Health Insurance Providers PDF

CH 14 HEALTH INSURANCE PROVIDERS **Administration Services Only (ASO) Plan:  **This is a contract in which a self-funded employee welfare benefit plan contracts with an insurer for administrative services while remaining responsible for the cost of claims. The insurer acts as a third-party administ...

CH 14 HEALTH INSURANCE PROVIDERS **Administration Services Only (ASO) Plan:  **This is a contract in which a self-funded employee welfare benefit plan contracts with an insurer for administrative services while remaining responsible for the cost of claims. The insurer acts as a third-party administrator (TPA). **Adverse Selection:  **This describes the reality that persons who are most likely to suffer a loss are also the most likely to seek insurance. The term also describes the negative financial impact when the percentage of high-risk participants is too high. **Blue Cross:  **This is the part of Blue Cross and Blue Shield that covers hospital services. **Blue Cross and Blue Shield:  **This is an insurance service provider that pays participating medical providers directly for a subscriber's treatment rather than reimbursing the insured. **Blue Shield:  **This is the part of Blue Cross and Blue Shield that covers the treatment costs of physicians and other medical providers. **Capitation:  **This is a method for compensating healthcare providers and is calculated per patient rather than per service. HMOs, pay providers a flat amount per person. If the person never uses the service, the HMO wastes the capitation fee. If the subscriber heavily utilizes HMO services, the provider loses money. **Case Management (Utilization Review):  **This is the process by which a specialist within a person's insurer reviews potentially large claims to discuss treatment alternatives with the insured. **Change of Life Event:  **This is a commonly experienced occurrence that tends to cause individuals to buy insurance that's unrelated to a specific increase in risk. Marriage, divorce, or the birth of a child are common "change of life" events. **Certificate of Insurance:  **This is the document that's received by group plan participants, which demonstrates their coverage under a group plan. Participants are covered under a single master contract and don't receive separate policies. **Closed-Panel Network:  **This is a form of health maintenance organization (HMO) in which providers deliver services within HMO facilities. **COBRA:  **See **Consolidated Omnibus Budget Reconciliation Act**. **COBRA Group:  **A group that has 20 or more employees and must comply with COBRA mandates. **COBRA Qualifying Event:  **See **Qualifying Event (COBRA**). **Co-Insurance:  **This is a cost-sharing formula in which subscribers pay a percentage of their medical costs up to an annual maximum. **Community Rating:  **This is a measurement that's used to project a client's level of risk. Insurers use it when underwriting and setting the premium for small group insurance plans. The insurer bases the client group's projected claims experience on the surrounding community's claims experience and costs. **Concurrent Review:  **This is a form of utilization review in which health care is reviewed as it's being provided. The reviewer monitors the appropriateness of care with a focus on cost control. **Consolidated Omnibus Budget Reconciliation Act (COBRA):  **COBRA mandates that employers provide employees and their qualified beneficiaries with continuing coverage through the company's group health plan following a qualifying event. **Contributory Plan:  **This is a group insurance plan in which the employees and the employer share the cost of coverage. **Conversion Privilege:  **This privilege allows individuals who are covered under group plans to convert their coverage to individual policies when their access to insurance through their group plan ends. **Co-Payment or Co-Pay:  **This is a fixed dollar amount that HMO subscribers pay per visit. Unlike co-insurance, the primary purpose of the co-pay is to cover administration costs. **Creditable Coverage:  **This is defined by HIPAA as previous coverage under another insurance plan when there has not been a break in coverage that lasts 63 days or longer. When an individual changes plans, creditable coverage for pre-existing conditions reduces or eliminates any new waiting period. **Dental Maintenance Organization (DMO):  **This is a health maintenance organization for dental services. Dentists contract with the DMO to provide services at agreed fees. Subscribers have a primary care dentist (PCD) who manages care and provides referrals. Subscribers are responsible for co-pays and, in some cases, co-insurance. **Employee Welfare Benefit Plan:  **This is an ERISA compliant plan that's funded by employers and provides employees benefits other than pensions. **Enrollment Card:  **This must be completed and signed by a new employee during the open enrollment period to enroll in group insurance. **Enrollment Period:  **This is the limited period during which all members may sign up for a group plan. This period typically happens once per year and is for a set number of days. **Evidence of Insurability:  **This is considered proof that a prospective group plan participant is an acceptable medical risk. Group plans have traditionally required evidence of insurability when individuals attempt to enroll outside of established enrollment periods to control adverse selection. **Evidence of Insurance:  **See **Certificate of Insurance**. **Exclusive Provider Organization (EPO):  **This is a hybrid of an HMO and a PPO. An insured has direct access to any in-network provider without a referral, but no coverage is provided for out-of-network care unless there's an emergency. **Experience Rating:  **This is a measurement that's used to project a client's level of risk when underwriting large group insurance. Insurers use it to help set the premiums for group plans. The insurer bases the client group's projected claims experience on the average number and cost of claims in past years. **Extension of Benefits:  **This provision allows a covered individual to continue receiving benefits for a covered claim, even after the individual is no longer eligible for coverage. The extension period may be a fixed period or may last as long as the claim, depending on the contract. **Franchise Health Plans (Wholesale Plans):  **These plans provide health insurance coverage to members of an association or professional society. Individual policies are issued to individual members, and the association serves as the plan sponsor. Premium rates are typically discounted for franchise plans. **Gatekeeper:  **See **Primary Care Physician**. **Group Health Insurance:  **This is insurance for a group of people, often employees of a company, under one master contract. Group health plans are available to employers, trade and professional associations, labor unions, credit unions, and other organizations. Insurance is extended to individuals in the group through the master contract. Group insurance doesn't require individual underwriting or evidence of insurability. **Group Model HMO (Closed Panel):  **Under this model, the HMO pays a capitation or a predetermined price for the provider group, while the group pays the physicians for the services they provide. **Health Insurance Portability and Accountability Act (HIPAA):  **This is a federal law that was passed in 1997 which guarantees American workers have the ability to transfer and continue health insurance coverage when they change or lose their jobs. HIPAA has also strengthened privacy protections. **Health Maintenance Organizations (HMOs):  **This is an organization that offers comprehensive prepaid health care services to its subscribing members. HMOs emphasize preventative care, but they also combine the delivery and financing of healthcare. Subscribers pay a fixed periodic fee rather than a fee per service. **Increased Persistency:  **Unlike individual policies, group plans continue in existence despite the fact that individual participants may leave or join. **Indemnity Plans (Major Medical Insurance):  **These are traditional insurance plans that are not involved with organizing or administering provider networks. Instead, they simply indemnify insureds by reimbursing them for covered costs according to the policy terms. **Independent Practice Association (IPA) HMOs -- (Open-Panel):  **These HMOs are characterized by a network of physicians who work out of their own facilities and participate in the HMO on a part-time basis. **Individual Practice Association:  **This is synonymous with an Independent Practice Association. **Master Contract:  **This is the group insurance policy that's issued to the group sponsor by the insurance company. **Master Policy owner:  **This is the group sponsor that has entered into a contract for group insurance with an insurance company. The sponsor is the policy owner and is responsible for premium