1. Basics of Health Insurance
Chapter 3
Basics of Health Insurance
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

2. Learning Objectives
Describe the history of insurance in the United States.
State four concepts of a valid insurance contract.
Explain the difference between an implied and an expressed physician-patient contract.
State the types of health insurance coverage.
Describe in general terms the important federal, state, and private health insurance plans.
Define common insurance terms.
Explain the administrative life cycle of a physician-based insurance claim from completion to third-party payer processing and payment.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

3. Learning Objectives (cont’d.)
Determine the appropriate questions to ask a patient for a complete patient registration form.
List four actions to prevent problems when using a signature stamp for insurance claims.
Demonstrate how to track submitted insurance claims.
List the functions of an aging accounts receivable report in a computerized practice management system or a “tickler” file in a paper environment.
Explain how insurance billing and coding information can be kept up-to-date.
Describe the proper information to post to the patient’s financial account after claims submission and payment received.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

4. Chapter 3
Lesson 3.1
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

5. History Insurance is one of the world’s largest businesses
Health insurance offsets the costs of illness and/or injury
Escalating medical costs have limited insurance coverage options
Patients may have more than one insurance policy to defray health- care costs
Health insurance is a contract between the patient and third-party payer or government entity.
Managed care organizations gained popularity in the 1980s to help control the rising costs of health care in the U.S.
Patients can have more than one insurance plan.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

6. Insurance Contracts Four considerations in valid insurance contracts:
The person must be a mentally competent adult and not under the influence of drugs or alcohol.
The insurance company must make an offer (the signed application) and the person must accept the offer (issuance of the policy), without concealment or misrepresentation of facts on the application.
Explain the more common term for the insurance contract. (Policy is the more common term for an insurance contract.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

7. Insurance Contracts (cont’d.)
Four considerations in valid insurance contracts (cont’d.):
An exchange of value (the first premium payment) submitted with the application, known as a consideration, must be present.
A legal purpose must exist, which is an insurable interest in the case of a health insurance policy.
Explain when a policy can be challenged. (When a fraudulent statement is made by the subscriber.)
When does a policy become incontestable? (After 2 years, or 3 years in some states.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

8. Implied/Expressed Contracts
Implied contract: not manifested by direct words, but implied or deduced from the circumstance, the general language, or the conduct of the patient
Most physician contracts are implied
Expressed contract: can be a verbal or written contract
If a patient is unconscious when treatment is rendered, is the contract expressed or implied? (Implied)
Define “guarantor.” (An individual who promises to pay the medical by signing a form agreeing to pay or who accepts treatment, which constitutes an expressed promise.)
What is an emancipated minor? (A person younger than 18 years old who lives independently, is totally self-supporting, and possesses decision-making rights)
Explain how managed care plan patients are handled by the insurance specialist. (He/she needs to understand the managed care plan requirements.)
Describe how employment and disability and workers’ compensation cases are handled. (The relationship is between the physician and insurance carrier, not the patient, in these cases.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

9. The Insurance Policy
Major medical: extended benefits contract to offset large medical expenses caused by prolonged illness or serious injury
Insured: individual or organization protected in case of loss under terms of the insurance policy
Also known as:
subscriber
member
policyholder
recipient
List what is included in basic health insurance coverage. (Benefits for hospital, surgical, and other medical expenses)
Describe who is considered the insured in a group policy. (The employer; employees are the risks)
Who can be considered a dependent? (Spouse, children, domestic partners, parents, family members)
Define “applicant.” (A person applying for insurance coverage)
Define “contract.” (A legally enforceable agreement)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

10. Policy Renewal Provisions
Five classifications:
Cancelable
Optionally renewable
Conditionally renewable
Guaranteed renewable
Noncancelable policy
Explain what renewable provisions are. (Stated circumstances when the insurance carrier can refuse to renew a policy, cancel a policy, or increase premiums.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

11. Policy Terms
Premium: monthly, quarterly, or annual fee to keep insurance active
Deductible: specific amount of money paid each year before policy benefits begin
Coinsurance/copayment: cost-sharing requirement in which insured assumes a percentage of the fee or pays a specific amount for covered services
Define “grace period.” (The period before a policy is cancelled for nonpayment of the premium)
The higher the deductible, the lower the cost of the policy.
Explain why you shouldn’t waive copayments. (The provider has agreed to accept copayments as part of the insurance contract)
Explain when deductibles and copayments are usually collected. What is the major exception? (Medicare patients)
Describe how insurance companies usually handle accidents. (Some policies cover accidents from day one, while others have a waiting/elimination period before accident coverage starts.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

12. Policy Terms (cont’d.)
Insurance billing specialist abstracts information from the patient record to:
code diagnoses and services rendered.
complete insurance claim form.
post entries to patient’s financial accounting record (ledger).
follow up on unpaid claims.
Define “claim.” (Written notice of services sent to the insurance company for reimbursement)
What is indemnity? (Benefits paid to an insured while disabled; also known as reimbursement)
Describe what happens if one of the actions listed is not done correctly. (Reimbursement/payment may not be received.)
What is an adjuster? (A claims representative.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

