Group Chap 5: Medical Benefits in the United States

Question 1

Introduction

**1. Dimensions of Medical Benefit Plans **
a. Definition of Covered Services and Conditions
b. Degree of Insured Cost Sharing
c. Relationship with Providers

Answer 1

1. Group Medical - predominant group insurance coverage in US

2. Includes plans that provide medical services directly (service benefits) and plans that pay for expenses incurred (indemnity benefits)
- Service benefits - restrictions of provider selection and assure no additional cost to insured beyond the deductible, copay, or coinsurance
- Indemnity benefit plans - limited or no provider restrictions, but reimburse only up to a pre-defined level

3. Employer payments for medical insurance or benefits do not generate taxable income to the employee
- Becomes a disadvantage if it results in coverage for routine events (e.g. physicals or immunizations) on a first-dollar basis. Preventive services fail the conditions of true insurance (random and outside control of the insured)
- Tax treatment for Health Spending Accounts (HSA) and HRAs returning some of the financial consequences to the individual. Results in wiser consumption of resources

4. Dimensions of Medical Plans
- 1. Definition of Covered Services and Conditions
- 2. Degree of Insured Cost Sharing
- 3. Relationships with Providers

Question 2

The First Dimension (Definition of Services Covered and Conditions)

1. Definition of Incurral Date
2. Covered Services, limitations and exclusions
3. Covered Facilities
4. Covered Professional Services
5. Other Services

Answer 2

1. Definition of Incurral Date
- To receive medical benefits, coverage must be in effect on incurral date

• Most common definition is date of service (for professional services) and date of admission (for inpatient hospital services)
• Most limiting definition of incurral date is date of service for all covered services
• A less limiting definition is date of onset of a disability (commonly used for disability policies or long-term care policies)
• Another alternative definition is date a claim was paid. Excess risk or stop-loss policies use this
• Many contracts extend benefits in the event that an individual is disabled at contract termination (extended benefit provision)

2. Covered Services, Limitations, Exclusions
- In addition to when the claim was incurred, also determine if service is covered

• Covered services differ depending on the regulatory entity that has jurisdiction
  (1) Insured medical regulated by state Departments of Insurance
  (2) Self-funded plans regulated by ERISA that has very specific referenees to covered services
  (3) The regulatory bodies for HMO vary from state to state
  (4) HMO benefit requirements may be either more restrictive or more liberal than those of insured plans
• Affordable Care Act (ACA) impact
  (1) Standardized set of preventive services covered at 100%
  (2) Prohibition of lifetime and annual limit
  (3) Plan design limits on annual out-of-pocket maximums
  (4) Essential Health Benefits that must be covered

3. Covered Facilities
- Can include acute care hospital facilities, emergency room, outpatient and surgery facilities, psychiatric facilities, alcohol and drug treatment programs, skilled nursing facilities or nursing homes, and home health care

• Hospital inpatient services
  (1) Benefits limited to the cost of average semi-private room and board charges
  (2) Charges may require pre-certification or concurrent review
• Emergency room limitations avoid excess utilization
• Outpatient surgery
  (1) May be covered at full charges or may require deductible, copay, and coinsurance
  (2) Mandatory for a defined list of procedures to discourage unnecessary hospital admissions
• Psychiatric admisstions and alcochol and drug treatment
  (1) Required to be performed in a facility or by a licensed provider
• Skilled Nursing facility
  (1) Performed by a licensed facility providing skilled nursing as opposed to custodial care
  (2) Require that the admission in the skilled nursing facility is in lieu of hospitalization
• Health care services limited to services performed in lieu of other treatment being required

4. Covered Professional Services
- Limited to licensed or board certified providers

• May exclude certain provider types such as dentists, chiropractors
• Coverage for services related to surgery includes surgeries on an inpatient, outpatient, and office basis
• Covered services provided by physicians include office visits, home visits, hospital visits, emergency room visits, and preventive care
  (1) ACA requires coverage of precentive services without cost to the member
• Additional professional services include obstetrician or a gynecologist, outpatient psychiatric treatment, outpatient alcohol and drug, physical therapy, immunizations and injections
• Some plans have a gate-keeper requirement - all access to covered services requires a referral from primary care physician
• Credentialing - assuring that provider meets licensing, quality and efficiency standards

5. Other Covered Services
- Typically include diagnostic, X-ray and lab, prescription drugs, appliances and durable medical equipment, ambulance, private duty nursing, and well benefits, nurse helplines, disease management benefits

