Insurance and the Insurance Claims Process

In the American economy, healthcare is one of the fastest-growing sectors.

Almost $8,000 per year per capita Americans spend on healthcare, and a large portion of that money is spent on health insurance.

How Health Insurance Works

Effectively, health insurance subscribers conclude an agreement with a health insurance company to reduce the effect of the medical expenses cost.

Insurance coverage plans come in many types, and there are even more ways to pay for them.

A lot of insurance plans share some basic similarities.

Most of them require subscribers to pay premiums, which is effectively a subscription fee.

Fees can be assigned annually or monthly.

Many plans also include deductibles, which is a monetary limit that health insurers consider being the cost of medical services or procedures.

Subscribers may also have an agreement for coinsurance or co-pay with their insurance company.

A co-pay is a fixed and relatively small sum that should be paid before any medical services are provided.

The co-pay isn’t counted as the deductible.

A co-insurance arrangement means that the responsibility for payment is divided by percentage.

In the co-insurance, the payer’s (insurance company) share is listed first, and the subscriber’s share later.

For example, if a subscriber receives a medical service worth $300, and has an 80-20 co-insurance agreement with an insurance company, they will pay 20% of the bill ($60).

The insurer will pay the remaining amount.

Now that we’ve covered some basic aspects of health insurance, let’s explore different types of it.

Indemnity

Indemnity is the most straightforward and basic kind of insurance.

With it, you pay a premium to an insurer to avoid huge medical expenses.

You can have a deductible, a co-insurance, or co-pay, depending on your plan.

Holders of this kind of insurance don’t have the restrictions on which providers they can visit.

However, these types of plans are usually more expensive than managed care.

Managed Care

Managed care organizations are groups or other bodies that aim at reducing the healthcare cost and increasing the efficiency of health services through various means.

For example, MCOs can limit the list of providers that the subscriber can see to a specific network or facilities and doctors.

Generally, they have fixed costs lower than in indemnity plans.

But the options for where a patient can get treatment can be limited.

There are some major types of MCO, which we’ll discuss below.

Health Management Organization (HMO)

At some point, HMOs were the most popular option of MCO.

They provide subscribers with a low premium and a strict provider network that the subscriber can visit.

If subscribers go to providers outside this network, they have to cover the expenses themselves.

HMOs are typically the cheapest MCO option but with the least flexibility.

HMOs also often use primary care physicians who operate as gatekeepers.

PCPs usually refer subscribers to specialists.

Preferred Provider Organization (PPO)

Recently, PPOs took over HMOs as the most common MCO.

Contrary to HMO, PPO subscribers can see any provider, but if they visit a provider within the PPO network, they will pay less.

Their premiums are generally higher but offer more flexibility.

Point of Service (POS)

This is a slight variation of the HMO model.

POS subscribers get most of the medical services in-network, and they can go out-of-network if they pay higher fees.

Many of these plans are tiered so if the subscriber needs to see a specialist out-of-network, they pay more, but if they are referred to that specialist by an in-network PCP, they pay less.

Consumer-Driven Health Plan (CDHP)

CDHP is a relatively recent development in the MCO.

It enables subscribers to receive benefits similar to PPO only after they pay a certain deductible.

The deductible is usually high but the premiums are low and it comes with a savings account operating as a retirement fund.

Subscribers can store some amount in that account to cover the out-of-pocket expenses.

Each of these types of insurance coverage affects the way of creating a claim.

For example, we’re billing for a $1500 procedure.

The patient who received it has a CDHP with a $1000 deductible.

To make an accurate claim, we need to check the patient’s coverage plan, assign the $1000 deductible to the patient, and pass $500 to the payer.

Similarly, if you consider the HMO coverage the patient has, but they visit an out-of-network provider, we have to know that we can’t send a claim to that HMO.

Instead, we would have to bill the patient.

Understanding the ins and outs of insurance and what type of coverage, deductibles, and other things they come with is a vital part of the billing process.

Claim Forms

Let’s briefly explore the manual and electronic claim forms.

As per HIPAA regulations, most claims must be electronic.

It doesn’t mean all claims should be submitted electronically, but that would be ideal.

According to these regulations, standard transactions such as claims should be submitted electronically.

This rule has some exceptions.

First, if a practice has under 10 employees, manual claims can be used.

Also, if a power outage happened, they can submit claims manually, but only those that are time-sensitive.

Two of the most common claim forms are the CMS-1500 and the UB-04.

These forms function and look similar, but one can’t substitute another.

The CMS-1500 is the basis for the UB-04.

But actually, the UB-04 is the variation of the other one, a.k.a. the CMS-1450.

CMS-1500 forms are used in non-institutional healthcare facilities, such as private practices.

UB-04 is typically used in institutional facilities, such as hospitals.

The process of billing an insurer or another payer is hard to sum up because a lot in it depends on variables.

They include such factors as the insurance plan of the patient, the guidelines for claims submission of the payer, the contract between the provider and the payer.

We are not going into fine details of the process, but in other articles, you can explore the real-world examples and other aspects of the medical billing.