How Fee-For-Service Provisions Work Together
Before an insurance company pays anything
- Covered charges:
- "Covered charges" are the medical costs which will be paid by the fee-for-service insurer. Generally covered medical charges are stated broadly. For example, visits to a licensed doctor, drugs and treatments which are medically necessary, hospitalization.
- Experimental treatments are generally not covered.
- If a service is not a covered charge, the insurer will not pay. Neither will the amount count toward your deductible or stop loss (see below).
- Medical necessity: Even if a type of medical care is covered, an insurer will not pay for it if the care is not medically necessary.
What part of Covered Charges you pay
- A deductible is the amount that you pay before the insurance company pays anything. Until the deductible is met, you won't receive any reimbursement for your claims.
- The deductible reflects the idea that health insurance is only to cover costs that are unacceptably high. A deductible also helps to keep premiums down because it also eliminates the minor claims and fees to administer those claims that an insurance company which covered 100% of claim costs would have to pay.
- A deductible is generally payable on an annual, calendar year basis. Deductibles can range from $250 or less to $5,000 or more.
- For example, if you receive a medical bill of $2,000, the bill is your first bill of the calendar year, and your deductible is $250: The insurance company will ignore the first $250 of the bill in calculating the payment and only pay a percentage of the remaining $1750.
- To prevent having to pay two deductibles back-to-back, many plans allow a rollover of charges applied to the deductible during the last three months of the year to apply to the following year's deductible.
- NOTE: Insurers take no interest in the deductible beyond the fact that the insurer doesn't have to pay any money until the deductible is used up. Sometimes doctors are willing to "negotiate," and possibly even eliminate, the payment of the deductible.
- Once the deductible is met, the insurance company will start reimbursing the insured's health claims. To help induce insureds to only use medical care when necessary, most fee-for-service health insurance policies do not pay 100% of each claim. Instead, insurers generally only pay a percentage of the bill, leaving the insured to pay the rest. This is known as "co-insurance." Historically, insurers pay in the range of 75 to 80% of the covered charges.
- Returning to the above example ($2,000 in medical expense), if your co-insurance is 80%, first you will pay the $250 deductible, then you and the insurance company split the remaining amount. The insurance company will pay 80% of the bill and you will be responsible for the other 20%. The calculation would look like this: you pay: $250 deductible plus 20% of the remainder ($1,750 x 20% = $350) for a total of $600 ($250 deductible plus $350 co-insurance). The insurance company pays: 80% of the amount due after the deductible $1,750 x 80% or $1,400).
- Usual, Customary And Reasonable
- Usual, Customary and Reasonable is usually referred to as "UCR." UCR is the most commonly cited reason that insurers refuse to pay all of a medical charge. Conceptually, UCR shields insurance companies from overcharges. UCR limits the amount of money health insurance companies pay to reasonable charges in your area for the particular medical service. If your policy has a UCR provision in it, and you want to go to the most expensive doctor in town, in addition to the deductible and co-insurance you pay the difference between what is "usual, customary and reasonable" for your area and the charge the insurance company considers to be exorbitant.
- For example, a doctor charges $800 for a certain procedure, you already paid medical expenses equal to your deductible, and you have 80% co-insurance. The insurance company determines that $600 is the UCR in your area for that procedure. The insurance company will only pay $480 (80% of $600), leaving you to pay the co-insurance amount equal to 20% of $600 or $120. You also have to pay the $200 that the insurance company didn't cover at all. Instead of paying $200 (20% of the bill), you must pay $320.
- Stop Loss
- As the size of medical bills grew to the point that even 20% or 25% of a medical bill could be financially crippling, insurance companies started adding a "stop-loss" or "out-of-pocket maximum" benefit.
- A "stop-loss" provision literally stops the amount of your loss -- the amount you have to pay as a deductible and co-insurance. The insurance company pays all charges over the stop loss amount in a calendar year. The calculation starts again each January 1.
- For example,
- A fee-for-service policy with 80% co-insurance and a stop loss clause of $5,000.
- You've paid a total of $5,500 this year for your deductible and co-insurance.
- You incur another bill of $1,000.
- Because of the co-insurance, you would normally pay 20% of the $1,000 or $200. The insurance company would pay the rest. However, since you already paid over $5,000 in deductibles and co-insurance this year, the insurance company would pay the entire bill of $1,000. You wouldn't have to pay anything more.
- If you only paid $4,500 in bills so far this year:
- You pay 20% of the difference between $4,500 and the $5,000 stop loss clause (or $100.)
- You don't pay any part of the next $500 because it is above your stop loss clause. The insurance company pays it entirely.
- Just as with a deductible, keep in mind that the stop loss only refers to covered charges. So:
- A stop loss provision does not count charges for items that are not covered under the plan.
- A stop loss provision will not consider any payments which exceed Usual, Customary & Reasonable
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