• Prescription drug benefits
  (1) Include a separate deductible or copayment per prescription
  (2) Pharmacy Benefit Managers - specialize in building pharmacy networks, developing drug management programs and adjudicating/paying pharmacy claims
  (3) Incentives to use drug available on a generic basis or on listing of preferred drugs referred to as a formulary
• Wellness benefits - profiling and recommendations based on individual’s health status and lifestyle
  (1) Training classes and encouragement for smoking cessation, weight loss, diet, etc.
• Nurse help lines - dial-in service for insured to speak with a nurse regarding certain conditions
• Telehealth/ telemedicine - remove access to certified nurse and doctors, through phone or internet
• Disease Management - identify individuals at increased health risk due to presence of chronic diseases

Question 3

The Second Dimension (Insured Cost Sharing)

1. Purpose for Cost Sharing
2. Provisions for Cost Sharing

Answer 3

1. Purpose of Cost Sharing
a. **Control of Utilization **
- Individual receiving care should have a share of the costs being used
- Concern that reduced utilization will result in decreased health status or increased health expenditures

b. Control of Cost
- Lowers premium and provides more affordable coverage

c. Control of Risk to the Insurer
- Ensures that costs truly represent insurable risks (as opposed to preventive care, etc)

2. Provision for Cost Sharing
- Individual can share in the cost through contributions (premiums) or participating in the cost of medical care

• Deductible - dollar amount of services that must be paid by the individual before services are paid by the plan
  (1) May exempt preventive care services
  (2) Deductibles may apply to specific services such as hoapital admissions
  (3) Family contract deductibles - sometimes a dollar amount that must be paid in total by family before services are paid by the plan; Other contracts define deductible for each individual, have family limit (e.g. family has to pay no more than 2X individual deductible)
  (4) Carryover provision - claims applied to deductible in the last quarter may be carried over and apply to meet deductible in current period
• Coinsurance
  (1) Percentage of services paid by the insurer after the deductible (but sometimes coinsurance refers to the percentage paid by the insured instead)
  (2) Coinsurance level can vary for different services to encourage specific behavior
• Copays
  (1) Fixed dollar amount paid each time covered service takes place
  (2) Vary significantly by service type to impact utilization
  (3) Used in HMOs where deductibles and coinsurance do not apply because no reimbursement actually takes place
  (4) Also common with PPOs
• UCR maximums (Usual, Customary and Reasonable)
  (1) Reflect the lowest of a provider’s usual charges, charges customary in that geographic region, and a level reasonable in relationship to the specific services provided
  (2) Also known as usual & customary (U&C) or reasonable & customary (R&C)
  (3) Many plans use FAIR Health’s metrics to determine UCR (FAIR is non-profit organization)
• Varying deductibles and coinsurance used to encourage the insured to use certain providers
  (1) PPO - varying cost shares based on predefined (preferred) list of providers
  (2) EPO - simmilar to HMO - no benefits other than emergency services given outside of non-network providers
  (3) ACO - incentives to steer care to partner providers but also have quality, efficiency and risk sharing agreements in place between payer and provider
  (4) Centers of Excellence - COE - high-quality, cost-efficient mechanism to arrange high intensity services
  (5) Point of Service - POS (or open panel HMO) - higher level of benefits if insured follows protocols and restrictions; lower level of care otherwise
  (6) Multiple tiers of copays and coinsurance levels in pharmacy care - attempts to modify insured’s behavior
• Annual maximums and lifetime maximums
  (1) Most often used on services where medical necessity or the course of treatment is vague
  (2) Health care reform eliminated many annual and lifetime maximums
• Daily limit maximums and number of day limits
  (1) Most common on skilled nursing facilities, home health care, and private duty nursing
• Combinations of the above
  (1) Base plan provides first dollar coverage without deductible or coinsurance for hospital coverages. May include a number of day limit, and daily limit
  (2) Supplementary major medical plan excludes services under a base plan, and provides coverage subject to deductible and coinsurance
  (3) Comprehensive program has all services in one program, subject to deductible and coinsurance
• Reference Based Price (RBP)
  (1) Benchmark reference as max that that plan will pay for specific services
  (2) Costs above benchmark paid by insured
  (3) Plans growing in popularity

Question 4

Third Dimension (Provider Risk Sharing)

1. Types of Provider Risk Sharing
   - Discount on Billed Charges
   - Fee Schedule / Maximum Schedule
   - Per Diem Contracts
   - Reimbursement based on DRG
   - Bonus Pool
   - Capitation
   - Integrated Delivery System
   - Spectrum of Risk Sharing

Answer 4

1. Intended to reduce the costs through rate concessions as well as provide incentives for providers to control utilization

