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Understanding Health Insurance

What is an HMO?

An HMO (Health Maintenance Organization) is a plan product in which members must access the services of participating doctors, hospitals, and clinics in order to have their care covered by their insurance plan. Members typically have full coverage when they stay within their network of providers but no coverage if they choose care out of network.  Members may have co-payments but usually do not have deductibles or co-payments.

What is a PPO?
In a PPO (Preferred Provider Organization), the plan contracts with physicians and hospitals to provide services at reduced cost. If you use these in-network medical providers, the plan pays  most of the cost of treatment but members have more out of pocket costs (deductibes and co-insurance) than an HMO. Participants can use out-of-network health care providers, but must pay even higher portions of the cost of care (deductibes and co-insurance).

Point-of-Service Plan or Point-of-Service Option (POS) - A product that offers the option to receive a service from participating or a nonparticipating provider. Generally the level of coverage is reduced for services associated with the use of non-participating providers. Subscribers can select between different delivery systems (i.e., HMO, PPO and fee-for-service) when in need of health care services and at the time of accessing the services, rather than making the selection at time of open enrollment at place of employment. The costs associated with receiving care from the "in network" or contracted providers are less than when care is rendered by non-contracting providers. This is a method of influencing patients to use network providers without restricting their freedom of choice too severely.

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What is a co-payment?
A payment made by the patient or individual who has health insurance, usually at the time a service is received, to offset some of the cost of care. Co-payments are a common feature of HMOs and PPOs. Co-payment size may vary depending on the service, generally with lower co-payments required for physician office visits and higher payments for emergency room visits and sometimes other hospital care. The co-payment amount is usually determined by the employer so as to ensure the patient has some financial responsibility in their overall care.   

What is a deductible?
Most PPO plans require participants to pay the full cost of medical services until they reach a certain dollar figure (ex- $1000) before your insurance will make any payments. This is called the deductible. Once you have spent the amount of the deductible in any given calendar year, the health plan coverage kicks in.

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What is coinsurance?  
Coinsurance requires the insured to share in the cost of medical care. Under an 80/20 coinsurance provision, the medical expense plan pays 80 percent of eligible medical charges above any deductible. The insured is required to pay the remaining 20 percent. Other coinsurance arrangements, e.g., 70/30 or 90/10, are sometimes used. In the event of large or catastrophic medical expenses, an insured might suffer severe financial hardship due to the operation of the coinsurance clause. To compensate for this possibility, many major medical expense plans contain a coinsurance cap or limit. This provision places a limit on the insured's out-of-pocket costs in a given year. The size of the coinsurance cap generally ranges from $2,000 to $3,000, depending on the plan, although limits as low as $1,000 are sometimes used. Once the coinsurance cap has been reached, all eligible expenses above this amount are paid in full, up to the plan's overall limit of coverage.

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What types of services are generally covered by a group health insurance plan?

Generally, a comprehensive plan will include the full range of medical services These may include:
  • Professional services of doctors of medicine and osteopathy and other recognized medical practitioners
  • Hospital charges for semiprivate room and board and other necessary services and supplies
  • Surgical charges
  • Services of registered nurses
  • Home health care
  • Physical therapy
  • Anesthetics and their administration
  • X-rays and other diagnostic laboratory procedures
  • Oxygen and other gases and their administration
  • Blood transfusions, including the cost of bloom when charged
  • Drugs and medicines requiring a prescription
  • Specified ambulance services
  • Rental of durable mechanical equipment required for therapeutic use
  • Artificial limbs and other prosthetic appliances, except replacement of such appliances
  • Casts, splints, trusses, braces, and crutches

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What if you have a pre-existing condition?
Insurers can impose only a 12-month waiting period for any preexisting condition that has been diagnosed or treated within the preceding 6 months. As long as you have maintained continuous coverage without a break of more than 63 days, your prior health insurance coverage will be credited toward the preexisting condition exclusion period.

If you have had group health coverage for at least 1 year and you change jobs and health plans, your new plan can't impose another preexisting condition exclusion period. If you have never been covered by an employer's group plan and you start a new job that offers such a plan, you may be subject to a 12-month preexisting condition waiting period. Federal law also makes it easier for you to get individual insurance under certain situations. You may, however, have to pay a higher premium for individual insurance if you have a preexisting condition. If you have not had coverage previously and you are unable to get insurance on your own, you should check with your State insurance commissioner to see if your State has a high-risk pool.

