Useful Information About Health Benefits

by David Beckett, Esq.

Health insurance benefits are a confusing and complex area where you have to make many choices about costs and coverage levels.  Each of these choices has consequences, some of which may be hidden and which can shift the cost of health care onto you and your family.  

Over the last ten years I have been involved in negotiating health benefits, reviewing health insurance plans, and working with proposed changes to benefit plans. These experiences have given me insights into this difficult area, and I hope that the following discussion of certain terms used by health insurers as well as this overview of differing types of health insurance plans helps you to better understand these choices.

If you need help addressing a more specific problem, such as a proposed change in negotiated health benefits, an individualized review of the situation would be required.  The information on this website cannot substitute for a thorough review of your health plan by a professional or for legal and negotiations help and advice, but I hope that it will help you identify and better understand any terms or changes in benefits that are being proposed and their potential impact.

Health Care Costs in Managed Care Plans

What is a Deductible?
In almost all insurance plans you will also have a deductible, which is the amount of money you have to spend before your health care costs for that type of care is reimbursed or paid by the insurer. Deductibles can range from a few hundred dollars or less to more than $1000 for an individual and more than $2000 for a family each year, depending on the plan requirements. Deductibles apply to in-network care in designated areas of treatment, such as outpatient surgery. Generally, the deductible does not apply to doctors’ visits, which are covered by the co-pay for such care.

 In a nutshell, shifting costs to members/patients and forcing them to use only in-network providers are key ways that health insurers try to control health care costs.

An understanding of some of the terms that experts throw around can help to make it easier to evaluate your current plan, to understand changes that are being proposed, and to make choices.

What is a co-pay?
A co-pay is the amount that you will pay for an in-network doctor or provider.  It is usually a set amount for each visit, like $25 for a primary care physician and $35 for each visit to a specialist.  These costs are different in each plan and they have to be paid at each visit, subject to some limitations, such as no charge for routine screening physicals or certain screening tests per the Affordable Care Act (Obamacare).  Co-pays can also apply to emergency room visits and to other types of treatment and costs, such as prescription drugs and therapist visits. 

What is co-insurance?
Co-insurance is a different way of expressing that you will pay part of the cost of the service being provided and the insurer will pay the rest.  It differs from a co-pay for a visit to a doctor because the co-pay is the same regardless of the type of visit or service that you receive.  Co-insurance is typically based on a percentage split of the cost of the service, so the amount you pay increases as the cost of the service being provided also increases.  For example, when the co-insurance for an in-network procedure is 90/10, you will pay 10% of the agreed-upon cost for the procedure and the insurer will pay 90%. Typically, services that are paid for with a co-insurance payment are procedures or outpatient surgery, not a doctor visit. 

Co-insurance gets more complicated if your plan allows you to go out of the network for services.

Networks in managed care plans

In-Network vs. Out-of-Network 
Networks are central to almost all health benefit plans because they are thought to control costs by managing care. Networks limit providers who are approved by the insurer to provide you with medical care and require the providers to accept the insurer’s price for service.  This is the essence of what insurers call managed care plans. 

The network is comprised of those doctors, hospitals, surgical centers, therapists, and other providers of health care (Providers) who have contracted with your health insurer to provide you (the Member) with health services at a designated charge. The network Provider agrees to accept the amount paid by the insurer, plus your co-pay, as the full payment for the medical service they will provide to you, such as an office visit or a procedure. 

In-Network Providers
In-network providers help control costs because they must accept the amount the insurer has negotiated to pay for the service, even if it is less than they would charge a patient who is not in-network. In-network providers cannot balance bill you for any amount above their negotiated rate, so your cost is limited to your co-pay and or any co-insurance amount you are required to pay under your insurance plan for that specific service.

Out-of-Network Providers
Out-of-network providers are all of the doctors, surgical centers, therapists, hospitals, and other providers of health care who have not contracted with your insurer to provide in-network services for your plan.  Many health plans will not reimburse you for using out-of-network providers, so you have to be sure your plan allows you to go out of network.

If your plan covers out-of-network services, they will be much more costly for you because the goal is to create economic incentives for you to get your health care inside the network.  To start, the doctor or hospital is not limited in what they can charge, so you should find out up-front what the costs are for the visit, procedure, or service you are receiving out of network.

