280QR_Lesson_15
LOMA 280
Principles
of
Insurance:
Life,
Health,
and
Annuities LESSON 15
Medical Expense Coverage
Traditional medical expense insurance products sold in the Unites States provide indemnity benefits, which are contractual benefits that are provided based on the actual amount of the insured's financial loss.
When an insured receives medical treatment, the
Insured pays the medical care provider's charges and then files
a claim with the insurance company for policy benefits
Insurer reimburses the insured for the expenses according to the terms of the policy
Alternatively, the provider can file a claim with insurer and then bill the insurer for any amount remaining.
Covered medical expenses are subject to a stated maximum dollar amount.
Traditional medical expense insurance provides two primary types of coverage:
Basic medical expense coverage
Major medical expense coverage
These coverage options can be offered under separate policies or combined under a single policy, and coverage can be offered on a group or an individual basis.
basic medical expense coverage:medical expense coverage that provides separate benefits for each of three types of medical expenses: hospital expenses, surgical expenses, and physicians' expenses
Hospital expenses include charges for specific inpatient and outpatient hospital services, such as room and board, medications, laboratory services, and other fees associated with a hospital stay
Surgical expenses include charges for inpatient and outpatient surgical procedures
Physicians' expenses include charges associated with physicians' visits both in and out of the hospital
Coverage for basic medical expenses can be provided by separate policies, or several types of
expenses can be covered under one policy.
Basic medical expense policies generally provide first-dollar coverage—that is, the insurer begins to reimburse the insured for eligible medical expenses without first requiring an out-of-pocket contribution from the insured.
Benefits provided under basic medical expense policies typically are limited and many types of
expenses are not covered.
major medical expense coverage: medical expense coverage that provides substantial benefits for (1) basic hospital, surgical, and physician expenses, (2) additional medical services related to illness or injuries, and (3) preventive care
Major medical expense coverage can be provided in
a supplemental major medical policy or a comprehensive major medical policy.
Comprehensive Policy
comprehensive major medical policy: a single policy that combines the coverages provided by both a supplemental major medical policy and an underlying basic medical expense policy
The comprehensive policy provides
Substantial medical expense coverage under one policy
Coverage for most of the medical expenses the insured may incur
Deductibles
Coinsurance
The two most common forms of expense participation requirements are
Most major medical expense policies impose expense participation, or cost-sharing, requirements designed to encourage insureds to control the amount of their medical expenses.
Expense Participation Requirements
Deductibles
deductible: a flat dollar amount of eligible medical expenses that the insured must pay before the insurer begins making any benefit payments under a medical expense insurance policy
Most major medical expense policies contain a calendar-year deductible, which is a deductible that applies to the total of all allowable expenses an insured incurs during a given calendar year.
An insured's payments toward the deductible are calculated separately for each year
Partial deductibles generally are not carried forward
The deductible required for group policies is generally lower than the deductible specified for individual policies.
Coinsurance
coinsurance:typically a specified percentage of all allowable expenses that remain after the insured has paid the deductible that must be paid by the insured
Most major medical expense policies set the coinsurance amount at 10, 20, or 30 percent of allowable expenses that remain after the insured has paid the deductible.
Most major medical expense policies limit the amount of money the insured must pay toward incurred expenses by including a stop-loss provision, a provision which specifies that the policy will cover 100 percent of allowable expenses after the insured has paid a specified amount out-of-pocket to satisfy deductible and coinsurance requirements.
Example
Example: Michael DuPont is covered by a comprehensive major medical expense policy that specifies a $500 calendar-year deductible, a 20 percent coinsurance requirement, and a $5,000 stop-loss provision. During the last calendar year, Mr. DuPont incurred a total of $30,000 in allowable expenses .
Analysis: Of the $30,000 Mr. DuPont incurred in allowable medical expenses during the year, he was responsible for paying the $500 deductible plus 20 percent of the remaining $29,500. The amount of his coinsurance was $5,900 (.20 x $29,500), bringing Mr. DuPont's share of the total cost to $6,500 ($500 + $5,900). However, because of the $5,000 stop-loss amount specified in his policy, Mr. DuPont was required to pay only $5,000 of this amount and the insurer paid the remaining $25,000.
Today, medical costs for most insureds in the United States are being addressed through managed care rather than through traditional insurance coverage.
managed care:a method of integrating the financing and delivery of health care services within a system that manages the cost, accessibility, and quality of care
managed care plans:arrangements that integrate the financing and management of health care with the delivery of health care services to a group of individuals who have enrolled in the plan managed care organizations:the entities that operate managed care plans
The primary difference between traditional medical expense insurance and managed care is that, whereas traditional medical expense insurance is concerned with an individual's medical bills, managed care is concerned with managing
Healthcare
Access to those services
Utilization of services
Costs of services
medically appropriate services:diagnostic or treatment measures for which the expected health benefits exceed the expected risks by a margin wide enough to justify the measures
Within the framework of medically necessary and appropriate services, managed care plans offer
A menu of basic medical benefits, many of which are
mandated by federal and state laws
Extensive preventive care programs
Access to wellness programs
Patient education programs
Types of Managed Care Plans
In the United States, several types of managed care plans have been developed in response to consumer needs and rising health care costs.
These plans generally fall into one of the following basic categories:
Health maintenance organizations
Preferred provider organizations
Point-of-service plans
HMOs typically require subscribers to gain access to services through a primary care provider
Subscribers must use in-network providers; no benefits are provided for services rendered by non-network providers
HMOs can be broadly classified as either open panel HMOs or closed panel HMOs
health maintenance organization (HMO):a health care financing and delivery system that provides comprehensive health care services to plan members in a particular geographic area
Health Maintenance Organizations (HMOs)
Open and Closed Panel HMOs
open panel HMO:an HMO in which any physician who meets the HMO's specific standards can contract with the HMO to provide services to subscribers
closed panel HMO:an HMO that provides health care services to subscribers by either (1) directly employing physicians—an arrangement known as a staff model HMO—or (2) contracting with one or more physicians' group practices—an arrangement known as a group model HMO
Preferred Provider Networks (PPOs) preferred provider organization (PPO):a health care benefit arrangement that provides incentives for plan members to use network providers, but also provides at least some coverage for services rendered by non-network providers
Example:The Beacon Corporation provides health care benefits to
its employees through a PPO plan. The PPO covers 90 percent of
the cost of medical services—usually without a deductible—if a
plan members uses a network provider. The PPO covers only 70 percent of the expenses if the member uses a non-network provider. The PPO also requires the member to pay a $200 deductible for non-network services.
PPOs do not provide health care directly to plan members; instead, they act as brokers or middlemen by contracting with health care providers to deliver services to a specified group of covered individuals.
Point-of-Service (POS) Plan
point-of-service (POS) plan:a managed care plan that combines features of HMOs and PPOs
Plan members generally must select a primary care provider who is responsible for coordinating the member's medical care
Plan members can choose, at the point of service, whether to seek care in-network or out-of-network
The plan provides a much lower level of coverage for services received from non-network providers
Example:A POS plan may require plan members to pay only a copayment for services received from an in-network provider, but may require members to pay both a deductible and coinsurance for services received from a non-network provider.