Medical Benefits In The United States PDF

# MEDICAL BENEFITS IN THE UNITED STATES ## 5 Medical Benefits in the United States **Darrell D. Knapp** Group medical benefits have grown to be the predominant group insurance coverage in the United States, both in terms of premium dollars and covered lives. In 2018, more than 178 million people...

# MEDICAL BENEFITS IN THE UNITED STATES ## 5 Medical Benefits in the United States **Darrell D. Knapp** Group medical benefits have grown to be the predominant group insurance coverage in the United States, both in terms of premium dollars and covered lives. In 2018, more than 178 million people received employment-based health insurance, representing 55% of the population. Although this percentage is down from the prior decade due to economic conditions and citizens aging into Medicare, employer-based health insurance is still the primary source of health care coverage in the United States. Medical benefit plans include all coverages that facilitate the provision of medical services to individuals. Some plans provide medical services directly (service benefits), and others pay for expenses incurred related to medical care (indemnity benefits). Service benefits typically involve some restrictions of provider selection and assure no additional cost to the insured beyond the designated deductible, copay, or coinsurance. Blue Cross originated as a service benefit provider, providing for hospital care at designated hospitals in return for a periodic prepayment. Modern day health maintenance organizations (HMOs) are another example of service benefit plans. In contrast, indemnity benefit plans typically involve limited or no provider restrictions and were designed to indemnify (or insure) members for expenses that they incur when using health care facilities and providers. The expenses are reviewed to determine if they qualify for coverage under the indemnity policy, and the claim is adjudicated for payment. Benefit plans involving the provision of services or reimbursement for services related to dental care, vision care, hearing care, and prescription drugs not covered under the main medical care program will be covered in later chapters. The growth of medical benefit plans has been largely aided by favorable federal income tax treatment of benefits. Under the United States Internal Revenue Code, employer payments for medical insurance or benefits generally do not generate taxable income to the employee, meaning that the dollars the employer pays for a group medical plan are of greater value to the employee than dollars paid directly to the employee, which would be taxable. This tax advantage has become a double-edged sword. Many employee benefit plans now provide benefits for services that go beyond the definition of an insurable event. Theoretically, an insurance system will only be effective if benefits are provided for events that are random, **Dimensions of a Medical Plan** Compared to many years ago, when all medical benefit plans were somewhat similar, there is currently a wide variety of the types and structures of medical benefit plans available in the marketplace. It is possible to define any given medical benefit plan by its position on each of three dimensions or continuums. * **The First Dimension** The definition of services covered and conditions under which they are covered include the following elements: * Definition of incurral date * Covered services, limitations and exclusions * Covered facilities * Covered professional services * Other covered services * **The Second Dimension** The second dimension in defining a medical benefit plan is the degree to which the insured shares in the cost of medical services. * **The Third Dimension** The third dimension in defining a medical benefit plan involves the relationship between providers and the health plan, including the breadth of the provider network and the degree to which the provider participates in the cost. This may include not only discounts or other modifications to provider payments, but also conditional payments based on some element of plan utilization. Having providers participate in benefit plan costs is intended to both reduce the costs of the underlying plan of benefits through provider reimbursement rate concessions, as well as to provide incentives for the providers to control utilization, particularly referrals to expensive specialists and hospital admissions. Providers gain anticipated increases in patient volume by being on a plan’s preferred provider list. ## **Other Medical Plan Provisions** In addition to the three basic dimensions that define a medical benefit plan described in the previous section, there are a number of other provisions that are standard in any benefit plan. These include the following: * Overall exclusions, * Mandated benefits, * Coordination of benefits, * Subrogation, and * COBRA continuation. ### Managed Care Plans * **Health Maintenance Organization (HMO)** A Health Maintenance Organization (HMO) is a service benefit plan that involves minimal insured sharing in costs. The general philosophy of the HMO is that providers control the utilization of health care and the end consumers have little input into the purchasing decisions. Therefore, to manage costs the provider component must be controlled. A common benefit plan would require a $20 to $40 copay for an office visit, varying copays for prescription drugs (depending on the type of drug), and a $50 to $150 copay for emergency