payments. The employer may pay the entire premium or may require contributions from each member to cover the insurance cost. **Multiple Employer Trust (MET):  **An MET combines multiple employers (10 or more) into a single pool to provide group insurance. The MET holds the master contract rather than the participating employers who are members of the trust. **Multiple Employer Welfare Arrangement (MEWA):  **MEWAs consist of two or more employers with a common bond who join together to provide health benefits for their employees on a self-insured basis. The law treats them as "employee welfare benefit plans" that are subject to ERISA guidelines and exempt from some state insurance requirements. **Natural Group:  **This is an organization that exists for some reason other than to obtain insurance. **Network Model HMO (Closed Panel):  **This network model is similar to the group model; however, it involves more than one physician group. **Non-Contributory Plan:  **This is a group insurance plan in which the employer pays the entire group premium. **Notice of Privacy Practices:  **HIPAA requires health insurance plans to provide new subscribers with a Notice of Privacy Practices at the time of enrollment and every three years thereafter. The notice details the health plan's compliance with the HIPAA Privacy Rule and the rights of the consumer. **Open-Panel Network:  **This network is a form of HMO in which providers deliver services while working out of their own offices on a part-time basis. **Participating Providers -- **These are doctors and hospitals that contractually agree to specific fees for the services they provide to (Blue Cross and Blue Shield) subscribers. **Persistency:  **This describes the degree to which existing policies remain in force. **Point of Services (POS) Plan:  **This plan combines in-network care that's similar to an HMO with limited out-of-network care resembling an indemnity plan. **Pre-Admission Certification:  **This typically involves evaluating an individual's overall health before being hospitalized for surgery to determine whether the requested treatment is medically necessary. **Preferred Provider Organization (PPO):  **This is a sponsored network of health care providers that contract with the PPO to offer their services to PPO subscribers on a fee-for-service basis at prearranged discount prices. **Pregnancy Discrimination Act of 1978:  **As an amendment to the Civil Rights Act of 1964, this act requires that women who are affected by a pregnancy, childbirth, or related medical conditions (e.g., abortion) be treated the same as any other person for employment-related purposes. **Primary Care Physician (PCP):  **This is a doctor who provides general medical care for individual network members (typically of HMOs or POS plans) and controls all of their referrals for specialized care. **Prospective Review:  **This is a form of utilization review that involves analyzing a case before admission to determine the type of treatment that's necessary. **Qualifying Event (COBRA):  **This type of event qualifies workers and beneficiaries to access COBRA benefits. Qualifying events include termination, disability, death, and divorce. **Retrospective Review:  **This is a form of utilization review that occurs after medical treatment is provided. **Service Basis:  **This is a system of insurance coverage in which consumers contract with service providers (e.g., Blue Cross and Blue Shield) to obtain medical services from participating providers in exchange for a premium. **Service Providers:  **In exchange for a premium, service providers (e.g., Blue Cross and Blue Shield) offer benefits to subscribers in the form of services by participating providers. **Small Employer:  **A small employer is generally defined as a business that has 50 or fewer employees; however, the exact definition varies by state. Small employer groups are subject to special regulations. **Staff Model (Closed Panel) HMO:  **This HMO provides care through physicians and hospitals that are HMO employees. **Taft-Hartley Trusts:  **These are trusts that are negotiated trusteeships resulting from collective bargaining between a labor union and employer. **Third-Party Administrators (TPAs):  **This is an independent organization that provides administrative services for group insurance sponsors that find it more cost-effective than handling such functions in-house. **Utilization Review:  **See **Case Management**. **BLUE CROSS AND BLUE SHIELD (SERVICE PROVIDERS)** A service provider, such as Blue Cross and Blue Shield, offers benefits to subscribers in return for premium payments. Benefits are in the form of services that are provided by hospitals and physicians in the plan. Originally, some affiliates were organized as unincorporated cooperatives. Consumer cooperatives are either incorporated organizations or unincorporated organizations that are managed by an attorney-in-fact in which all members insure one another. These organizations attempt to secure additional subscribers for the organization and will collect premiums from members, administer the plan, and adjust losses. Blue Cross and Blue Shield system is the dominant health insurer in the United States. The nation's Blue Cross and Blue Shield plans are loosely affiliated through the national Blue Cross and Blue Shield Association, and most are considered non-profit organizations. The Blues provide the majority of their benefits on a **service basis** rather than on a reimbursement basis. PAYS COVERED AMOUNTS DIRECTLY TO THE HOSPITAL OR PHYSICIAN ON A USUAL, CUSTOMARY, AND REASONABLE (UCR) CHARGE BASIS. Remaining balance to insured.  [A traditional service provider doesn't reimburse the insured]. Some general characteristics of Blue Cross and Blue Shield include: ▪    Blue Cross covers hospital expenses. ▪    Blue Shield covers surgical and medical expenses. ▪    Blue Cross and Blue Shield offer policies for individual and group coverages. ▪    Blue Cross and Blue Shield members are referred to as subscribers. Traditional Blue Cross and Blue Shield plans are considered prepaid plans because the subscribers pay a preset fee (often monthly) for medical services that are covered under the plan. As **participating providers**, doctors and hospitals contractually agree to specific costs for subscribers' medical services. **TRADITIONAL MEDICAL INSURANCE POLICIES (COMMERCIAL INSURANCE COMPANIES)** Commercial insurance companies---also referred to as traditional insurers---write major medical health insurance policies. The list includes life insurance companies, casualty insurance companies, and monoline companies that specialize in one or more types of medical expense and disability income insurance. Under the terms of traditional major medical insurance and other such medical expense plans, consumers receive health care services from medical professionals. Their insurance companies reimburse them for the cost of those services.  The right of assignment that's built into most commercial health policies allows policy owners to assign benefit payments from the insurer directly to the health care provider, thereby relieving the policy owner of the need to pay the medical care provider. Since these plans indemnify the insured, they're also referred to as **indemnity plans**. Traditional policies focus on the need to indemnify the insured without reference to any specific network of providers. These types of plans are national in scope. *\[EXAM TIP: Be sure to distinguish major medical indemnity plans from the Hospital Indemnity Plan, which was previously described in this program. Any reference to "hospital indemnity" means a plan that pays a fixed daily amount to the insured. In the context of major medical insurance, any reference to an "indemnity plan" relates to a traditional reimbursement. Be careful not to get confused. The term "indemnity" can have more than one meaning depending on the context in which it's being used*.\] **MANAGED CARE - DEFINITION AND CHARACTERISTICS** As the cost of medical care has increased, insurers have focused on trying to control the cost of medical care. Medical cost management is also referred to as cost containment, claims control, case management, and **managed care**. Managed care can be defined as the process of controlling how policy owners utilize their policies. ▪    For example, policies use deductibles, which is an amount that's paid by the insured before the insurer begins to cover claims. A higher deductible will help limit claims and contain costs. ▪    Policies also use co-insurance, which identifies the percentage of claims that are covered by the insurer and insured. Co-insurance is another essential means of sharing the cost of medical care. ▪    Shortened benefit periods can also be beneficial from a cost-containment standpoint. **MEDICAL COST MANAGEMENT** Regardless of form or structure, there are at least four general approaches insurers may use for cost management---*mandatory second opinions*, *precertification review*, *ambulatory surgery*, and *case management*. The design or structure of a policy and its provisions will affect an insurer's cost containment efforts. **Mandatory Second Opinions   ** Today, in an effort to reduce unnecessary surgical operations, many health policies include a provision that requires the insured to obtain a second opinion before receiving elective surgery. Under the mandatory second surgical opinion provision, an insured will typically pay more in out-of-pocket expenses for the surgeries for which the insured only obtained one surgical opinion. [The mandatory second surgical option provision can help contain the cost of a group medical plan]. **Preventive Care   ** Managed care programs also help lower health costs by encouraging preventive care. Preventive care includes annual physical exams and other procedures that help in the early detection of illnesses and medical problems.