Component 1: Introduction to Health Care and Public Health in the U.S. 1.4: Unit 4: Financing Health Care (Part 1) 1.4 c: Insurance and Third-Party Payers

Insurance and Third-Party Payers Health Insurance – Principle- the person shifts the cost of illness from sick person to the insurance company. – Based on your background and the probability you will get sick, the insurance company charges you a fee. – The insurance company is predicting they will come out ahead because you’ll stay healthy Component 1/Unit 4c2 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) The Insured – Most people in the US get health insurance as an employment benefit – Employees are not required to enroll in the employer’s plan – Employer’s plans differ as to services offered and the cost of employee’s premiums – Those with health insurance healthier than those without Component 1/Unit 4c3 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) How Insurance Works – Third-party payer- the insurance company is called this because they are the third party between the patient and the service provider – The employer tries to negotiate the longest list of services for the lowest price (premium) – The price for the list of services also depends on how many people are in the plan Component 1/Unit 4c4 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) How Insurance Works – The employer decides how much they will pay of the premium and what each employee will contribute – The policy is the legally binding contract – The employer will have a time period when employees can sign up for or change services called the enrollment period. Component 1/Unit 4c5 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) How Insurance Works – Out-of-pocket payments for the patient are called the policy’s deductible. This amount needs to be paid before the insurance company will begin paying for services. – Copayment- the patient pays for a portion of the cost of the services up front. Component 1/Unit 4c6 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) The provider-third-party relationship – The provider files a claim to be reimbursed for the services provided to the patient. – The diagnoses, procedures, and services provided to the patient must first be coded. – The healthcare industry uses ICD-9 as a coding standard for diagnoses. (International Classification of Disease- 9 edition) Component 1/Unit 4c7 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) The Provider-Third Party Relationship – The Healthcare Common Procedure Coding System (HCPCS) is used for coding the procedures. – HCPCS has two parts: Current Procedural Terminology (CPT) and national codes (HCPCS level II codes) – Once the diagnoses, procedures, and services are coded, a bill is generated and sent to the Third Party Payer Component 1/Unit 4c8 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) The provider-third party relationship – Claims are transmitted to the third party payer electronically – The payer replies with a transmittal notice – An explanation of benefits (EOB) is sent to the patient to explain the results of the claim submission Component 1/Unit 4c9 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Indemnity Insurers » Traditional policy- insurance company will pay for the loss to the insured (in this case health services) » Usually, no restrictions on the patient’s choice of provider Component 1/Unit 4c10 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Self-Insurers- seems the same to the patient as the indemnity plan – In this plan, the employer assumes the risk for the loss of medical costs – Often a third party administrator (TPA) is hired to administer the benefits and process claims. Component 1/Unit 4c11 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Blue Cross/Blue Shield » A type of plan that prepays providers for services » Reimburses providers through a usual, customary, and reasonable payment program (UCR) » The usual fee is based on what the provider usually charges in that geographical area Component 1/Unit 4c12 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Managed Care Models » Managed Care describes both a model for paying health care providers and a system for delivering health care services » Key function is gatekeeping. The patient can only access certain services from the primary care provider and must be referred to specialty services Component 1/Unit 4c13 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Health Maintenance Organization (HMO) » A prepaid health plan » Providers are paid by capitation—an amount per patient » If the patient uses less services than the fee, the provider keeps the extra. » If the patient uses more services than the fee, the provider must absorb the cost. Component 1/Unit 4c14 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Staff Model HMO- physicians are employees of the HMO and paid a salary. – Prepaid Group Practice Model HMO- Physicians are employees of an independent group that contracts with the health plan to provide services. – Network HMO- HMO contracts with at least 2 group medical practices “in network” to provide healthcare services. Component 1/Unit 4c15 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Third-Party Payers – Independent Practice Association Model (IPA) IPA markets the health plan. Physicians contract with IPA to treat HMO members – Preferred Provider Organization (PPO)- Manages and negotiates contracts on behalf of the providers, who provide services at lower cost. Component 1/Unit 4c16 Health IT Workforce Curriculum Version 1.0/Fall 2010

Insurance and Third-Party Payers (cont’d) Regulation of Third-Party Payers – Insurance is a regulated industry – Insurance companies must be licensed – External review of health plan decisions must be conducted in 44 states – The Health Insurance Portability and Accountability Act regulates portability, access and mandated benefits. Component 1/Unit 4c17 Health IT Workforce Curriculum Version 1.0/Fall 2010