13. Coordination of Benefits
When patient has more than one insurance policy, this statement requires insurance companies to coordinate the reimbursement of benefits to determine the primary and secondary carriers.
Prevents duplication or overlapping of payment for the same expense
Discuss the birthday law. Have students come up with examples of how the law may be applied. (For dependent children, the primary carrier is the parent whose birthday comes first during the calendar year. Examples will vary.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

14. General Policy Limitations
Exclusion: injury or illness that is not covered by the insurance policy
Examples:
Attempted suicide
Military service
On-the-job injuries
Fertility coverage
Pregnancy
Preexisting conditions
Give some other examples of exclusions. (Injury, illness, attempted suicide, pregnancy, etc. Depends on policy.)
Explain what happens if an insurance policy states that a procedure or service is not covered when the state law says it is a mandated benefit. What are some examples? (The service will be covered by the state; reconstructive breast surgery after mastectomy, jaw surgery, infertility)
Explain what preexisting conditions are and give some examples. (Conditions that existed before the insurance policy began; diabetes, hypertension, answers will vary)
What are waivers or riders? (Attachment that modifies clauses or provisions within the policy)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

15. Preapproval Requirements for preapproval: Eligibility Precertification
Preauthorization
Predetermination
Students can refer to Fig. 3-2 on p. 59 in the textbook for a sample of a precertification form.
An excellent way to be sure all necessary information is at hand when calling for precertification
Most insurance policies require precertification prior to surgical procedures, tests, and hospitalization
Students can refer to Fig. 3-3 on p. 60 in the textbook for a sample of a predetermination form.
Used to find out the maximum dollar amount covered for surgery, consulting services, postoperative care, etc.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

16. Chapter 3
Lesson 3.2
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

17. Classes of Health Insurance
Group Contract
Conversion Privilege
Income Continuation Benefits
Medical Savings Accounts
Health Savings Accounts
Health Reimbursement Account
Healthcare Flexible Spending Account
High-Deductible Health Plans
Individual Contract
Prepaid Health Plan
Describe each class. (A group contract is any insurance plan by which a homogeneous group is insured under a singled policy issued to their employer/leader, with individual certificates for each member; an individual contract is specific to an individual and/or dependents; a prepaid health plan is a program in which a specific set of health benefits is provided for a subscriber(s) who pays a yearly fee or fixed periodic payments.)
What is a blanket contract? (Comprehensive group insurance coverage through plans sponsored by professional associations for their members)
COBRA is the law requiring companies of 20 or more employees to extend insurance coverage to laid off workers for up to 18 months.
What is HIPAA? (Health Insurance Portability and Accountability Act of 1996)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

18. Types of Health Insurance Coverage
The Civilian Health and Medical Program of the Department of Veteran Affairs (CHAMPVA)
Competitive Medical Plan (CMP)
Disability Income Insurance
Exclusive Provider Organization (EPO)
Foundation of Medical Care (FMC)
Health Maintenance Organization (HMO)
Independent or Individual Practice Association (IPA)
Maternal and Child Health Program (MCHP)
Also referred to as third-party payers, including government plans, private insurance, managed care contracts, and workers’ compensation.
Ask students to describe each type of health insurance coverage listed on this slide and the next slide. (Answers will vary; see pp of the textbook.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

19. Types of Health Insurance Coverage (cont’d.)
Medicaid (MCD)
Medicare (M)
Medicare/Medicaid
Point-of-Service Plan (POS)
Preferred Provider Organization (PPO)
TRICARE
Unemployment Compensation Disability (UCD)
Veterans Affairs Outpatient Clinic (VA)
Workers’ Compensation Insurance (WC)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

20. Chapter 3
Lesson 3.3
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

21. Basic Methods of Processing Insurance Claims
Manually preparing claims for submission
In-office electronic filing by fax or computer
Contracting with an outside service bureau
Use of a telecommunications networking system
Some offices may do a combination of all methods to submit claims.
Electronic billing is becoming more common, due to HIPAA regulations for claim submission.
Smaller office may still complete claims manually.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

22. Basic Steps in Handling an Insurance Claim
Have the class discuss each step in the claims handling process described in Fig. 3-5A (p. 66).
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

23. Basic Steps in Processing an Insurance Claim
Have the class discuss each step in the claims handling process described in Fig. 3-5B (p. 67).
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

24. Patient Registration Form
Patient’s name (first, middle initial, last)
Street address and telephone number
Business address, telephone number, occupation
Date of birth
Person responsible for account or insured’s name
Social Security number
Spouse’s name and occupation
Referral source (i.e., physician’s name)
Driver’s license number
Emergency contact information
Insurance billing information
Students can refer to Fig. 3-6 (p. 68) for the patient registration form.
To save time, the form is generally mailed to the patient to fill out.
How often should patient information be updated? (Every visit)
An update form updates all pertinent information from the original registration form.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

