Medical Insurance

Introduction

The following essay is intended to elucidate the public in the basic types of medical insurance along with the mechanics of how they work. With the information gleaned from this article, it is hoped that the patient can then make an informed choice when purchasing medical insurance.

No Insurance

For some patients, this is an option that they must consider. Due to job loss with subsequent loss of medical coverage along with a lack of financial resources to purchase medical insurance, there are many that are forced into this situation. There are also those who work part time or those who work full time and are not offered medical coverage as a benefit. Visits to your physician are paid in cash, though most physicians are willing to work out a payment plan over time.

A problem arises if the patient becomes seriously ill and requires emergency services. If the patient does not have an immediately life threatening illness and is medically stable, the emergency room will ask for an up-front cash deposit that is usually several hundred dollars depending upon the medical disorder. This deposit could be several thousand dollars if the disorder requires surgery and/or admission to the hospital. If the patient cannot come up with the cash deposit, the patient will be transferred to the nearest public facility, usually the county hospital. The county facility will require no payment although the patient is usually expected to pay a tiny amount of the medical bill.

Close to twenty percent of the U.S. population lacks medical coverage and due to financial cutbacks to county hospitals across the country, the county hospitals are facing an enormous problem. There are long waits for all but the most critically ill patients. Much of the medical care is given by resident physicians who are in training for their medical specialty and medical students who have not yet obtained their medical degree. These young doctors are under the supervision of an experienced attending physician. Needless to say, the quality of care can be seriously impaired due to these burdens.

For those patients who are on public assistance, the government provides Medicaid. Unfortunately for the patient, Medicaid pays the physician so little that many physicians refuse to take Medicaid patients. The challenge facing the patient on Medicaid is finding a physician willing to take him or her. Fortunately, most hospitals will take Medicaid patients so emergency services and hospital admissions are almost always covered.

Indemnity Insurance

This is the traditional type of insurance that is becoming increasing rare due to its expense. Depending upon the size of the deductible which is amount of the medical expense paid by the patient first, the annual premium paid either by the patient or by the employer will usually be over $6,000 per year for coverage of an entire family. There is also a wide range of deductibles from $250 to as high as $10,000. Once the deductible portion has been met, the patient must pay twenty percent of the bill up to a predetermined amount, then the insurance will pay 100% of the remaining amount.

The reason for the high cost of this insurance is because of its "fee for service" nature. Every visit that a patient makes to the doctor or hospital generates income for the provider of care. There are no incentives for the providers to cut costs. The advantage to the patient is complete freedom of choice as far as primary care physicians, self referral to specialists, and freedom to choose their hospital.

Discounted Fee For Service

This type of insurance is better known as a "PPO" (Preferred Provider Organization). In response to the growing cost of indemnity health coverage, insurance companies formed networks of physicians and hospitals that were willing to significantly discount their fees with the hope of increasing patient visits. For the patients, the deductible is significantly lower and payment after the deductible was met was often zero as long as they utilized a preferred provider. Most patients are also given a pharmacy benefit where for a small fee (five to twenty dollars) they can obtain their prescription medications. If the patient goes out of the network, the amount of coverage dramatically drops so there is a strong incentive for the patient to stay within the contracted network of providers.

Due to the discounts negotiated by the insurance companies, they can pass along the savings in the form of reduced annual premiums. The patient's freedom of choice is mildly restricted but even out of network providers are covered though at a much lower rate. Most PPO plans allow self referral to specialists, but a few require that the primary care physician obtain approval from the insurance company.

With the rising costs of providing medical coverage to employees, a radical concept known as the "health maintenance organization"(HMO) was developed as an alternative to traditional indemnity and PPO insurance. The HMO provides a fixed payment to the physician known as capitation every month in order to provide all medically necessary care which usually includes office visits, referral to specialists, surgical procedures, and hospital care. The financial risk of caring for the patient is shifted from the insurance company to the provider of medical services. There are several complex variations on reimbursements to the medical providers, but the basic concept still applies that the provider assumes most of the financial responsibility for the care of the patient.

The advantage provided by HMO's to the consumer of health care is a significant lowering of out of pocket expenses. There are no deductibles, and there are no payments to physicians except for a small co-payment usually five to twenty dollars per visit. The annual premiums are almost always lower than both indemnity and PPO types of medical insurance. Prescription medications can be obtained for a small co-payment also, though the quantity of medication is usually restricted to a thirty day supply.

The clear disadvantage to the patient who is on an HMO plan is a significant restriction of freedom of choice. The patient must formally designate a primary care physician who is a member of the HMO network and under most circumstances see this provider only for all medical needs. If the primary care physician feels that any special outside referral or testing needs to be done, he must submit his request in writing to a utilization review committee for approval, unless a medical emergency exists. This process usually takes one to two weeks and can be declined by utilization review if it is felt not to be medically necessary, if the services can be provided by the primary care physician, or if there exists a less expensive alternative. Almost all requests submitted by the primary care physician are approved by utilization review. Emergency room visits also require prior authorization from the primary care physician who must certify that a true potentially life threatening condition exists or the patient will not be authorized for the visit. If the patient does not receive authorization for the emergency room visit, the patient can still be seen, but will pay the full amount of the bill. All medical care for the patient must take place within the primary care physicians "independent practice association" (IPA). If the patient would like to see another specialist or go to another hospital that is listed in their HMO provider list, they cannot unless that provider is also in the same IPA.

The largest HMO in the country is Kaiser Permanente. Under this system also known as the "staff model HMO," there is no utilization review and the patient can be seen in the emergency room as long as it is a Kaiser facility. A similar restriction of freedom of choice exits, however, because the patient must utilize only Kaiser facilities unless a life threatening medical emergency exists. Also, the waiting time for medical services that are not urgent can be long. For example, the patient who is suffering from chronic hip arthritis may have to wait many months on a waiting list to have hip replacement surgery.

Recently, the capitation method of payment used by HMO's have been the subject of controversy due to a potential conflict of interest between the patient and the provider. There have been numerous instances publicized where a provider is alleged to have withheld medical services from an HMO patient in order to cut down on the cost of caring for the patient since the provider receives a fixed payment for caring for patients. There have been several states that are proposing legislation in an attempt to curb these alleged abuses.

Medicare

Social security provides Medicare upon retirement for coverage of medical expenses. In theory it is indemnity insurance but in reality it is more like a PPO. Most physicians accept something known as "Medicare assignment" where the provider accepts the Medicare payments with the agreement not to bill the patient except for the deductible amount and the 20% after the deductible has been met. The provider therefore has entered into a discounted fee for service arrangement with Medicare. Medicare beneficiaries have the option of obtaining secondary coverage for the amount not paid by Medicare int the form of indemnity, PPO, HMO, and in some cases Medicaid.

Conclusion

Due to individual circumstances, some patients will not have a realistic choice in the type of medical insurance that they own. Hopefully, the above information will provide these individuals with a better understanding of how they will interact with the health care system.

Lloyd Ito, MD

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