** ** **Ambulatory Surgery   ** Where once an overnight stay was often required, the advances in medicine now permit many surgical procedures to be performed on an outpatient basis. These outpatient procedures are commonly referred to as ambulatory surgery. To further reduce overhead costs, this type of procedure can be performed at ambulatory surgical centers (also referred to as ambulatory care centers). **Case Management** Case management---also referred to as utilization review---involves a specialist within the insurance company (e.g., a registered nurse) who reviews a potentially large claim as it develops to discuss treatment alternatives with the insured.  The purpose of case management is to allow the insurer to take an active role in the management of what could potentially become a very costly claim.  These utilization reviews are performed on a *prospective basis*, a *concurrent basis*, a *retrospective basis*, or a combination of all three. 1. A **prospective review** involves analyzing a case before admission to determine the necessary type of treatment.  a. also referred to as pre-admission or pre-hospitalization b. typically involves evaluating an individual's overall health prior to being hospitalized for surgery to determine whether the requested treatment is medically necessary. c. 2. a **concurrent review** consists of monitoring a hospital stay by a nurse while a patient is still in the facility to determine when the patient can be released. This review will also help decide whether a patient requires home health care or if a transfer to another facility is warranted (e.g., to a hospice center or extended care facility).  d. health care is reviewed as it's being provided e. This ongoing review is directed toward keeping costs as low as possible while, at the same time, maintaining the effectiveness of care. 3. **retrospective review** involves an after-the-fact analysis of care to determine whether it was necessary and appropriate. The purpose of this review is not to deny claims but rather to monitor trends regarding treatment so that actions may be taken to reduce or eliminate unnecessary health care costs in the future, especially in high-cost areas. f. A retrospective review involves the review of medical records after medical treatment. g. Results can be used to approve or deny coverage that a person has already received. **MANAGED CARE NETWORKS** **HEALTH MAINTENANCE ORGANIZATIONS (HMOS)** A **health maintenance organization (HMO)** is an organization that offers comprehensive prepaid health care services to its subscribing members. An HMO can be established on a for-profit or for a not-for-profit organization basis. One distinctive characteristic that's shared by all HMOs is that they organize and deliver covered health care services for their subscribers as well as finance the health care services. HMOs are sponsored by different groups, such as employers, physicians, hospitals, labor unions, government entities, medical schools, associations, Blue Cross and Blue Shield, consumer groups, and insurance companies. If an HMO is established on a not-for-profit basis, it's a consumer cooperative and mainly operated by salaried HMO employees. An HMO that's established as a for-profit organization can be a producer cooperative that's operated by a group of physicians. **Characteristics of Health Maintenance Organizations (HMOs)** HMOs are regulated at both the state and federal levels. Subscribers must have access to their HMO 24 hours a day and seven days a week, which includes referrals, medical consultation, emergency treatment, and authorizations. In addition, HMOs must provide an open enrollment for 30 days. These open enrollment periods present an opportunity for the HMO to advertise its plans to the public and also allow current subscribers to either continue in the HMO or choose a different provider. Whenever an HMO makes open enrollment available, non-subscribers are given the opportunity to join that HMO. **Federal Requirements for Health Maintenance Organizations (HMOs)** Employers who offer health benefits may also be eligible to provide their employees with an opportunity to enroll in an HMO. For an employer to be eligible to offer an HMO, the following federal requirements and guidelines must be met: ▪    The employer must have at least 25 employees. ▪    The employer must contribute to the plan. ▪    The employer HMO plan cannot charge more than a commercial insurance plan. ▪    The employer HMO plan must stress preventive care and cover family planning services. ▪    The employer HMO plan must maintain minimum reserves. ▪    Employer HMO premiums must be established using a community rating approach **Key Characteristics of Health Maintenance Organizations (HMOs) for Consumers** **Comprehensive Care    **Health maintenance organizations combine the financing (insurance) and the delivery of health care. They do so by providing a comprehensive range of health services -- from routine doctor visits to emergency and hospital care. HMO coverage includes the following: ▪    Hospital expenses (hospitalization, in-hospital lab work and X-rays, inpatient laboratory services, and inpatient mental health care) ▪    Surgical and medical treatment ▪    Outpatient medical services ▪    Diagnostic services ▪    Therapeutic services ▪    Prescription drugs ▪    Nursing services ▪    Substance abuse ▪    Home health care In short, HMOs cover the essential health services as defined in the Affordable Care Act. However, HMO services don't typically include dental coverage or vision care (e.g., corrective lens, etc.). **Prepaid Care    **Subscribers pay a fixed periodic fee to the HMO rather than paying for each service when it's received. Co-payments serve to cover administrative costs. Subscribers can review the procedures for accessing available services and co-pay requirements in their policy's certificate of coverage. In some traditional models, HMOs compensated providers on a capitated basis. Put another way, HMOs paid providers a fixed fee per patient without regard to the amount of care given. This method of compensation is no longer universally employed. **Preventive Care    **HMOs are known for stressing preventive care. Unlike traditional accident and sickness plans, HMOs cover preventative services without a deductible. The Affordable Care Act adopted this approach as part of its legislative model. **Funding    **Insurers often sponsor HMOs. They can also be self-contained or self-funded based on their subscribers' dues or fees. **Primary Care Physicians ("Gatekeepers")    **HMOs require subscribers to select a **primary care physician (PCP).** A PCP is a doctor who provides general medical care for a particular member and controls all referrals for specialized care and, in some cases, hospital care. A PCP referral is a special form of pre-approval that HMO members must obtain from their chosen primary care physician before seeing a specialist or another doctor within the same network. This use of PCP referrals is referred to as the **gatekeeper** system. **Local or Regional Networks    **Unlike traditional major medical insurance plans, HMO networks are local or regional, not national. **Emergency Care    **If a need for emergency health services arises for an HMO subscriber, the subscriber can obtain in-network coverage at any hospital if the emergency is life-threatening. Although pre-approval is preferable, if necessary, the HMO member should proceed directly to the nearest emergency room and notify the primary care physician as soon as possible. **Health Maintenance Organization (HMO) Structures** HMOs use a variety of organizational models for structuring services for subscribers. The structures that are currently in use are the *staff model*, *group model*, *network model*, and *individual practice association (IPA) model*. In each of these cases, the form can be described as either a "closed panel" or an "open panel" model. ▪    If the HMO model calls for salaried employees of a physician's group to work out of an HMO