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What is authorization/ preauthorization?
Authorization/ preauthorization is when the insurance company is notified in advance of a surgery or hospital stay and is a required notification for most policies for the insurance company to pay for the care. The requirements can differ from policy to policy but the purpose of preauthorization is to notify the insurer or representative so they can determine if a hospitalization or surgery is medically necessary and how many days of hospitalization are authorized. If pre-authorization is not obtained, the insurer will deny coverage for an otherwise covered service.

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Does my surgery/hospital stay need preauthorization?
In most cases, preauthorization is a requirement for services listed in your health insurance policy. Please review your health insurance policy for details.

How do I get my surgery/hospital stay preauthorized?
Your health insurance policy should give you the steps for preauthorization.

How am I notified whether or not my surgery/hospital stay is preauthorized?
Your health insurance provider will notify you if the procedure or hospital stay is approved or denied. If you are being hospitalized, the specific number of days approved will usually also be provided.

What are ‘definitions,’ ‘benefits,’ ‘limitations,’ and ‘exclusions?’
Every health insurance policy or health plan agreement or evidence of coverage is divided into different sections. For instance, a section may identify “benefits” as including services by a physician or surgeon, hospital services, nursing services, medical equipment and the like. This section, in effect, gives a broad outline or index of the benefits covered by the insurance or plan. Sometimes within the same section, but also sometimes in a separate section, there are specific “definitions” of benefits or related terms. For instance, the term “physical therapy” may be defined as “medically necessary therapy ordered by a physician and provided by a registered physical therapist.” The benefit section may list physical therapy as a benefit, as an example, by identifying it as “acute physical therapy.” The term “acute” then may be defined in the policy as being only for a period of 60 days following injury or onset of illness. Then in the “limitations” section of the policy there may be a further qualification of acute physical therapy as only being authorized if it is anticipated that the therapy would result in substantial improvement of the condition within 60 days, or there may be a statement that the therapy is limited to a total dollar amount of charge, such as $500 or $1,000. Further, in the separate “exclusions” section there might be a statement that specifically says that any physical therapy beyond 60 days would be excluded or any physical therapy that would not result in substantial improvement of a condition within 60 days is not a covered benefit.

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Benefit Package - Aggregate services specifically defined by an insurance policy or HMO that can be provided to patients. The services a payer offers to a group or individual. The package will specify include cost, limitation on the amounts of services, and annual or lifetime spending limits.

Carve-Outs - The separation of a medical service (or a group of services) from the basic set of benefits in some way. In many instances, a different provider will provide the service- (eg- behavioral health is a common carve-out service). The carve-out is typically done through separate contracting or sub-contracting for services to the special population. Increasingly, oncology and cardiac services are being carved out. Many HMOs and insurance companies adopt this strategy because they do not have in-house expertise related to the service "carved out." This process may or may not seem transparent to the subscriber, but it often means that separate UR and pre-certification entities are involved as well as different payers and providers. Carve-outs may also called sub-contractors.

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Questions to ask your insurance providers:
  • What is the cost of the monthly premium, deductible, co-payment amount and cap?
    • How does changing one amount affect the others?
  • What does the policy cover?
    • What does it exclude?
    • Are there any limitations on coverage for in-patients services, transplant services, etc?
    • What else is covered?
    • It’s important to find out if routine services, such as preventive care, immunizations and mammograms are covered under the policy.
  • Are pre-existing conditions covered?
  • Is there a lifetime maximum cap the insurer will pay? This is important to know if you or someone in your family has a chronic or expensive illness or medical condition. Experts recommend that you choose a plan that has at least a $1 million or more maximum benefit. Hospital expenses can add up very quickly
  • How do I obtain emergency care?
    • Can I use urgent care facilities without pre-approval? Am I limited to using certain facilities in the plan?
    • Can I use urgent care facilities without pre-approval? Am I limited to using certain facilities in the plan?
  • What else is covered? It’s important to find out if routine services, such as preventive care, immunizations and mammograms are covered under the policy.

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