room utilization. However, to receive coverage an insured generally must follow specific guidelines, including having all care managed by a primary care physician, who would provide referrals to specialists as necessary, except in the event of an emergency. HMOs typically have restrictive provider networks involving a small proportion of physicians and hospitals in a given community. In return, the physicians and hospitals agree both to conform to the HMO’s utilization protocols and provide care at a reduced fee level. * **Exclusive Provider Organization (EPO)** An Exclusive Provider Organization (EPO) generally has a similar design to an HMO. The primary distinction is that an EPO is regulated as an insurance contract or self-funded plan while an HMO may be subject to different regulatory requirements and authorities. * **Point-of-Service (POS)** A Point-of-Service (POS) program is similar to an HMO in that the insured selects a primary care physician and has low copays similar to that described above if guidelines are followed. However, under this program the insured also has the alternative of seeking care outside of the network with additional cost-sharing requirements. * **Preferred Provider Organization (PPO)** A Preferred Provider Organization (PPO) is a plan that offers insureds the freedom to use either a designated panel of providers or their provider of choice. To encourage the insured to use the preferred provider panel, deductibles are often lower and payer coinsurance higher if participating providers are used. PPOs typically involve significant provider cost sharing, although generally less than HMOs. A typical PPO plan would feature a more generous deductible and coinsurance (such as $1,000 and 90%) if the preferred provider panel were used, and a less generous deductible and coinsurance (such as $2,000 and 70%) if the panel were not used. The provider cost sharing in a PPO is generally more focused on reducing the overall costs to the benefit plan than on attempting to impact provider utilization ### Flexible Spending Accounts Another example of a medical benefit plan is a Flexible Spending Account (FSA). An FSA is a benefit plan whereby an employee contributes pre-tax dollars on an annual basis that are then used to provide reimbursements for medical expenditures. The amount of reimbursement is limited to the amount contributed by the employee. There are virtually no limitations in a flexible spending account regarding benefits or providers. There would be no insured cost sharing beyond their initial funding of the account, and there is no provider cost sharing. The FSA is basically an opportunity for an insured individual to use pre-tax dollars to pay what would otherwise be after-tax payments for medical care. The annual health care FSA limit is $2,750 for 2020 (this limit is indexed annually for inflation). ### Incurral Date To receive medical benefits, coverage must generally be in effect on the date on which contractual liability to pay for that service occurs. That date is referred to as the incurral date of the benefits. Medical benefit plans have a variety of definitions of incurral date. The most common definition is the date of service (for professional services) and the date of admission (for inpatient hospital services). A more limiting definition of incurral date is date of service for all covered services. This definition could result in denying a portion of a hospital charge, if coverage lapsed while a covered individual was actually in the hospital. A less limiting definition would have contractual liability attached at the date of onset of a disability. This definition would result in all claims related to a given disability or illness to be incurred at the first date of that disability. Under this type of provision, the definition of disability can vary widely, from being unable to perform the normal functions of a similarly situated person, such as returning to work, to requiring continued institutionalization. This type of definition of incurral date is commonly used for plans that provide disability benefits, but it is not common in medical benefits, though the same timing concept can be used in applying exclusions of medical benefit coverage. Another alternative definition has contractual liability attached at the date a claim was paid. Excess risk or stop-loss policies commonly attach liability on either a “paid” basis or a “paid and service date" basis. For example, many stop-loss contracts accumulate claims on a basis such as "incurred in 12, paid in 15". This definition requires that a valid claim be both incurred during a 12-month period (generally the policy year), and paid or submitted for payment in a coinciding 15-month period (that is, within three months from the end of the policy year). In addition to the definition of when liability attaches on an ongoing basis, many contracts include a provision that extends benefits in the event that an individual is disabled at contract termination. This type of provision is usually stated either in terms of a number of days from the date of termination, provided an individual remains disabled under a normal activities definition of disability, or until the end of an institutional stay beginning prior to coverage termination. The benefits covered under an extended benefit provision are normally limited to medical services related specifically to that disability and subject to the availability of other insurance. For example, if