When you get care out of network, you will pay the provider first and then you will have to get a reimbursed by the insurer.  Almost all plans require that you to pay a deductible amount for out-of-network care, which can be well in excess of $1,000 before the plan will even reimburse you for a percentage of the cost of the services.  Furthermore, the percentage that you are to be reimbursed is not based on what you are being charged; it is based on what is considered to be the “reasonable and customary” charges for the service in the specific area. This means that if your out-of-network doctor charges $200, when the reasonable and customary charge is $150 for your visit, your reimbursement will be at the plan’s percentage of the $150, and you have to pay your percentage plus the $50 difference between what you were charged and what the insurer says is reasonable and customary.  

This can add up, so if your doctors or other providers are not in the network, you may have to consider switching providers. This is also why a change in health insurers can be so difficult--because each insurance company has a different network.  While many doctors accept a number of different insurance plans, you need to see if your doctors, surgical centers you have used, hospitals, and other providers are in the network when any change in health insurance is proposed.  The review of networks and providers in which your current insurer is compared with a new insurer is called a “disruption analysis” for a good reason --changes like this can be disruptive.  

It is important to know that changing insurers, and thus changing networks, is different than changing benefits, like co-pays, deductibles, or covered services.  Thus, in most negotiated health plans, unless the new network being offered is substantially worse (eg, it has a reduced number of doctors or a smaller geographic coverage area), the employer will generally be allowed to change the insurance company it deals with to provide benefits, which changes the network. 

Some things to look for in a network are:    

• The number of primary care doctors and specialists in each given geographic area.
• The hospitals that are covered in the network and whether the network is national in scope or regional.

If the new insurer does not have key hospitals, or if the old network had doctors in all 50 states and the new one only covers New Jersey, New York, and Pennsylvania, those are issues that can be significant. When such a change is suggested, you will have to compare the networks and evaluate the change, because each situation is different. Thus, if this type of network change is proposed, you should consult with a professional because each situation is different and fact sensitive.

Types of Managed Care Plans/Networks

HMO, or Health Maintenance Organization
In an HMO you CANNOT go outside of the network of doctors and hospitals that have contracted with the insurer. If you DO go out of the network for health care, you will have to PAY ALL THE COSTS. You may hear that you can get approval to go out of network in unique circumstances, but do not count on that happening because you would generally have to get prior approval for such treatment, and it is not going to be given. Services in-network will generally require a referral from your primary care doctor before you can see a specialist, and there may be more preauthorization requirements for treatment by a specialist.

POS, or Point-of-Service Plan
In terms of how restrictive the plans are, POS plans lie between an HMO and the PPO (described next).  In the POS plans, you may go out of the network for treatment, but it will be expensive, as is true with PPOs.  In the POS plans, as in HMOs, your primary care doctor acts as a “gatekeeper” who will make the referrals that are required before you go to any specialist.

PPO, or Preferred Provider Organization Plan
PPO plans do NOT require that the primary care doctor acts as a gatekeeper, so you are generally free to see anyone in that network, and you can go to the specialist directly without seeing a primary care doctor.  The health insurer generally encourages you to wait to see a specialist by making the co-pays much higher for specialists than for your primary care providers. Additionally, the insurers create economic incentives to stay in-network for care by making out-of-network care very expensive and making the deductible and maximum out-of-pocket costs for out-of-network care very large. 

High-Deductible Plans
These plans require the member to pay the first $1,500 or more of medical services in the network (this is the plan’s deductible). After that, the member will pay a designated part (co-insurance), for example, 80% of the cost, up to a maximum in-network, which can reach more than $5,000 each year. Once you pay the deductible and the maximum for covered services, then the rest is paid 100% by the employer.

High-deductible plans are generally linked with Health Savings Accounts (HSAs).  Health Savings Accounts allow you to put your pre-tax (“tax-deferred”) dollars in this account, which may or may not be matched by an employer. HSA accounts are like IRAs for medical costs, but they can only be used to pay for out-of-pocket medical costs not covered by an insurance plan. 

Tax-Deferred Accounts Used for Health Care

HSAs, Health Savings Accounts
Health Savings Accounts (HSAs) are tax-deferred accounts that can be funded by the employer or employee, and which are the employee’s property. HSA accounts are like IRAs, but they can only be used to pay for out-of-pocket medical costs not covered by an insurance plan. 

FSAs, Flexible Spending Accounts
Flexible Spending Accounts (FSAs), are generally employee funded, and must be used up each year or the amount is lost. These accounts can be used to cover unreimbursed medical costs, such as out-of-network providers or deductible amounts. 

HRAs, Health Reimbursement Accounts
Health Reimbursement Accounts (HRAs) must be funded by the employer, and can be used with any type of health insurance plan to cover employee insurance co-pays, co-insurance, and deductibles.  HRAs are negotiable and employer funded; the money put into them remains with the employer.