facility, then the model is defined as a **closed panel network**. ▪    If the HMO provides services through a network of physicians who meet with subscribers in their own offices, then the organization is defined as an **open-panel** HMO. For non-emergency situations, all HMOs may require subscribers to pay up to 100% of the billed amount if the subscriber chooses a health care provider who's outside of the network. This can often apply to pharmacies as well. HMOs, dispense medications through participating pharmacies. **[Staff Model (Closed Panel)]** Under a staff model, physicians who are employed by the HMO and hospitals that participate in the HMO provide medical care to subscribers. **[Group Model (Closed Panel)]** The group model---also referred to as the medical group model or group practice model---offers a variety of medical services to subscribers. With this model, the HMO pays a capitation or a predetermined price for the group, and the group pays the physicians for the services they provide. **[Network Model (Closed Panel)]** Although the network model is similar to the group model, it involves more than one physician group. Under the network model, the payment that's given to a physician is based on a capitation fee. **[\ ]** **[Individual or Independent Practice Association (IPA) (Open-Panel)]** HMOs may also function on an individual or independent practice association (IPA) basis. An IPA is characterized by a network of physicians who work out of their own facilities and participate in the HMO on a part-time basis. This model is considered an open panel network. Due to the number of providers that can participate, the open-panel model offers insureds the broadest range of choices when selecting a primary care physician and in-network specialists. **Dental Maintenance Organization** A **dental maintenance organization (DMO)** is a health maintenance organization for dental services. The DMO takes the same basic approach to services as other types of HMOs. At times, a DMO may be referred to as a prepaid plan. **PREFERRED PROVIDER ORGANIZATIONS (PPOS)** Another type of health insurance provider is the **preferred provider organization**. A PPO offers medical insurance by sponsoring a network of health care providers, such as physicians, hospitals, and clinics. These providers contract with the PPO to provide their services to PPO subscribers at prearranged discount prices. In return, the group refers its members to the preferred providers for health care services, which allows the providers to broaden their patient base. Groups that contract with PPOs are often commercial insurance companies, HMOs, Blue Cross/Blue Shield, employers, or trade unions. Networks have become a staple of medical insurance plans, especially those that are organized to provide major medical insurance and provide all of the essential services that are defined in the Affordable Care Act. **Characteristics of PPOs** PPOs have some distinct qualities. For instance, compared to HMOs, PPOs provide a wider choice of physicians. Members of the PPO are able to select from among the preferred providers for needed services. Although PPOs can be either closed panel or open panel like HMOs, PPOs also have many distinct characteristics. **[Financing Healthcare Only versus Financing and Delivery]** Preferred provider organizations don't assume the role of a healthcare provider; instead, they assemble networks and administer the financing of care. In this respect, they're closer to the traditional insurance model than an HMO. [However, PPOs are not traditional insurers because they trade access to PPO participants for negotiated contract pricing.] The PPO contract price represents a discount from what may be considered "usual and customary." The result is a lower cost for PPOs and their subscribers. **[Fee-for-Service]** Unlike HMOs, PPOs typically operate on a fee-for-service basis. The cost of each service is scheduled and incurred at the time it's performed by the provider; it's not prepaid. PPOs often require subscribers to pay a percentage of their medical costs up to an annual maximum. This cost-sharing percentage is referred to as co-insurance. In contrast, HMO subscribers pay a fixed dollar amount per visit, which is referred to as a **co-payment** or **co-pay**. Unlike co-insurance, a co-payment's primary purpose is to cover the cost of administration, although it may also serve as a form of cost-sharing for the care being provided. For PPO sponsors, the cost of fee-for-service plans never exceeds the price of the service being charged. Conversely, prepaid plans (HMOs), which pay a fixed amount for medical services in advance, share with providers what's referred to as "utilization risk." This risk exists because HMOs must pay providers, even if the subscriber receives no services. On the other hand, HMO providers receive limited compensation per subscriber, even if the care that a specific subscriber receives is extensive. **[In-Network versus Out-of-Network]** In-network PPO providers offer members better coverage of incurred expenses. Unlike an HMO, a PPO provides coverage for non-emergency care outside of the PPO network. Service that's obtained outside the network is more expensive. As a result, PPOs reduce benefits and require subscribers to pay a higher co-insurance percentage. Also, out-of-network providers don't abide by discounted network price guidelines. For that reason, if a need for emergency health services arises for a PPO enrollee, the enrollee will receive in-network coverage even if the provider is out-of-network. **[Direct Access to Any Provider]** The traditional PPO model doesn't require primary care physician referrals to in-network specialists. Instead, subscribers can directly seek the services of a specialist and still receive full, in-network coverage. **PPO Innovations and Options    ** PPO plans can include dental care and long-term care in the form of nursing services. They also offer the option of both in-network and out-of-network provider access. **POINT-OF-SERVICE (POS) PLANS** A point-of-service (POS) health plan can best be defined as an entity that combines indemnity (traditional major medical) plan features with those of an HMO. A POS plan allows the insured to choose either a network or an out-of-network provider whenever care is needed. **In-Network Coverage   ** With in-network coverage, the insured receives care through a particular network of doctors and hospitals that are participating in the plan (similar to an HMO). All care is coordinated by the insured's primary care physician, which includes referrals to specialists. Like those in an HMO, POS subscribers must follow the referral requirements to receive full in-network coverage. This in-network coverage provides the highest coverage for subscribers. **Out-of-Network Coverage   ** Insureds who receive out-of-network care pay a higher share of the cost. Subscribers pay a significant portion of service fees in the form of a substantial co-insurance percentage. Also, POS plans don't necessarily base payments on average market prices (usual and customary costs) for out-of-network claims. Instead, they may calculate their coverage based on their lower in-network costs. Conversely, in-network costs more closely resemble HMO plans with co-pays and prepaid services. In essence, POS plans offer in-network cost savings (like HMOs) with the added flexibility of insurance for out-of-network care. **EXCLUSIVE PROVIDER ORGANIZATIONS (EPOS)** An exclusive provider organization is a hybrid of an HMO and a PPO. EPOs typically offer a bit more flexibility than an HMO and generally have a lower cost than a PPO. Similar to a PPO, an insured is not required to obtain a referral to receive care from a specialist. However, similar to an HMO, an insured is responsible for paying out-of-pocket if she seeks care from a doctor who's outside of the plan's network. **DISCOUNT MEDICAL PLAN ORGANIZATION (DMPO)** A **discount plan** represents a business arrangement or contract in which a person, in exchange for fees, dues, charges, or other consideration, provides access for plan members to providers of medical services and the right to receive medical services from those providers at a discount. A **discount medical plan organization** represents an entity that, in exchange for fees, dues, charges, or other considerations, provides access for plan members to providers of medical services and the right to receive medical services from those providers at a discount. DMPOs are not insurance policies; instead, they provide discounts for certain medical services and are typically regulated by the state department of insurance. Many DMPOs are owned and operated by insurance carriers and various associations. However, some states may not permit DMPOs. **BASIC GROUP PLAN CHARACTERISTICS** Group health plans share various essential characteristics, including the acceptable nature of a sponsoring group and the contract's ownership. They also share certain advantages when it comes to cost, continuity, and individual eligibility. These characteristics apply regardless of whether an employer sponsors the insurance or some other eligible sponsor provides the coverage. State laws specify the minimum number of individuals required to be covered under a group policy. One state may stipulate 15 individuals as the minimum number, while another state may require a minimum of 10 individuals. The most typical minimum requirement is 10 lives. Temporary employees are typically not eligible for coverage in a group health policy. Group coverage provisions are designed to describe eligibility, the eligibility period, the minimum number of participating employees, benefits, limitations, qualifications, and the master policy owner's responsibilities. An employer may establish different benefit levels under the terms of a group policy for distinct employee groups that are covered under the plan. *For example, an employer may offer different benefit packages to full-time and part-time employees. Other distinctions may be based on whether a position in the company is salaried or hourly. Benefits may also differ based on union membership or representation. However, an employer is prohibited from discriminating against individuals within a specific group.