2. Types of Provider Cost Sharing
a. Discounts for Billed Charges
- Simplest form form of provider cost sharing
- Provides no incentives for utilization modifications

b. Fee schedules of Fee Maximums
- Fails to affect utilization and simply reduce costs
- Advantage over a discount from billed charges - provider is unable to adjust billed charges to impact overall claims

c. Per Diem Contracts
- Most commonly used for hospitalization
- Amount per day of hospital stay is negotiated
- Per diem often varies based on the level of care
- Reduce costs and have some controls on services ancillary to hospital room and board
- No incentive to encouage outpatient use or reduce lengths of stay

d. Reimbursement Based on DRG (Diagnosis Related Group)
- Provides a set of reimbursement to a hospital for a given diagnosis, regardless of the level of sevices provided
- This is the mechanism used by Medicare FFS program
- Provide utilization incentives regrding charges during a hospital admission, but limited incentives for impacting the number of admissions
- Similar mechanism for outpatient charges is APCs (ambulatory payment classifications)
- Case rate payments or global payments, a single reimbursement to cover all services associated with a given condition can include both facility and professional fees

e. Bonus Pools
- Provider receives bonus if utilization of medical services was below a target or if quality criteria are met
- Appears to provide incentives for a provider to control utilization
- Disadvantages
(1) If bonus not a significant proportion of provider’s income, a provider can maximize income by increasing utilization
(2) May be difficult to enroll providers willing to accept the risk of adverse experience
(3) Creates ethical questions when a provider is given financial incentive not to provide medical care

f. Capitation
- Provider performs a defined range of services in return for a set amount per month per enrollee
- Virtually all risk is passed along to the provider
- May reduce costs and provide utilization incentives
- Raises same ethical questions mentioned above in bonus pools
- Global capitation - capitating a provider group for all health care services instead of services performed by a single provider
- Specialty capitation - a fixed payment for all medical expenses associated with a given condition or for all services by a physician specialty

g. Integrated Delivery System
- The insurer owns or employs the providers of care
- e.g. Staff model HMO

h. Spectrum of Risk Sharing
- Narrow Network - lower cost product, less freedom for insured to choose
- Broad Network - higher cost product, more freedom for insured to choose

Question 5

Other Medical Plan Provisions

Answer 5

1. Exclusions
- Services deemed not medically necessary
- Services deemed to be experimental
- Services related to comestic surgery
- Other specified services including hearing, vision, care of the feet, and spinal manipulation
- Transplants are often excluded or provided with a limit such as $100,000 maximum (for grandfathered plans under ACA only)
- Services for which payment is not otherwise required (e.g. free care provided through governmental programs)
- Services required due to an act of war
- Services as a result of a work-related injury
- Charges from a provider related to the patient

2. Mandated benefits
- Specific benefits mandated by regulating bodies (such as states)
- Self-funded benefit plans regulated under ERISA exempted from state laws

3. Coordination of Benefits
- The process used to adjudicate claims when a service is covered under multiple plans
- Designate one carrier as primary responsible as if they were the only insurer
- Secondary carrier most common approach is to pay the benefits it would have normally paid, less benefits covered by primary carrier, up to a maximum of the total charges
- NAIC model specifies the primary carrier based on the following hierarchy:
(1) The plan not containing a COB clause
(2) The carrier covering the individual as an employee
(3) If both carriers cover the individual as a dependent, the plan which the employee (not the dependent) has the birthday earliest in the calendar year
(4) The plan that has had coverages in effect the longest

4. Subrogation clause
- Carrier can seek payment for medical charges from the party who caused the injury

5. Consolidated Omnibus Reconciliation Act (COBRA) continuation
- Requires employers with 20 or more empoyees to offer continued coverage beyond a person’s termination date
- Continued coverage is required to be offered for a period between 18 to 36 months
- Insured must pay premium, at up to 102% of the cost of coverage 9additional amount above 100% is for administrative expenses)

Question 6

Special Situations

Answer 6

1. Managed Care Plans
   a. HMO
   - Minimal insured sharing in costs
   - In order to receive coverage, an insured may have to follow specific guidelines
   - Typically restrictive provider networks
   - Physicians and hospitals agree to conform with the HMO’s utilization protocols and to provide care at a reduced fee

b. Exclusive Provider Organization (EPO)
- Similar design to HMO
- Primary difference: EPO is regulated as an insurance contract or self-funded plan, while HMO may be subjected to difference regulatory requirements

c. POS
- Similar to HMO, but insured has the alternative of seeking care of outside network with additional cost-sharing requirements

d. PPO
- Insureds use either a designated panel of providers or their provider
- Lower coinsurance is used and deductibles are waived if particiapting providers are used
- Significant provider sharing in the cost, although generally less than HMOs
- Unlike an HMO, a PPO is an indemnit plan with emphasis on acute care and less emphasis on preventive services

2. Flexible Spending Accounts
   - Employee contributes pre-tax dollars that are then used to provide reimbursements for their own medical expenditures
   - No insured cost sharing beyond their initial funding of the account and no provider cost sharing
   - Allows insured to use pre-tax money to pay for expenses that would otherwise be after-tax
   - ACA created annual limit of $2,750 for 2020 (indexed for inflation)