an individual receiving benefits under this provision due to a disability from a heart condition were to be injured in an accident, the charges stemming from that injury would not be covered. Likewise, if an individual has new coverage that replaces the terminated coverage, the extended benefits provision may not be applicable. ### Covered Services, Limitations, and Exclusions In addition to determining whether coverage exists as of the date the claim is incurred, it must also be determined if a given medical service is covered. Many covered services, and limitations or exclusions to those covered services, are subject to regulatory requirements that can differ broadly, depending on the regulatory entity that has jurisdiction over a given medical benefit plan: * Insured medical plans are regulated by the state Departments of Insurance, which have varying mandated benefits in spite of efforts by the National Association of Insurance Commissioners (NAIC) to encourage similar legislation from state to state. * Self-funded plans are broadly regulated by the Department of Labor under the Employee Retirement Income Security Act (ERISA) that has very few specific references to covered services and limitations. Some states regulate certain aspects of self-funded plans that are not pre-empted by federal ERISA regulation. * The regulatory bodies for HMOs vary from state to state, sometimes being the Insurance Department, and sometimes being another entity. This creates a potentially varying set of benefit requirements for an HMO plan than for an indemnity plan. On a benefit-by-benefit basis, HMO benefit requirements may be either more restrictive or more liberal than those of insured plans. * The federal government has begun adding an additional level of regulation, through legislation specifying certain benefit provisions and operational practices, such as mental health parity and minimum stay requirements for maternity. * Under the Affordable Care Act (ACA), the level of federal regulation regarding covered benefits has significantly increased. Changes due to the ACA include coverage of a standardized set of preventive services at 100%, prohibition of lifetime and annual limits, and plan design limits on the maximum annual out-of-pocket cost when using in-network providers. In addition, the ACA defined a set of essential health benefits that must be included in any plan sold in the individual and small group markets. Although the specifics of the essential health benefits vary by state, the ACA requires coverage of the following broad categories of medical services in every state: * Ambulatory patient services * Emergency services * Hospitalization * Maternity and newborn care * Mental health and substance use disorder services * Prescription drugs * Rehabilitative and habilitative services and devices * Laboratory services * Preventive and wellness services and chronic disease management * Pediatric dental and vision care * * Covered Facilities Covered facilities can include acute care inpatient hospital facilities, emergency rooms, outpatient hospital and surgery facilities, inpatient or outpatient psychiatric facilities, inpatient or outpatient alcohol and drug treatment programs, skilled nursing facilities or nursing homes, and home health care. ### Covered Professional Services Coverage for professional services is generally limited to licensed or board-certified providers. Covered providers are explicitly defined in the benefit plan and may exclude certain provider types, such as dentists, chiropractors, naturopaths, or podiatrists. These exclusions are often limited by state mandates requiring coverage for certain providers. Coverage for professional services related to surgery includes surgeries performed on an inpatient, outpatient, and office basis. Coverage for outpatient or office surgery frequently will include a list of procedures for which surgery is required to be performed on that basis. Other typical limits include a provision reducing the provider’s payment for multiple procedures and limits on the charges from an assistant surgeon, such as paying at a reduced percentage fee schedule or refusing to pay at teaching hospitals where interns are readily available as assistant surgeons. Charges related to anesthesia are typically covered with similar limits. Covered services provided by physicians may include office visits, home visits, hospital visits, emergency room visits, and preventive care. Hospital visits are generally limited to one visit per day, and they are usually assumed to be included in surgical fees if the visit is a follow-up to a surgical procedure. Physicians’ charges in the emergency room are often subject to the same restrictions as emergency room facility charges. Historically, visits related to preventive care were not covered by insurance plans, while they generally were covered by HMOs. The ACA requires coverage of preventive services without cost to the member. The historic rationale for not covering preventive benefits was that a preventive office visit is a small expenditure for which the individual can control the utilization and, thus, does not meet the definition of an insurable event. As valuable as this type of coverage may be for covered members, it can also be seen as somewhat inappropriate in the context of a traditional insurance contract. Conversely, managed care plans assert that preventive services, which the insurer may forgo if not covered, ultimately reduce the cost of