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Medical insurance is in an extremely uncertain state at the present time. Nevertheless, some general principles can be identified which apply to both medical insurance and HMO coverage. First, it is important to understand that health care agreements, including both Health Insurance and Managed Care agreements, are “contracts of adhesion.” This basically means that you either take the agreement as written, with very little room for negotiation. For this reason it is especially important for you to understand the differences between one plan or policy and another.
A long-term illness can bankrupt most people, so it is crucial that you compare different plans and determine which to consider and avoid.
HMO’s and PPO’s
Two of the most common medical care delivery systems are the HMO (Health Maintenance Organization) and the PPO (Preferred Provider Organization). The basic distinction is whether the plan requires you to rely on one primary doctor for all care or referrals, or you select your providers directly.
The HMO is a plan managed by one primary doctor. When you need medical services, you go to him or her for treatment and/or referral.
HMO’s generally charge higher premiums in exchange for broader coverage. They also require fewer user fees and paperwork.
Other names include:
- Point of Service Plans,
- Healthcare Service Plans, and
- Participating Physicians Programs.
The PPO is a plan in which you may seek the care of a physician of your own choosing from the PPO’s approved providers. These physicians appear in the Providers Directory. With most PPOs you can also select a physician from outside the Directory if you are willing to pay a higher portion of the doctor’s charges out of your own pocket.
PPOs provide a greater choice of doctors and treatment options.
Other distinctions between plans may become blurred under the terms of a particular contract. For example, some HMO plans do allow you direct access to specialists without having to request approval from your primary doctor, if specific conditions are met.
Many health care providers have responded to changes in healthcare industry laws and costs by customizing their plans, including cutting services, increasing deductibles and limits, establishing co-payment procedures or other charging arrangements. Some have also instituted “capitation agreements,” where a doctor or group of doctors receives a monthly flat fee based on the number of patients assigned to the doctor, regardless of the number of patient visits.
In addition, other containment features have become common, such as Utilization reviews. A Utilization review is a process by which a health care plan makes treatment decisions. Sometimes, an employee of the plan makes these decisions instead of a treating medical doctor.
Individual Health Coverage
Individual health policies require individual underwriting or risk assessment per patient. Some of the assessment criteria includes:
- risk factors (such as smoking),
- medical history,
- current medical condition,
- residence location,
- coverage desired and
- other variables.
Under Obamacare, some of these criteria such as the consideration of prior existing conditions can not be taken into account by the insurer.
The insurance applicant provides detailed information on each person to be insured. The carrier or plan then determines whether an applicant will be accepted as well as the premium to be charged.
Group Coverage (other than employer-employee groups)
Group policies generally include several-to-thousands of members and their families. Group policies can be written for organizations of any type, including professional, business or social.
Often, depending on the size, demographics, and the healthcare terms and conditions being offered, the underwriting characteristics of the group is more important than the assessment of the individuals.
While some groups provide members with a choice between different plans or insurance companies, most groups give one insurance company exclusive access to the entire group in exchange for reduced rates or other financial incentives.
Group medical coverage programs are often offered through employment. Many employers offer a choice from a number of HMO or PPO options.
Some employers also offer a form of self-insurance, which means the employer directly pays health benefits for each employee. Under this type of plan limits are set on the amount the employers will pay toward each employee’s healthcare.
A catastrophic policy benefit may also be included. This covers certain medical expenses above a threshold amount. For example, if an employer’s payment limit was set at $6000 per year per employee, services above $6000 would be covered by a separate catastrophic healthcare policy.
Employers can administer health care in many different ways. This is a very important consideration because it impacts access to information and claims handling. Some employers administer their own plans through their company’s Human Resources Department; others “outsource” programs through a separate claims servicing, or HR company. The amount of help that a particular employer may give to its employees toward understanding and exercising their rights under an employment based plan depends on the motivation of the particular employer. Some employers are determined to provide maximum coverage and assistance to their employees in order to keep them healthy, happy and dedicated to the company. Others are principally concerned with controlling the company’s bottom line.
