><li>Usually one deductible applies to all expenses </li></ul></ul><ul><ul><li>A plan may have two or more deductibles that apply to separate expenses. Example: $50 deductible for hospital; $100 for other expenses </li></ul></ul>
  30. 30. Major Medical Coinsurance <ul><li>Insured pays a specified portion of medical expenses that exceed the deductible; 75-85 percent is normal </li></ul><ul><li>One coinsurance percentage may apply to all expenses </li></ul><ul><li>Separate coinsurance percentages may apply to different expenses </li></ul><ul><ul><li>When employee has little control over certain expenses </li></ul></ul><ul><ul><li>When there is a desire to provide first-dollar coverage for some expenses </li></ul></ul><ul><ul><li>When there is a desire to encourage the use of cost-effect treatment </li></ul></ul><ul><li>Most policies contain a stop-loss limit which is an amount of covered expense above which insurer pays 100 percent </li></ul>
  31. 31. Major Medical Maximum Benefits <ul><ul><li>Lifetime maximum </li></ul></ul><ul><ul><ul><li>Usually varies from $1 million to $2 million, but may be unlimited </li></ul></ul></ul><ul><ul><li>Benefits reduce lifetime maximum </li></ul></ul><ul><ul><li>Some policies also have internal lifetime maximums for some types of expenses, such as treatment for mental or nervous disorders </li></ul></ul><ul><li>Per-cause maximum </li></ul><ul><ul><li>Used only if deductible on per-cause basis </li></ul></ul><ul><ul><li>Separate maximum applies to each cause </li></ul></ul>
  32. 32. Managed Care in Traditional Plans <ul><li>Preadmission testing </li></ul><ul><ul><li>Done on an outpatient basis prior to surgery </li></ul></ul><ul><ul><li>Paid even if admission cancelled </li></ul></ul><ul><li>Hospital precertification </li></ul><ul><ul><li>Patient or physician required to obtain certification prior to admission or shortly thereafter in case of emergency admission </li></ul></ul><ul><ul><li>Certification determined by reviewer who authorizes length of stay; approval needed for extension of stay </li></ul></ul><ul><ul><li>Benefit usually reduced if procedure not followed </li></ul></ul>
  33. 33. Second surgical opinions <ul><li>Purpose: To eliminate unnecessary surgery </li></ul><ul><li>Voluntary </li></ul><ul><ul><li>Second opinion covered, possibly for larger benefit </li></ul></ul><ul><ul><li>Third opinion may be covered if first two disagree </li></ul></ul><ul><li>Mandatory </li></ul><ul><ul><li>Other opinions covered </li></ul></ul><ul><ul><li>Benefits reduced if surgery performed without second opinion or contrary to final opinion </li></ul></ul>
  34. 34. Alternative facilities for treatment <ul><li>Extended-care facility benefits </li></ul><ul><ul><li>Requirements to obtain </li></ul></ul><ul><ul><ul><li>Recommeded by physician </li></ul></ul></ul><ul><ul><ul><li>Need for 24-hour-a-day nursing care </li></ul></ul></ul><ul><ul><ul><li>Within 14 days of prior hospital stay of at least 3 days or 14 days of prior confinement in extended care facility </li></ul></ul></ul><ul><ul><ul><li>Confined for same or related condition that resulted in hospitalization b. Benefit may be provided in full or up to specified dollar amount, usually for a specified maximum duration </li></ul></ul></ul>
  35. 35. Alternative facilities for treatment (cont.) <ul><ul><li>Home health care benefits </li></ul></ul><ul><ul><ul><li>Must be ordered by a physician following hospitalization </li></ul></ul></ul><ul><ul><ul><li>Coverage includes </li></ul></ul></ul><ul><ul><ul><ul><li>Nursing care </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Physical, occupational, and speech therapy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Medical supplies and equipment </li></ul></ul></ul></ul><ul><ul><ul><li>Benefits usually some percentage of reasonable-and-customary charges up to maximum number of visits or days </li></ul></ul></ul>
  36. 36. Alternative facilities for treatment (cont.) <ul><ul><li>Hospice benefits </li></ul></ul><ul><ul><ul><li>For terminally ill person </li></ul></ul></ul><ul><ul><ul><li>May be provided in separate facility or at person’s home </li></ul></ul></ul><ul><ul><ul><li>Result in lower expenses than hospitalization </li></ul></ul></ul><ul><ul><ul><li>Birthing center </li></ul></ul></ul><ul><ul><ul><ul><li>Lower cost alternative to hospital </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Benefits paid at same or higher level than if mother hospitalized </li></ul></ul></ul></ul>
  37. 37. Preapproval of visits to specialists <ul><li>Attempts to minimize use of specialists and emergency rooms when treatment can be provided by primary-care physician </li></ul><ul><li>Primary-care physician does not certify visit to specialist, but must be made aware of the visit </li></ul>
  38. 38. Preventive care (examples) <ul><li>Well-baby care </li></ul><ul><li>Childhood immunizations </li></ul><ul><li>Mammograms </li></ul><ul><li>Possibly routine physicals </li></ul>
  39. 39. Alternative Medicine <ul><li>Used by over half the population </li></ul><ul><li>Often recommended by physicians </li></ul><ul><li>Examples </li></ul><ul><ul><li>Acupuncture </li></ul></ul><ul><ul><li>Chiropractic feedback </li></ul></ul><ul><ul><li>Herbal medicine </li></ul></ul><ul><ul><li>Hypnosis </li></ul></ul><ul><ul><li>Vitamin therapy </li></ul></ul><ul><ul><li>Yoga </li></ul></ul>
  40. 40. Alternative Medicine (cont.) <ul><li>Reasons for attractiveness </li></ul><ul><ul><li>Patient rapport with practitioners </li></ul></ul><ul><ul><li>Involvement of patients in the development of treatment plans and likelihood of patients to follow treatment plans </li></ul></ul><ul><ul><li>Complications less likely than with traditional medicine </li></ul></ul>
  41. 41. Cost controls <ul><li>Annual or lifetime dollar limits </li></ul><ul><li>Limits on number of visits </li></ul><ul><li>Treatment only for specified medical conditions </li></ul><ul><li>Referral from primary-care physicians </li></ul>