* **ELIGIBLE GROUPS** To qualify for group health coverage, the group must be a **natural group**. The term "natural group" means that the group must exist for some purpose in addition to obtaining insurance. Qualifying groups include employers, labor unions, trade associations (associations in the same industry), creditor-debtor groups, multiple employer trusts (employers in the same industry), fraternal lodges, etc. Negotiated trusteeships---often referred to as **Taft-Hartley Trusts**---are formed as a result of collective bargaining between a union of employees and their employer. The union members are in the same or a related industry (e.g., the United Auto Workers). The Taft-Hartley Act prohibits employers from paying funds directly to labor unions to provide group health insurance to its membership. Therefore, employers must make payments to a trust fund that's created to pay for the union membership's group health insurance. The trust is jointly managed, with equal numbers of trustees from the union and the employer. Multiple employers may be represented on the board if the labor union represents an industry or multiple employee groups that share a common bond. Employers will make contributions based on the number of hours worked by an employee. Eligibility for benefits may be based on a minimum number of hours worked during a previous quarter by the employee (despite the fact that they could be presently unemployed). **POLICY OWNERSHIP** Insurers issue the group insurance policy---also referred to as the **master contract**---to an employer or the other sponsoring organization. The employer/sponsor is considered the **master policy owner**. This contract for coverage is between the insurance company and the group sponsor. To be approved for participation in group healthcare plans, an employer must demonstrate that it's administratively capable of providing the promised contribution and that it can adequately manage the healthcare program. Individual insureds who are covered by the group contract don't receive separate policies. Instead, each individual receives a **certificate of insurance.**  Participants also receive an outline or booklet with the insured's name, benefit descriptions, and beneficiaries. Typically, the benefits that are provided under the terms of a group health insurance plan are more extensive than those provided under an individual health plan. Group health plans typically offer broader coverage, often including ancillary insurance plans, higher benefit maximums, and lower out-of-pocket costs. **LOWER COST** When comparing benefit to benefit, the cost of insuring an individual under a group health plan is lower than the cost of insurance under an individual policy. The cost advantage exists because the group plan's administrative and selling expenses are far less. **Consolidated Administration   ** Group insurance requires less administrative effort by insurers. The insurance carrier covers multiple individuals under one contract. The policy owner (employer or another sponsor) plays a significant part in providing information and other services to enrolled participants. **Predetermined Benefits   ** Another characteristic of group health plans is that the employer predetermines the benefits that are provided to individual insureds in conjunction with the insurer's benefit schedules and coverage limits. Predetermined benefits and limited options simplify the underwriting and also lower the overall cost of administration. **Increased Persistency   ** When an individual drops an individual insurance policy, the contract is lost. On the other hand, when an individual exits a group and loses coverage, the group contract remains in force. There's a constant flow of people entering a typical group. **UNDERWRITING AND RISK MANAGEMENT** Some factors that determine group health insurance premiums are the group's size, its claims experience with previous insurers, and the ages of group members. Depending on the size of the group, insurers determine premiums by using one of two basic risk rating methods---the group's **experience rating** or their community's **community rating**. **Group Underwriting   ** Group insurers establish premiums based on the average level of risk in a prospective group. For large groups, underwriters calculate the risk level based on the group's aggregate amount of past claims, which is referred to as the group's *experience rating*. If a group is small, the insurer examines the surrounding community to get an accurate gauge of the risk level. A carrier first measures the probability of losses and their costs and then assigns a *community rating* to the group and the surrounding area. If small groups become a part of a larger association, the insurer can base premiums on the combined experience of the member organizations. Rarely (unless the group is very small) is an entire group rejected based on one poor risk. This also means that the participants must be a representative sample of the group being insured or the group's community. Plans can achieve a membership that's representative. However, plans must still control access because, if they don't, those who are the most in need of insurance (highest risk cases) will be over-represented, and the plan will not be unsustainable due to the impact of **adverse selection**. Some of the group underwriting considerations that are applicable to most types of groups include: ▪    An underwriter must know the reason for a group's existence. ▪    Group stability -- Underwriters prefer seeing a stable group of workers without an excessive amount of turnover. ▪    Persistency -- Groups that change insurers every year don't represent an acceptable risk. ▪    Method of determining benefits -- The method must prevent individual selection of benefits or limit it to a schedule. ▪    Insurers need to understand how eligibility is determined -- For example, insurers prefer seeing a sickness-related probationary period to reduce adverse selection. ▪    Insurers review whether the group plan is contributory or non-contributory. ▪    Insurers consider the prior claims experience of the group or community depending on its size. ▪    Underwriters also examine the size and composition of the group, such as the average age. The higher the average age of the group, the higher the premium. ▪    The group's industry or business also affects the premium. Hazardous industries are characterized by higher-than-standard mortality and morbidity rates. ▪    Occupation -- The more hazardous an employee's occupation, the higher the premiums. **\ ** **Individual Eligibility** Group health plans commonly impose a set of eligibility criteria that must be met before an individual member is eligible to participate in the group plan. It's common to find the following requirements: ▪    Participants are restricted to workers with full-time employment status (30 or more hours per week). ▪    Working individuals who are age 65 or older must generally be offered the same health benefits that are offered to younger employees. ▪    Many plans also require a minimum of one to three months of employment service before a new employee becomes eligible for coverage. The period during which a new employee remains ineligible for group health insurance coverage is referred to as the *probationary period*.