[Posted by Henry Stern, LUTCF and Bob Vineyard, CLU]
It is axiomatic that the goal of insurance carriers (of any business, really) is to make money, and there’s nothing wrong with that. The challenge is how to do this in a way that maximizes profit, but minimizes pain.
Regular readers know that Bob and I are proponents of, and believers in, Consumer Driven Health Care (CDHC), and especially High Deductible Health Plans (HDHP’s). The idea behind these plans is that one chooses a very high deductible, which (theoretically) generates a lower premium, and that one uses some of those savings to pay for the small, routine claims.
HDHP’s (usually) include access to a network of providers, who offer reduced rates for services rendered. Since these services are usually paid for by the insured, this can represent a significant additional savings. And, because they cost less, folks are more apt to use network providers, driving up their revenue. A win-win situation.
Or so we thought.
The purpose of this Special Report is to expose what Joe Paduda calls CDHC’s “ugly secret.” Turns out, only some of these in-network services actually get the discounted (reduced) rates. That is, only “covered” services are eligible; if you own an HDHP, and receive non-covered services, even in-network, you pay full freight.
Take it away, Bob:
What happens below the deductible for HDHP’s has been widely, and sometimes wildly, debated. I won’t bother to rehash ALL the issues but one that seems to keep cropping up, without resolution, is in the area of “discounted” provider charges under the deductible (or, as we call it, the SIR – Self Insured Retention).
I say “discounted” in quotes because there really are no discounts. Rather, the provider has agreed, by contract, to accept a pre-negotiated rate as payment in full for services rendered. Simply put, if the bill is $100, the provider has agreed (in writing) to accept payment of $70 for services, and will not balance bill.
Why would they do that?
MCO’s (managed care organizations, aka PPO networks) negotiate directly with providers by promising patient volume and prompt payment. In return, the provider (doctor, hospital, etc) agrees to accept the lower, negotiated fee structure. Once the PPO contract is in place, the MCO then provides access to these preferred providers (for a fee). This fee is billed to the carrier, which in turn builds that fee into the premiums charged. Policyholders now have the same rights to access the negotiated fee structure.
Herein lies the rub . . . at least according to some of us.
My contention is this. The policyholder is paying the access fee as part of their premium, therefore the policyholder is entitled to discounts on ALL services received in-network.
However some carriers view it differently.
The carrier view seems to be that the policyholder is only entitled to the negotiated fee structure IF the service is a covered item under the policy. If for example, the policy does not allow for maternity benefits then there would be no discounts when a policyholder requires pre-natal or delivery charges. However, most states REQUIRE coverage for complications of maternity, in which case services by a par provider WOULD be discounted.
Other possible areas where negotiated fees would be denied include:
■ Pre-existing conditions excluded by contract
■ Illness specifically excluded by rider
■ Extra-contractual procedures such as cosmetic surgery, drug & alcohol treatment, psychiatric services, TMJ or other dental surgical procedures.
I believe that, since the access fee has been paid, then all services provided for in the PPO contract should be available to the policyholder.
This debate was reopened when Joe Paduda made this post on the fine print that isn’t there. This started a journey all over again.
I contacted Golden Rule (United HealthCare) and received this response:
When we receive a claim we always run it through to get the discounted rate for using in-network providers. It is up to that provider to honor the discounted rate if the claim was for an expense not covered under the plan.
Example would be maternity claims. As you know maternity is not a covered expense in GA as there is not a rider available. If the Dr sent in a claim UHC would process it to get the discount. When the bill goes back to the Dr. they have the option then of requiring the full amount or working it out w/ the patient to honor the discounted price. On non covered expenses or excluded conditions I have been told by claims that it is up to the Dr if they want to honor the discount rate given by UHC.
On covered expenses the discounted rate will always be the amount that an insured is expected to pay under our U&C policy.
Hank contacted other carriers, who all confirmed that they applied the same principle.
In all of this, the answer to one specific question has remained elusive:
Why would a carrier do this?
A couple of Joe’s commenters apparently believe that, if insureds pay the higher rate, they’re “going to pierce their deductible layer much faster, thereby incurring claims expense and costing the health plan money.” Interesting and provocative theory, but unsupportable. By definition, non-covered expenses do not count toward the deductible, nor do they apply to the annual out-of-pocket maximum. From the carrier’s point of view, such expenses never happened.
Bob and I came up with a list of reasons why carriers shouldn’t ding policyholders in this manner, including :
■ Fundamental unfairness
■ Bad PR and customer relations
■ Additional claims adjudication expense
Given all these arguments against this practice, why would carriers continue to implement it? For that, we had to go to the source.
I am fortunate to have made a number of useful home office contacts over the years, and it was to these folks that I turned. In email, voice mail and phone conversations, I posed the following question:
“We understand that folks who go in-network for covered services get the reduced rate [Bob is correct that it’s not really a discount, but the distinction would be lost on home office critters], while those who go in-network for non-covered expenses don’t. Why is that?”
Care to guess the response?
Inexplicably, we've received no answers from any of the more than half dozen carriers we contacted. Feel free to draw your own conclusions.
UPDATE: We've received a carrier response.
UPDATE II: Broken, Part 2.