medical care through early detection and treatment of medical conditions. Services for an obstetrician or a gynecologist are generally covered as any other provider. Physician services related to a pregnancy are covered comparably to facility charges. Additional professional services include consultations (which may require referral), outpatient psychiatric treatment, outpatient alcohol and drug treatment, physical therapy (which may include a requirement to establish improvement or anticipated improvement in a defined period), and immunizations and injections. Certain plans attempt to further direct the insured to a given set of providers through adding requirements that certain conditions be met before coverage is available. Common examples include prior authorization as well as gatekeeper requirements, where an insured must designate a primary care physician who is responsible for managing referrals to all other covered services. The selection of providers to be included in an insurer's preferred list involves contracting with the providers and a process called credentialing. The credentialing process includes assuring those provider meets the licensing, quality, and efficiency standards of the insuring organization. After the initial contracting stage, providers periodically go through a similar process of recredentialing requirements to replace or loosen gatekeeper referral requirements. ### Other Covered Services Other covered services under medical contracts typically include diagnostic, X-ray and lab, prescription drugs, appliances and durable medical equipment, ambulance services, private duty nursing, and wellness benefits. Plans covering just prescription drugs have become their own industry. Prescription drug benefits are often part of a freestanding drug program that includes a separate deductible or a schedule of copayments for each prescription. Pharmacy benefit managers, sometimes owned by health insurance companies that provide medical benefit coverage, specialize in building pharmacy networks, developing drug management programs, and adjudicating and paying pharmacy claims. Common provisions include requiring use of mail order services for maintenance drugs, and incentives or requirements to use generic drugs when available. Another facet of prescription drug coverage is the inclusion or the exclusion of oral contraceptives. Like preventive services, this expense does not meet the definition of an insurable event, yet it is considered a valuable benefit in an employee benefit plan. Oral contraceptives are required to be provided in a number of states, and the ACA has now included oral contraceptives as part of the preventive services category. Coverage related to appliances and durable medical equipment is usually centered on a decision of whether it would be more economical to rent or purchase a given apparatus. Durable medical equipment purchases frequently require the approval of a case manager acting on behalf of the plan administrator to assure benefit dollars are spent judiciously. Coverage related to ambulance services normally contains a provision providing transportation to the nearest facility and may have special conditions on the use of an air ambulance. Private duty nursing coverage is generally provided only in the event that such service is in lieu of other more expensive services. This coverage is often approved in conjunction with the case manager. In addition to providing reimbursement for medical services, many employee benefit plans also provide wellness benefits, which can include training classes and encouragement for healthy life styles, such as smoking cessation, weight loss, and dietary training. Wellness benefits often include profiling of, and recommendations regarding, each covered individual’s health status and lifestyle. This profiling may include analysis of questionnaires completed by the covered individuals and medical analysis such as blood work. Nurse help lines are a commonly available service. This dial-in service provides the insured contact with a nurse to perform triage for virtually any medical condition. This service includes the dual benefits of providing an additional service to the insured, while helping assure the medical care is high quality and cost-efficient. Similarly, telehealth or telemedicine allows remote access to certified nurse practitioners and medical doctors, usually through the phone or internet. The use of telemedicine sky-rocketed in 2020 due to the COVID-19 pandemic, a change driven by health concerns of patients and providers as well as federal and state regulation to enable or require telemedicine access to a wide range of services. Disease management benefits are typically non-contractual benefits provided to specifically identified individuals at increased health risk due to the presence of chronic diseases. Some insurers have found that targeting specific additional benefits to individuals with chronic conditions, such as diabetes or heart disease, will result in both better health for these individuals and lower long-term costs if conditions are promptly treated before complications or co-morbidities occur. ### Deductible A deductible is a dollar amount of covered health care services that must be paid by the individual before any services are paid for by the plan. Most plans exempt certain services from the deductible, such as preventive care services. Other plans define deductibles to apply to very specific services, such as hospital