** ** **Enrollment Period    ** Once an employee becomes eligible for coverage, he has a limited amount of time to accept coverage under the plan. This period of opportunity is referred to as the *enrollment period*. Unless the state requires a more extended enrollment period, most providers allow for 31 days. If prospective participants don't elect coverage within 31 days, they forfeit automatic acceptance into the group insurance pool. These individuals may apply for coverage later but then do so as a "late enrollee." Because late enrollees apply for coverage on their own timetables, they must qualify for coverage as individuals rather than as members of an eligible class. Also, the coverage will only be available after a late enrollee provides evidence of insurability. Eligibility or enrollment periods help to reduce adverse selection. New employees must sign an **enrollment card** during the new hire open enrollment period. Plans typically also have annual open enrollment periods to accommodate current employees. If a group member experiences a **change of life event** (e.g., marriage or the birth of a child), health plans provide special enrollment periods for these circumstances.   **Participation Requirements** As previously stated, group underwriting depends on the underwriter's ability to gauge the average risk within a prospective group. Accuracy depends on having the participation of a sufficient percentage of the potential membership pool. The purpose of these minimum participation requirements is to protect the insurer against adverse selection and to control administrative expenses. If a group's participation percentage drops, the insurer may terminate the plan. The required participation standards are partially dependent on how the group premium is paid. Group health plans may be **contributory** or **non-contributory**. **[Contributory Plans]** If employees pay a portion of the group insurance premium, the plan is a *contributory plan*. Again, the employer determines the class or classes of employment that are eligible, but not individuals. Contributory group health plans often require participation by 75% of eligible members. Although it's not reasonable to assume that all eligible employees will participate, the insurer still needs a substantial proportion of eligible group members to participate. *For example, if an employer has 1,000 employees and 400 of them are classified as full-time workers who are eligible to participate in the group health plan. With this limited pool of 400 potential enrollees, the employer needs 300 employees to participate (75% of 400).* **[Non-Contributory Plans]** If the employer pays the entire premium, the plan is a *non-contributory plan*. Most non-contributory group health plans require 100% participation by eligible members. The plan sponsor can define which class or classes of group members can participate, but the employer cannot pick and choose participants from those who are eligible. *For example, an employer may only cover full-time employees and not part-time or occasional workers. If there are 1,000 employees and 400 of them are full-time workers, then the employer must cover all 400 of them to be at 100% participation.* ** ** **  State Variations** Please remember, the percentages stated above for plan participation are benchmarks. In other words, they're guidelines, not laws. Requirements for contributory and non-contributory group plans vary with each state. *\[EXAM TIP:  For any questions relating to participation requirements, be ready to take state law into account, especially if general questions and the law are intermixed. Use the general guidelines of 75% and 100% in the following circumstances:* 1. *The general content is presented separately from the law, and you're answering a general question.* 2. *There's no state-specific guidance in the course material.* 3. *There's state-specific guidance in an integrated exam, but the question and choices don't reflect the state-specific requirements.\]* **\ ** **ALTERNATIVE FORMS OF GROUP INSURANCE** **MULTIPLE EMPLOYER TRUSTS (MET)** The **Multiple Employer Trust (MET)** is a group insurance marketing method that benefits employers that have a small number of employees. The MET combines multiple employers (10 or more) into a single pool for the purpose of providing group insurance. Also, the MET holds the master contract rather than the participating employers. An employer that wants to obtain coverage for its employees through a MET must first become a MET trust member by subscribing to it. Covered employees receive a certificate of insurance, just as with a single employer plan. A MET typically funds benefits with an insurance contract that's purchased from an insurance company. In some cases, an MET is insured and administered by a third-party administrator that takes on duties such as insuring the plan, underwriting, and claims administration. METs can provide a single type of insurance, such as major medical, or a wide range of coverages, including medical expense coverage and disability insurance. Any participant is issued a joinder agreement, which is a document that admits the individual as a member and binds her to the terms of membership. The employer's premium payments are directed into a trust from which the plan's benefits and claims are paid. These trusts are also referred to as 501(c)(9) trusts after the relevant section of the Internal Revenue Code. State regulations pertaining to METs can vary. Some states subject METs to the requirements which are set forth for small group insurance (from two to 50 employees). Other states differentiate between fully insured METs that buy coverage and those that are partially or fully self-funded. Self-funded METs may be treated as insurers, while fully insured METs must register as such. **MULTIPLE EMPLOYER WELFARE ARRANGEMENTS (MEWA)** A **Multiple Employer Welfare Arrangement (MEWA)** is similar to a MET and, in some circumstances, the terms are used interchangeably. MEWAs are tax-exempt entities that consist of two or more employers that have joined 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. Trade associations of industry employers meet the definition of "employer" because they act on behalf of their member companies. Since MEWAs often retain the primary role and risk of providing benefits rather than transferring them to an insurer, the law treats a MEWA as an "**employee welfare benefit plan.**" MEWAs that self-insure do limit their risk by purchasing stop-loss coverage. A MEWAs status as an employee welfare arrangement subjects it to the mandates of the Employee Retirement Income Security Act (ERISA). In many cases, ERISA compliance supersedes state insurance department requirements; however, there are some exceptions. **SELF-INSURANCE / SELF-FUNDED PLANS** "Self-insurance" does NOT mean "no insurance." Companies that provide health insurance on a self-insured (self-funded) basis do so under the terms of a formal **employee welfare benefit plan **that's regulated by ERISA, in which the employer funds and pays for member claims and benefits. The stop-loss coverage reimburses the employer if the total amount of covered claims exceeds the risk retention limit (deductible) that's set in the policy. Stop-loss policies are not suited for every employer. Instead, they're most effective for large employers that face the risk of significant losses. **ADMINISTRATIVE SERVICES ONLY (ASO)** Administration Services Only (ASO) contracts stipulate that the employer must purchase specific administrative services from an insurer or an independent third-party administrator (TPA). These services typically include the administration of claims but can also include prescription drug cards, COBRA administration, and employee communications. Self-funded plans commonly use an insurance company's services to act as a third-party administrator. Insurers may provide these services without being responsible for claims payment under an Administrative Services Only (ASO) contract. The use of third-party administrators has increased with the use of self-funding and multiple employer welfare arrangements. **SMALL EMPLOYER GROUP INSURANCE** A small employer is generally defined as a business with a range of two to 50 full-time employees. The phrase "full-time employee" generally refers to a person who works at least 30 hours per week in the business; however, this can vary. Individual states may have different definitions of a small employer, which can have up to 100 employees, and a reduced hourly definition of full-time employees. Employers can also offer group insurance to part-time employees.\  \ With the passage of the ACA, in addition to the employer, a group must include at least one employee (other than an immediate family member). The law allows an employer-owner group to consist of all of the firm's partners if there are no other employees. Small group plans generally don't cover temporary workers, but this can be done at the employer's option.