In evaluating any company program, you should use the factors and considerations described below.
The one crucial distinguishing factor separating employment-based plans from others is that with an employment-based plan most employees (and their covered dependents) lose virtually all of the rights and leverage they would otherwise have under consumer protection laws, court decisions and insurance laws and regulations of their state. (See ERISA in our Glossary Section).
The History of ERISA
Over the past several decades, each state – through its own laws and court decisions – developed protections for insurance policyholders. This happened at the state rather than the federal level because, years ago, Congress enacted legislation preventing federal regulation of the insurance industry. This Congressional legislation was known as the McCarran Ferguson Act. It provided that any regulation of the insurance industry had to be enacted at the state rather than the federal level. Various “model” state statutes eventually developed and were enacted in order to protect the consumer. These uniform statutes included unfair claims handling regulations and other laws adopted on a state by state basis.
These state statutes, along with state court decisions, gave policyholders the right to take legal action against carriers engaging in unfair claims handling practices such as underpayment, misrepresentation, delay or fraud. Consumer groups argued that the right to hold insurers accountable gave policyholders leverage to compel the fair settlement of valid claims. However many insurance companies complained that lawsuits were costing the industry too much money and that the solution was to bar people from suing them. Most states were simply unwilling to do this.
In 1987 the US Supreme Court, at the urging of the insurers, did precisely what state legislatures had been unwilling to do. In the case of Pilot Life v. Dedaux, the Court ruled that if a person obtained his or her health insurance through their employer, they could no longer rely on state laws, or state courts to protect them if their rights were violated. Instead, their rights were to be limited by an existing federal law known as the Employee Retirement Income Security Act (ERISA). Interestingly, this law was not originally enacted with insurance in mind at all. It contained none of the standards or consumer protections afforded by most states in non-ERISA situations.
The elimination of state insurance protections for employees who obtain their health benefits at work is called “ERISA Preemption”.
There are limited employee exemptions to ERISA preemption (notably for state employers and employees of religious organizations). In addition, a number of efforts have been launched in an attempt to rectify this situation through the enactment of remedial legislation. But the bottom line is that thus far, the Supreme court’s 1987 Ruling remains the law. Unless you are exempted as a governmental or other excluded employee you lose all of your rights under your state’s laws and protections if you are ERISA Preempted.
If you have any choice between purchasing an ERISA governed plan, versus one that is not an ERISA plan, Insurance Consumers strongly recommends that you select the latter.
The Most Common Issues Involving Medical/HMO Insurance
- Whether the medical services are covered under the policy or agreement.
- Whether a physician’s charges were “customary and reasonable.”
- Whether treatment is considered “experimental.”
- Whether care received was medically necessary.
- Whether the coverage in question had been validly altered, modified or eliminated prior to the date of the treatment.
- Whether a company’s marketing literature accurately represented the actual coverage.
- Whether applicable provisions of a plan or policy are vague and ambiguous.
- Whether provisions of a plan inconspicuously require coverage for claims that would otherwise be excluded.
- Whether the company has the right to rescind (cancel) the coverage based on material misrepresentations made by the claimant in the original application.
Important Considerations When Choosing Medical Insurance
Begin by Prioritizing Your Medical Needs
- Who needs to be covered?
- What are their ages and medical conditions?
- What are some of the most important medical insurance needs?
(Rate items in order of importance.)
– Routine doctor visits
– Annual check-ups
– Medical care for pre-existing conditions
Hospital – Lab – Treatment Services
– Diagnostic testing
– X-Rays, EKGs, biopsies , MRIs.