admissions. These narrowly defined deductibles are similar to copays, discussed below. Family contracts can define deductibles in several ways. Some contracts define a family deductible as a dollar amount of covered health care services that must be paid in total by the family before any services are paid for by the plan. Other contracts define a deductible for each individual, but have family limits, such as a family paying a total deductible of no more than two times the individual deductible. Another provision relating to deductibles is a carryover provision whereby any claims applied to the deductible in the last quarter of a deductible accumulation period (often a calendar year) are also carried over and applied to meet the deductible in the subsequent period. This attempts to correct a perceived inequity that may arise if, for example, an individual has no charges until the end of December in a calendar year deductible plan, and then meets the deductible only to have it reapplied on January 1. This provision is often difficult to administer and has become less common. ### Coinsurance For commercial health insurance plans, coinsurance usually refers to the percentage of covered services paid for by the insurer after the insured meets the deductible. The most common coinsurance level for these plans is 80% up to a given amount. For example, a plan with a $100 deductible and 80% coinsurance of the next $5,000 of charges would require a covered individual to pay the first $100 of covered expenses and 20% of the next $5,000 of charges to a maximum limit of 100+(.20)(5,000) = $1,100. The contract should specify whether the deductible and dollar copays are considered as out-of-pocket expenses in relation to the maximum limit. The payer coinsurance level can vary for different services to control or encourage specific behavior. For example, an insurer might provide 100% benefit payment for outpatient surgery but 80% for inpatient surgery. In addition, a lower payer coinsurance level is often used to control behavior and control the insurer’s risk when medical necessity is not clearly definable for a covered service. This more severe coinsurance, often as low as 50%, has the double impact of reducing risk to the medical benefit plan as well as creating a significant utilization control on behalf of the covered individual who is personally funding a higher portion of the cost. ### Copay Another common method of cost-sharing is the use of copays. Copays are typically a fixed dollar amount paid at the time of each covered service. Copays can vary significantly by service type to create incentives that influence utilization. For example, a plan might include a higher copay for emergency room use than for office visits. Copays are most frequently used in service benefits contracts such as in HMOs, where the concepts of deductibles and coinsurance do not readily apply because no reimbursement actually takes place. Copays have also become common in PPO plans for specific services such as physician office visits. ### Usual, Customary, and Reasonable (UCR) Limiting reimbursement to UCR (usual, customary, and reasonable) charges may result in increased cost sharing on behalf of the insured. UCR maximums are set by a plan administrator and generally attempt to represent a reimbursement level that reflects the lowest of three items: a given provider’s usual charges (U), the charges that are customary in that given geographic region for similar procedures (C), and a charge level that is reasonable in relationship to the specific services provided (R). These limits are generally not applicable to plans providing service benefits, like HMOs. The provisions are a tool to limit cost. However, some reduction in utilization of specified high-cost providers may result from the insured being required to make up the difference between a provider’s bill and the UCR reimbursement provided by the insurer. For many network plans, UCR reimbursement must be accepted by participating providers as payment in full as a requirement for participation in the network. There are other industry terms which refer to the same concept, including usual and customary (U&C), and reasonable and customary (R&C). Due to a lawsuit over out-of-network payment levels to providers, many insurers and third-party administrators now use FAIR Health’s metrics to determine UCR, though again the terminology may be different. FAIR Health is an independent nonprofit organization formed in 2009 as a direct result of the lawsuit. ### Varying Deductibles and Co-insurance Varying deductibles and coinsurance are often used to encourage the insured to comply with certain requirements or use certain providers. For example, a PPO plan will often waive the deductible or reduce the payer coinsurance if the insured seeks care from a predefined list of providers. Occasionally, use of a network provider is a requirement for any benefit. This is a standard provision for HMOs but is increasing in use in insurance contracts through Exclusive Provider Organizations (EPOs), Accountable Care Organizations (ACOs), and Centers of Excellence (COEs). EPOs are similar to standard HMOs in that no benefits other than emergency services are provided if care is obtained from a non-network provider. ACOs have incentives to steer most care to partnering providers but have more agreements in place over quality, efficiency and risk sharing between the payer (whether it be a direct customer or an insurer