\ Insurers underwrite small group plans using a community-rated premium that reflects a pool of small employers or their community at large. All employees must have access to coverage, and the level of coverage must reflect general group insurance requirements. **\ ** **FRANCHISE HEALTH PLANS** **Franchise health plans---**also referred to as wholesale plans**---**provide health insurance coverage to members of an association or professional society. They're used to cover a group of individuals who don't qualify for true group insurance. Unlike other forms of group insurance, franchise plan participants receive individual policies. The association or society simply serves as the sponsor for the plan. Some characteristics of the franchise health plan include: ▪    It's available for very small groups. ▪    Each participant must complete a health policy application separately, and each one must receive their own policy. ▪    Premium rates are typically discounted because the sponsor helps market the plan. ▪    Sponsors may offer medical, hospital, surgical, and disability benefits. ▪    Plans can be contributory or non-contributory. ▪    Employers can use a franchise arrangement when offering coverage for workers who are not eligible for true group insurance. Such coverages are often referred to as voluntary, worksite benefits, or insurance. **REGULATIONS THAT APPLY TO GROUP INSURANCE** Insurers must consider state regulatory requirements when they advertise and market group insurance as well as any other type of health insurance plan. State statutes and regulations provide for stringent penalties in the case of unfair marketing or sales practices. Many group contracts insure individuals who reside in more than one state because of an employer's multiple locations. The reality of multi-jurisdictional groups raises a question regarding which state actually possesses regulatory jurisdiction over the contract. The standard practice identifies the state in which the insurer delivers the group policy as being the state of jurisdiction. This determination is based on the *Constitutional Doctrine of Interstate Comity*. The doctrine indicates that each of the 50 states recognizes, within its territory, the laws of the other states. This practice means that the group insurance contract must only conform to the laws and regulations of the state in which the policy is delivered. In some cases, jurisdiction could also be determined by the state in which the policy owner is incorporated, the state in which the largest number of employees reside, or the state in which the policy owner locates the organization's principal or home office. *\[EXAM TIP:  Unless a question indicates otherwise, assume that the laws of the state in which the* *policy is delivered govern it. This tip applies to any questions about the creation, administration, and marketing of the group insurance contract throughout the United States.\]* For group plans, delivery criteria resemble the requirements for individual policies. Once a group health insurance policy is issued, it must be delivered to the policyholder. The producer will generally deliver a group health insurance policy to the employer's location since the employer is the policyholder. Some regulatory requirements are federal and apply in all cases, regardless of state lines. **TERMINATION OF A GROUP PLAN** No employer or fiduciary managing a group health plan may willfully refuse to pay premiums to cause the plan's cancellation or non-renewal. The employer or fiduciary must provide 45 days' notice of termination of the plan to all persons who are covered and receiving benefits. If a group health plan terminates, employees may convert to an individual health plan without evidence of insurability or a medical exam. Impact of Termination on Covered Individuals It's important to understand that laws related to the termination of group coverage vary by state. Unless state or federal law intervenes (and it often does), coverage for an employee and his dependents ends on the date that a worker's employment is terminated. Other possible events or circumstances can trigger the termination of a person's coverage under a group contract. The potential reasons include, but are not limited to, the following: ▪    An employee ceases to be eligible for participation (regardless of the reason) ▪    The master policy is surrendered or canceled ▪    Policy benefits are exhausted ▪    The employee ceases making any required contribution Coverage under group plans can continue for many employees and dependents even after employment ends. For example, **COBRA** provides for the continuation of group coverage after an employee has been terminated or dies. Group plans also provide an **extension of benefits** once employment ends. **CONTINUATION AND CONVERSION** **Extension of Benefits   ** Many health insurance plans call for an extension of benefits if a covered employee or dependent is sick or disabled when the insured's group membership is terminated. This extension doesn't extend coverage for new claims; instead, it continues to pay for a claim that exists at the time coverage ends. The extension recognizes the loss as insured because it occurred while the person was covered, even if the treatment extends beyond the termination date. If an employee suffers an insured, disabling injury, disability benefits will continue until the disability ends, even if the insured no longer belongs to the covered group.  For example, let's assume that a participating group member or covered dependent is covered under a group major medical policy, and she has an open claim at the time group membership terminates. In that case, the plan will continue to pay for hospitalization or medical care for the active claim, but generally not for more than 12 months. A similar extension occurs when an employer changes insurance companies. If a participant was hospitalized at the time of the replacement transactions, the previous insurer would provide a temporary extension of benefits covering the open claim. Similarly, the replacing insurer must cover any employees who are covered under the old plan. The replacing insurer will commonly credit existing deductible payments and other employee payments. The replacing issuer will also cover all other claims, new and ongoing, without reference to any pre-existing condition. The exact terms governing this situation may vary in accordance with the laws of each state. **CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT (COBRA)** The Consolidated Omnibus Budget Reconciliation Act (COBRA) mandates that employers provide an employee and any qualified beneficiary with group health coverage following a qualifying event. Employees become eligible for COBRA benefits as soon as they qualify for coverage under their employer's group medical plan. COBRA benefits are a continuation of a person's group insurance, not a conversion to an individual plan. The benefits are temporary, and the individual insured must pay the full premium, but there's no loss of benefits. If the employer ceases to provide group health benefits (e.g., as the result of bankruptcy), the COBRA benefits will also terminate. If an employer changes its plan, a COBRA beneficiary has the same option as current employees to enroll in the new plan. Before the Omnibus Budget Reconciliation Act of 1993 was passed, provisions regarding eligibility for group coverage were determined by the employer, the underwriting practices of the group carrier, or the state's insurance code. As a federal law, COBRA superseded those eligibility criteria for benefit continuation. COBRA contains regulations that were designed to more effectively guarantee that group medical benefits will be made available to children. *For instance, if a group medical plan provides coverage for the dependent children of participants, it must also provide benefits for adopted children and those placed for adoption with the same terms, conditions, and benefits that apply to the insured's biological children.* **Covered Employers** COBRA covers employers that have 20 or more employees. These companies are referred to as "COBRA Groups." Employers that don't comply with COBRA may be stripped of their ability to deduct health insurance costs as a necessary business expense on their federal income tax return. **Qualifying Events    ** The law defines the following circumstances as qualifying events for employees and their dependents who are covered under COBRA: ▪    The insured employee dies. ▪    The insured employee divorces a covered spouse. ▪    An insured dependent becomes too old to be covered on the group plan. ▪    The insured employee qualifies for Social Security disability benefits. ▪    The employee voluntarily resigns or retires. ▪    The employer terminates the insured employee for any reason other than gross misconduct. **Notification Period    ** Employers must notify covered employees or their dependents if the insured employee becomes eligible for COBRA benefits. The law requires employers to provide notice no later than 14 days after the qualifying event (termination, etc.). **Decision Period** Once an insured employee receives notice that he qualifies for COBRA, the employee has up to 60 days to decide whether to accept the coverage. If the employee or dependent fails to notify the employer in time, the right to elect COBRA coverage is lost. This 60-day period begins on the date of the qualifying event or when notice is received, whichever is later. Whenever an insured employee chooses to accept COBRA, the insured must pay the premium back to the date of separation. *For example, if an employee is terminated on March 31 and decides to accept COBRA on May 30 (day 60 of the decision period), then the employee must pay premiums for April and May at that time. Additionally, the premium for June will be due shortly.