25. Insurance Card
Students can refer to Fig. 3-8 (p. 70) for the insurance card.
Both sides of the patient’s insurance card must be kept in the patient’s file.
The insurance card should be checked on each visit to confirm coverage and to verify there has been no change in carrier.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

26. Patient Signature Release
Fig (p. 71)
When is this used? (When a patient assigns medical benefits to the physician, so the physician can be reimbursed for services provided to the patient.)
What is an assignment of benefits? (The transfer of legal rights from the patient to the provider, so the provider can collect the amount payable under an insurance contract.)
Explain the difference between a participating provider (par) and a nonparticipating provider (nonpar). (A participating provider has a contractual obligation with an insurance plan to render care to eligible beneficiaries, bill the payer directly, and accept the allowed amount; a nonparticipating provider is a physician without a contractual obligation.)
Discuss the different assignment of benefit factors for private carriers, managed care plans, Medicaid, Medicare, TRICARE, and Workers’ Compensation. (See Glossary, p. 659, under “Assignment.”)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

27. Encounter Form (Superbill)
Attached to the patient’s medical record during an office visit
Combines a bill, insurance form, and routing document
Can also be a computerized multipurpose billing form to input charges and diagnoses into a patient’s account
Students can refer to Fig (p. 74) for the encounter form.
What specific information is included on the form? (Patient’s name, date, previous balance due, procedural and diagnostic codes for provided service(s), date for follow-up appointment, balance due, insurance carrier, total fee charged, referrals, etc.)
The patient should always be given a copy of the superbill at the end of the visit so that he or she is informed of the services performed and billed.
The patient should be encouraged to compare his or her explanation of benefits (EOB) to the superbill. This will assure the patient that all services were billed correctly.
What are the benefits of an encounter form? (All the information about the patient encounter is included on one form.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

28. Financial Statement (Ledger Card)
Students can refer to Fig (p. 79) for the financial accounting record.
What information is included on the financial statement (ledger card)? (Provider information, account number, patient name/address/contact information, insurance company, policy number, itemized fees for services, running balance of amount owed on account, insurance claim submission date, payment from insurance company, any adjustments, any patient payments)
Step-by-step instructions for completing a ledger card are included in the procedure on p. 85 of the textbook.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

29. Minimum Information Required on CMS-1500 Claim Form
What was done? (services and procedures using procedure codes)
Why was it done? (diagnoses using diagnosis codes)
When was it performed? (date of service)
Where was it received? (place of service)
Who did it? (provider name and ID number)
Explain what cases these guidelines are used for. (All hospitalized [surgical and medical] patients, all claims in which benefits are assigned to the physician, and special procedures [minor surgery, extensive testing])
What determines the length of time limits for filing insurance claims? (Commercial carrier, federal or state program, whether claim is for illness or accident)
When can financial losses occur due to a delay in filing a claim? (If the patient has a long-term illness, if several physicians treat the patient)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

30. Provider’s Signature Acceptable formats: Handwritten
Signature stamp/Facsimile
Computerized
Electronic signature
Digital signature
Describe the responsibility of the physician’s representative when providing signatures. (A physician’s representative signs insurance claims on behalf of the physician. The physician must authorize the representative to do this, with a legally-binding document [Fig. 3-16, p. 78]. The representative must sign claims in a legally responsible manner, or he/she could face fraud or abuse charges.)
Have students describe the different formats for an acceptable signature. (Handwritten are actually written by the physician; Signature stamps are ink stamps with the physician’s signature; Electronic signatures use a key entry or a pen pad to capture the live signature; Digital signatures are lines of text or a text box with the signer’s information that attaches from within a software program.)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

31. Insurance Claim Follow-up
What is a tickler file? (A file that contains information about pending claims that require follow-up. See Fig [p. 80] for an example.)
Describe the process for depositing a payment. (Checks and cash should be deposited in the bank, using a deposit slip. Funds may also be transferred directly from the payer to the provider, via EFT/direct deposit.)
Even after payment is received from the provider, the patient may need to be billed for any remaining charges.
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.

32. Insurance Claim Follow-up (cont’d.)
Electronic systems should generate a log of claims
Put the necessary information in the patient’s financial record
See Fig (p. 81) for an example of an electronic insurance claims register.
Describe the purpose of an insurance claims register. (To keep track of the status of every claim.)
Explain what should be included in a patient’s financial record. (copy of completed patient information form, patient authorization, or SOF information, copies of insurance cards, insurance correspondence, explanation of benefits, remittance advice, logs of telephone calls/actions taken regarding insurance or collection, encounter forms, referrals, authorization slips, daysheets, deposit slips)
Elsevier items and derived items © 2010, 2008 by Saunders, an imprint of Elsevier Inc.