intermediary) and the provider. COEs have been established by many carriers to provide a high-quality cost-efficient mechanism of arranging for high intensity services, such as transplants. Coverage for those services is often limited to services provided by the COE. Another example of varying deductibles and coinsurance is an open panel HMO or Point of Service (POS) program. Similar to a PPO, these programs provide a much higher level of benefits if the insured follows all of the protocols and restrictions of the HMO, and a lower level of benefits if the insured receives care otherwise. A tiered network is a variation of this concept where an insurer can define multiple networks inside a given benefit plan with varying copays dependent on which provider is used. With this variation, insureds retain greater choice of providers but has additional cost sharing if they choose providers deemed to be expensive or inefficient. A classic example of attempting to modify insured behavior using copays can be found in prescription drug programs. These programs have evolved from simple fixed-dollar copays per prescription to multiple tiers of copays and coinsurance levels depending on whether a drug is brand name or generic, whether it is on or off a carrier’s formulary, and whether or not a therapeutically equivalent is available. Although quite complex, these multi-tier copay prescription drug programs appear to be very effective at modifying consumer behavior. ### Annual Maximums and Lifetime Maximums Annual maximums and lifetime maximums are provisions that attempt to provide bounds on the risk undertaken by the insurer. Most often annual maximums are used on covered services where either medical necessity is difficult to define or the course of treatment is vague. In addition, annual maximums can be used on catastrophic or somewhat experimental items, such as certain organ transplants. However, the ACA has eliminated most plans’ annual and lifetime maximums. ### Per Diem and Daily Limits Limits on the benefit payable per day of covered services are an effort to control costs, to encourage the insured’s awareness of costs and to encourage wise consumption of health care resources. A limit on the number of days for which services will be covered is an attempt to control utilization. Both daily limit maximums and number of day limits are most commonly used on benefits such as skilled nursing facilities, home health care, and private duty nursing. In some plans, all of the above provisions may be waived, or coverage increased, depending on which provider is used or on completion of certain requirements such as pre-certification. Such provisions again reflect an attempt to influence the behavior of the insured. Different combinations of the above limits have historically been given specific labels. For example, a "base plan" generally provides for first-dollar coverage, without deductible or coinsurance, for hospital coverage. Provisions may include a number of days limit, and a limit to either room and board charges or ancillary charges for each day of hospitalization. A "supplementary major medical plan" typically excludes services provided under a base plan and provides coverage for all other services subject to a corridor deductible and coinsurance. In contrast, a "comprehensive major medical plan" has all covered services in one program, subject to a deductible and coinsurance or copays. ### Reference Based Pricing A Reference Based Priced (RBP) plan uses a benchmark reference, such as FAIR Health or traditional Medicare fee schedules (for example, “150% of Medicare") as the maximum that the plan will pay for a specific service. Costs above that benchmark, other than for emergency services, would fall on the insured to pay. Annual maximum out-of-pocket cost protections are common with RBPs due to ACA requirements. These plans normally make the benchmark reference easily accessible to insureds and offer insureds provider cost and quality transparency tools to inform decisions. These plans are growing in popularity, particularly among a few innovative, large self-insured employers. These plans require a high level of awareness on the part of insureds and advanced communications and tools on the part of insurers and employers. If insured, these plans often come under increased regulatory scrutiny in some states, both in terms of mental health parity design and provider compensation parity compliance, as well as in terms of challenges relating to simply fitting into a specific regulatory framework (for example, major medical versus fixed indemnity regulations). ### Mental Health Parity In an effort to allow consumers to compare the value of various health plans, the ACA requires health plans in the individual and small employer markets to be assigned a "metal level", based on the overall expected plan’s share of the average cost. The assignment is based on a standardized tool; the actual coverage percentage is dependent on the specific utilization pattern of the individual. The assigned metal levels are platinum (90%), gold (80%), silver (70%), and bronze (60%) of the essential health benefits, though each metal level has a corridor around these target actuarial values. For more specifics, see Chapter 19, “The Affordable Care Act”. ### Coordination of Benefits Most employee benefit plans also contain a provision discussing coordination of benefits procedures. Coordination of benefits refers to the process used to adjudicate claims when a