* **The Benefit Period** **[18 Months: Loss of Employment]** COBRA states that covered employees who voluntarily leave their positions or are terminated for reasons other than gross misconduct (e.g., stealing from their employer) may continue coverage under the employer's plan for up to 18 months if they pay the premium. **[36 Months: Loss of Dependent Benefits]** Some qualifying events (other than the loss of employment) allow beneficiaries or dependents 36 months of continuous coverage under the employer's plan. The following list identifies the qualifying events that allow for up to 36 months of dependent coverage: ▪    The employee dies ▪    The employee divorces a covered spouse (benefits may also continue in cases of legal separation) ▪    The cessation of dependent coverage because a child of the insured reaches the age limit for coverage **[29 Months: Loss of Benefits Due to Disability]** COBRA covers an insured who qualifies for Social Security disability, which means that the individual lacks the ability to be gainfully employed. This COBRA benefit period encompasses a Social Security disability waiting period of five months plus 24 months of benefits. It offers an injured worker the ability to keep insurance in force until he can qualify for Medicare. An individual who receives coverage under COBRA may also apply it towards creditable coverage under the provisions of HIPAA. **COBRA Premiums** Employees must pay the entire group insurance premium to maintain coverage. COBRA beneficiaries pay the premiums directly to an insurer's COBRA claim unit. Insurers collect an additional 2%, which reflects the cost of the added administration. Therefore, in total, the terminated employee pays 102% of the group premium and not just the standard employee contribution. *For example, let's assume that an employee is laid off. As an employee, her monthly contribution for health insurance was \$200. The employer's entire premium is \$500 per month; therefore, the employee must pay \$510 per month for her COBRA benefits.* **CONVERSION** Group plans also provide a conversion privilege. COBRA beneficiaries can convert their group coverage to an individual policy when their benefits end. Beneficiaries typically have 31 days to make that decision. The conversion privilege allows a terminated worker to simply purchase an individual health insurance plan without the need to prove insurability. The downside of converting to an individual policy is the higher cost and more limited benefits. The conversion privilege is also available to terminated employees. Eligible individuals include any employee who has been laid-off or voluntarily leaves a job, but not to individuals who have been fired for cause. If the employer allows current employees to convert their group coverage to an individual policy at the time of termination, then the employer must extend the same option to former employees as their COBRA coverage ends. **HEALTH INSURANCE AND PORTABILITY AND ACCOUNTABILITY ACT (HIPAA)** The Health Insurance Portability and Accountability Act was passed in 1997. Among other items, it prevents insurers from imposing new pre-existing condition exclusions whenever individuals change employers. When new employees become eligible to participate in a company health plan, previous coverage satisfies any exclusionary period, as long as there was no gap in coverage of 63 days or more. This previous qualifying insurance is referred to as "creditable coverage." It may consist of individual major medical insurance, group major medical plans, Medicaid, or other comparable coverage. HIPAA also governs special enrollment periods following certain life events, such as marriage, divorce, or the birth of children. Although the Affordable Care Act's passage diminished HIPAA's impact on group insurance portability, it can still apply in certain situations. For grandfathered major medical plans that are not subject to the ACA restrictions, HIPAA limits their ability to exclude pre-existing conditions as well. The general limit is 12 months. If an eligible employee delays his enrollment, the plan may exclude coverage for pre-existing conditions for up to 18 months. **Notice of Privacy Practices   ** When an individual enrolls in a health insurance plan, the plan sponsor must provide the plan subscriber with a **Notice of Privacy Practices**, which must disclose the following: ▪    How protected health insurance may be used and disclosed ▪    The need for the enrollee's permission prior to making disclosures ▪    The plan's duty to protect information ▪    The enrollee's privacy rights ▪    The enrollee's right to complain and also receive more information Enrollees receive a notice upon enrollment and then every three years thereafter. Also, enrollees may request a copy of the notice at any time. **PREGNANCY DISCRIMINATION ACT** The Pregnancy Discrimination Act of 1978 was an amendment to the **Civil Rights Act of 1964**. For employment-related purposes, this law requires women who have been affected by a pregnancy, childbirth, or related medical conditions (e.g., abortion), to be treated in the same manner as other persons who are not affected by the same conditions. In other words, if a woman is pregnant and is unable to perform her employment duties, she will be entitled to benefits as if she was suffering from any other condition covered by her benefit plan. Regarding coverage for abortions, plans must cover the procedure if the mother's life is in danger. Plans have the option of covering the procedure in other circumstances as well. As it relates to disability insurance, pregnancy is treated as a disability to the degree that it results in a person's inability to perform her duties. Therefore, if an employer provides any type of disability insurance, sick-leave coverage, or medical expense coverage for employees, the employer must provide coverage for pregnancy and its related medical conditions on the same basis as other disabilities. This act applies to disability insurance, medical expense coverage, and benefit plans, both insured and self-insured, which covers employers that have 15 or more employees. **SPECIAL REGULATIONS FOR SMALL GROUP HEALTH INSURANCE** Specific regulations must be followed by insurers that market group health insurance plans to small business employers. Regulations that define unfair marketing practices, which are prohibited during the sale of individual policies, also apply to small group plans. Federal law defines a small group as one that has between two and 50 employees who have worked on at least 50% of the days during the previous calendar quarter (some states allow up to 25%). Two person groups must include an individual who's not related by marriage. HIPAA and the ACA both mandate that small group health plans be guaranteed-issue for groups that meet minimum participation requirements. All small employers are guaranteed to be able to have health insurance made available to them. Insurers cannot refuse to cover small groups (up to 50 employees) based on the health history of group members. Benefit plans that are marketed to these groups must offer coverage to all eligible employees and dependents. Also, insurers cannot discriminate against an employer due to the nature or category of the business. Insurers must also renew in force small group plans unless the employer fails to pay the premium, engages in fraud or intentional misrepresentation, or fails to comply with the policy terms (e.g., failing to meet the participation requirements). Insurers can change rates annually due to changes in the mix of employees and the group claim experience. The types of plans that are available for small groups include health care center plans, HMO plans, and small employer carrier plans. With regard to the latter, the percentage of participation by the employees is an important underwriting consideration. In addition, carriers that market small employer health plans must offer at least two health plans to the employer---one with standard benefits and one with essential (basic) benefits. Larger groups are not guaranteed the availability of coverage, but once they're insured, they receive guaranteed renewability. However, any group's renewability may be denied due to non-payment of premium, fraud, termination of coverage in the market, or failure to meet participation or contribution requirements. **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.