– Hospitalization coverage (type of room, specific benefits, duration of stay)
– Outpatient surgery
– Ambulance/Air ambulance services
– Pain treatment
– Rehabilitation services
– Cardiac care
– Radiation, bone marrow treatment and other cancer care
– Kidney dialysis and other treatment
– Organ and bone marrow transplants
– Inpatient services
– Rehabilitation, mental health, substance abuse facilities
– Dermatology, orthopedics, neurology, ENT, urology
– Speech Therapy
– Learning disability issues
– Psychiatric care and treatment/Psychological counseling
– Dental services
– Orthodontics, periodontics oral surgery, orthognathics
– Pap smears and mammography
– Newborn complications/care
– Family planning/fertility services
– Prescription drugs
– Vitamins and nutritional supplements
– Allergy treatment care and products
– Hearing aids and treatments
– Prosthetics and orthotics
– Durable medical equipment
Assess Your Financial Situation
- How would financial situation would it be impacted by various types of medical problems?
- What kind of trade-offs do you want to make to save premium dollars?
- Choice of doctors?
- Higher deductibles?
- Limits on covered conditions and services?
- Agreeing to one-sided contractual requirements?
- Will the health plan under discussion be able to reduce your coverage, or benefits, after you have purchased it?
- Can the plan reduce continuing benefits after you have contracted a particular injury or illness?
- What notice must be given to you concerning reductions in coverage before those reductions can take effect?
- Can the insurer reduce your coverage as the result of an illness, or for any other reason?
These are very important considerations. Once an insured has contracted a serious medical problem his or her ability to find a new insurer may be limited. Therefore you have to know whether an insurer can reduce the coverage in future years. It is important to address this issue whether the policy in question is individual, group or employment based.
- Does the plan have a procedure permitting you to appeal an adverse claims decision?
- Is the appeal procedure fair?
- To whom is the claims decision to be appealed?
- If the plan is employer-based how would you appeal an adverse claim decision through the company’s hierarchy?
- Is the appeals person or panel a truly independent/neutral party?
- Is the appeal process prompt or can it drag on for weeks or more?
Some HR representatives and employer representatives are more knowledgeable and experienced on coverage issues than others. Bring your notes to any meeting or conversation, regardless.
These considerations apply to all types of health insurance.
Binding arbitration provisions
Many medical coverage contracts now require the binding arbitration of any disputes arising under the policy. ADR provisions required under any insurance policy can be a real cause for concern. But with medical and HMO contracts this is especially so.
There is a big difference between a situation in which both sides choose a neutral mediator (who only has the power of persuasion to attempt to bring the sides together,) versus one in which a third party (who may or may not be neutral) is actually empowered to make enforceable, binding, decisions.
Most ADR provisions contained in medical and HMO contracts mandate that a hand-picked decision-maker be empowered to actually decide controversies. This decision-maker is substituted for the courts. This might seem to provide an efficient and expeditious means for resolving disputes; however, some ADR clauses are so one-sided that they are basically allowing the insurer or HMO to serve as its own judge and jury. These types of ADR clauses should be avoided at all costs.
The ADR requirements under various policies can differ dramatically. If a policy you are considering has an ADR clause, there are some important questions you must to ask in evaluating it.
- Is the ADR clause optional or mandatory (unless waived or given up by the parties)?
- Who can demand ADR? The insurer, the insured or either?
- How long may either party wait before demanding ADR?
- Does the ADR process empower someone to make a final and binding decision or is the decision appealable?
- How is the ADR decision-maker to be selected? Is it a fair procedure aimed at choosing a truly neutral party?
- What ability do the parties have to obtain records or documents from the other side prior to the ADR hearing?
- Are formal rules of evidence used? What about briefing, expert testimony, attorney participation? In other words, how elaborate, time consuming and expensive, is the process that is set forth?
- Who pays for the cost of the ADR proceeding? The insurer? The claimant? Both?
Note: Unless your claim is ERISA Preempted certain principles under the laws of most states have evolved to help protect you in the claims process. These rules can be very important in the handling of a given claim.
With regard to your coverage, if there is any disagreement with your insurer as to anything important, try to negotiate. If that fails suggest mediation with First Mediation, JAMS, or a similar service Once you have an agreement put it in writing. Again if there is a significant sum in question, get a free lawyer consult before signing.