service is covered under multiple benefit plans. Such a clause will designate one insurer as primary and responsible for coverage as if it were the only insurer. The alternative insurer is designated as secondary and is responsible for any additional benefits that its plan may provide. The secondary insurer can coordinate based on either total charges or total benefits. The most common approach is coordination based on total charges in which the secondary insurer will pay the total benefits it would have normally paid, less any benefits covered by the primary insurer, up to a maximum of the total charges incurred. When coordinating based on benefits, the secondary insurer will first calculate the normal level of benefits it would have provided had it been primary, and then reduce those benefits for any benefits provided by the primary insurer. The current NAIC model bill on coordination of benefits specifies the primary insurer based on the following hierarchy: 1. The benefit plan not containing a coordination of benefit clause in the event one of the plans does not contain such a clause. 2. The insurer covering the covered individual as an employee. 3. If both insurers cover the individual as a dependent, the benefit plan for which the covered employee (not the dependent) has the birthday that falls earliest in the calendar year. 4. If both benefit plans cover an individual as an employee, or if both employees covering a dependent have the same birthday, the plan that has had coverage in effect the longest. Benefit plans covering individuals as employees, or as dependents of active employees, are primary with respect to Medicare for employers with more than 20 employees. Benefit plans covering individuals as retirees or as dependents of retirees are secondary if Medicare can be a primary carrier. ### Subrogation Medical benefit plans generally contain a subrogation clause that assigns the right of recovery from any injuring party to an insurer that has provided services or reimbursed charges for medical services. In addition, this clause generally gives the insurer the full right to act on behalf of the covered individual in seeking such damages and is often referred to as third party liability. Subrogation clauses most commonly come into play when addressing workers' compensation claims or automobile accidents. ### Consolidated Omnibus Budget Reconciliation Act (COBRA) The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to offer continued coverage beyond a person’s termination date. This can arise when a dependent loses eligibility due to either divorce or death of the employee, when an employee or a dependent loses eligibility due to termination of employment, or when a dependent no longer meets the definition of a dependent child. Continued coverage is required to be offered for a period between 18 and 36 months. The length of the continuation period varies dependent on the terminating event. The employer may charge the individual insured up to 102% of the average unsubsidized cost for the coverage. ### Special Situations The three dimensions of a medical benefit plan described earlier in this chapter broadly categorize any medical benefit plan. However, specific combinations of these descriptions have been referred to as a given type of program. As the group medical benefit market has matured over the past decade, there has been considerable lack of strict definition of what is an HMO, what is a PPO, and what is a traditional indemnity plan. ### Managed Care Plans * **Health Maintenance Organization (HMO)** A Health Maintenance Organization (HMO) is a service benefit plan that involves minimal insured sharing in costs. The general philosophy of the HMO is that providers control the utilization of health care and the end consumers have little input into the purchasing decisions. Therefore, to manage costs the provider component must be controlled. A common benefit plan would require a $20 to $40 copay for an office visit, varying copays for prescription drugs (depending on the type of drug), and a $50 to $150 copay for emergency room utilization. However, to receive coverage an insured generally must follow specific guidelines, including having all care managed by a primary care physician, who would provide referrals to specialists as necessary, except in the event of an emergency. HMOs typically have restrictive provider networks involving a small proportion of physicians and hospitals in a given community. In return, the physicians and hospitals agree both to conform to the HMO’s utilization protocols and provide care at a reduced fee level. * **Exclusive Provider Organization (EPO)** An Exclusive Provider Organization (EPO) generally has a similar design to an HMO. The primary distinction is that an EPO is regulated as an insurance contract or self-funded plan while an HMO may be subject to different regulatory requirements and authorities. * **Point-of-Service (POS)** A Point-of-Service (POS) program is similar to an HMO in that the insured selects a primary care physician and has low copays similar to that described above if guidelines are followed. However, under this program the insured also has the alternative of seeking care outside of the network with additional cost-sharing requirements. * **Preferred Provider Organization (PPO)** A Preferred Provider Organization (PPO) is a plan that offers insureds the freedom to use either a designated panel of providers or their provider of choice. To encourage the insured to use the preferred provider panel, deductibles are often lower and payer coinsurance higher if participating providers are used. PPOs typically involve significant provider cost sharing, although generally less than HMOs. A typical PPO plan would feature a more generous deductible and coinsurance (such as $1,000 and 90%) if the preferred provider panel were used, and a less generous deductible and coinsurance (such as $2,000 and 70%) if the panel were not used. The provider cost sharing in a PPO is generally more focused on reducing the overall costs to the benefit plan than on attempting to impact provider utilization ### Additional Exclusions Most medical benefit plans exclude charges for or services related to the following: * Services deemed not to be medically necessary to treat a specific condition. There are several exceptions to this exclusion, the most common of which is preventive care. * Services that are deemed experimental by some accepted medical authority. These services are generally excluded either because the usefulness of the treatment has not been clinically established or because, as an experimental treatment, alternative funds may be available to provide the treatment. * Services that are related to cosmetic surgery. Although possibly excluded under the medical necessity clause, most contracts also have a specific exclusion that limits services related to cosmetic surgery. Reconstructive surgery resulting from accidents or mastectomies is often exempted from this exclusion. * Other specified services including hearing services, vision services, care of the feet, and spinal manipulation. These services are often delineated because medical necessity for these types of services is somewhat difficult to establish. * For plans that are grandfathered from ACA requirements, transplants could have an inside limit, such as a $100,000 maximum for a transplant. In addition, specific plan provisions may cover or exclude costs associated with acquiring a transplanted organ from a donor. A requirement to use a Center of Excellence for transplants is common. * Services for which payment is not otherwise required. This exclusion covers a host of situations including free care provided through governmental programs, care provided as part of a controlled group for an experimental program in which no payment is required, and care provided as part of a school or employer-related facility. * Services required due to an act of war. * Services provided because of a work-related injury, which are generally excluded because expenses would be reimbursable under a workers’ compensation program. * Services provided by, or charges from, a provider related to the insured. Medical benefit plans also include provisions for specific benefits mandated by the applicable regulating bodies. As mentioned previously, these mandated benefits vary significantly from state to state, creating administrative difficulty for multi-state insurers. There are also extra-territoriality issues raised when an insurance contract is written in one state and covers individuals in other states. Some states mandate provisions for individuals covered in that state, whereas some states mandate provisions based on the situs of the contract. An additional issue regarding mandated benefits is the pre-emption claimed by self-funded benefit plans regulated under ERISA. ERISA provides exemption from state laws for self-funded employee benefit plans. ### Coordination of Benefits Most employee benefit plans also contain a provision discussing coordination of benefits procedures. Coordination of benefits refers to the process used to adjudicate claims when a service is covered under multiple benefit plans. Such a clause will designate one insurer as primary and responsible for coverage as if it were the only insurer. The alternative insurer is designated as secondary and is responsible for any additional benefits that its plan may provide. The secondary insurer can coordinate based on either total charges or total benefits. The most common approach is coordination based on total charges in which the secondary insurer will pay the total benefits it would have normally paid, less any benefits covered by the primary insurer, up to a maximum of the total charges incurred. When coordinating based on benefits, the secondary insurer will first calculate the normal level of benefits it would have provided had it been primary, and then reduce those benefits for any benefits provided by the primary insurer. The current NAIC model bill on coordination of benefits specifies the primary insurer based on the following hierarchy: 1. The benefit plan not containing a coordination of benefit clause in the event one of the plans does not contain such a clause. 2. The insurer covering the covered individual as an employee. 3. If both insurers cover the individual as a dependent, the benefit plan for which the covered employee (not the dependent) has the birthday that falls earliest in the calendar year. 4. If both benefit plans cover an individual as an employee, or if both employees covering a dependent have the same birthday, the plan that has had coverage in effect the longest. Benefit plans covering individuals as employees, or as dependents of active employees, are primary with respect to Medicare for employers with more than 20 employees. Benefit plans covering individuals as retirees or as dependents of retirees are secondary if Medicare can be a primary carrier. ###