Trieschmann, Hoyt & Sommer

Loss of Health

Chapter 17

©2005, Thomson/South-Western

22

Chapter Objectives

• Describe the similarities and differences among commercial insurers, traditional Blue Cross and Blue Shield associations, and the new for-profit Blues organizations

• Explain the major characteristics of health maintenance organizations and explain how point-of-service plans and preferred provider organizations differ from them

• Compute the amount of the covered loss that would be reimbursable from an insurer– Given the amount of the loss and applicable deductibles,

coinsurance provisions, and limits • Distinguish among forms of basic health insurance

policies and describes three forms of major medical insurance

33

Chapter Objectives

• List several characteristics to consider when purchasing long-term care and disability income insurance contracts

• Explain the nature and structure of Medicare benefits and the approach used to standardize Medigap policies

• Explain the mandatory and allowable provisions in individual health insurance with respect to grace periods, reinstatement, claim procedures, occupational issues, misstatement of age when applying for coverage, and the existence of more than one policy covering the same loss

• Describe health care reforms recently enacted or currently under consideration in the United States

44

Introduction

• The high cost of health care, combined with concerns about the lack of availability of health insurance for some persons – Has led to a rapidly changing environment in

which health care is delivered in the United States

55

Health Insurance Providers

• Health insurance is provided by several types of organizations – Commercial insurers– Blue Cross and Blue Shield associations– Health maintenance organizations (HMOs)– Point-of-service (POS) plans – Preferred provider organizations (PPOs)

• When payment for health expenses is provided as an employee benefit – Many employers set up self-insurance arrangements to either

replace or supplement coverage obtained from one or more of these types of providers

• Some health insurance is provided by the Medicare and Medicaid systems – Social insurance arrangements set up through the federal and

state governments

66

Insurers and the Blues

• Until recently, commercial insurers and Blue Cross and Blue Shield (the Blues) associations were legally very different in terms of structure – Though from the perspective of an individual insured they

appeared to be very similar • The Blues were originally designed to be nonprofit

organizations – Allowing their subscribers to prepay some types of health care

expenses • Blue Cross associations focused on the prepayment of

hospital expenses • Blue Shield groups covered physicians’ services • When combined, medical expense coverage offered by

the Blues can be virtually identical to that available from commercial insurers

77

Insurers and the Blues

• Beginning in the mid-1990s the structural differences between the Blues and insurers began eroding – In an effort to become more competitive, Blues in several states

began forming or acquiring for-profit subsidiaries – A number of the Blues organizations converted to a for-profit

status in their entirety

• The Blues were independent groups organized by doctors, hospitals, and other medical service providers in a particular geographic region – They agreed to meet certain common standards in exchange for

authorization to use the Blues name – Many states granted the Blues preferential tax treatment

because of their nonprofit status

88

Insurers and the Blues

• As changes in the health care delivery system evolved – Many Blues found themselves insuring a large

percentage of individuals who had difficulty obtaining health insurance elsewhere

– Caused the Blues to experience substantial financial losses

• Additionally, traditional not-for-profit Blues have more limited access to capital than for-profit stock companies

99

Health Maintenance Organizations (HMOs)• By the beginning of the 21st century, more than 80 million

persons in the U.S. were enrolled in HMOs• All are designed to provide their members

comprehensive health services within a well-defined geographical area

• The HMO is paid a set fee per month by its members – And it provides all necessary medical services

• Coverage is usually broader than that provided by insurers – Both cost control and prevention of health problems tend to be

emphasized • By stressing regular health care, early diagnosis and

treatment, and disease prevention– HMOs can be effective in helping the members identify and

correct small health problems before they become major ones

1010

Health Maintenance Organizations (HMOs)• Persons belonging to an HMO generally must receive all

medical care from physicians associated with that HMO • Each person chooses a primary care physician within the

HMO – This doctor is responsible for coordinating all medical care for

the patient • Including access to medical specialists

– Primary care physicians are sometimes referred to as gatekeepers

• Most medical specialties are represented within the HMO – But if highly specialized treatment is required, patients can be

referred to other doctors at no additional cost to the patient • Arrangements also exist with hospitals in the area for the

provision of hospital services when needed

1111

Health Maintenance Organizations (HMOs)• Group practice HMO

– A large group of physicians share facilities and support personnel and work out of one or a few main locations

– The doctors are not employees of the HMO • Rather, as a group they have a contractual agreement with the

HMO to provide the medical services needed

– Compensation arrangements vary, but most are paid either on

• The amount of services provided (called a fee-per-service basis) or • Capitation basis

– Payment of a specified, periodic amount based on number of patients for which a physician is responsible

» Regardless of the amount of medical services provided to each one

1212

Health Maintenance Organizations (HMOs)• Staff model HMO

– Doctors are employees of the HMO and are paid salaries

• Individual practice HMO – Has no centralized location – Physicians work out of their individual offices and

usually are paid on a fee-per-service basis

• Many people prefer individual practice HMOs – Because of the greater choice of physicians that is

usually provided and the number of different locations in which medical treatment can be sought

1313

Point-of-Service Plans

• Sometimes referred to as an open-ended HMO • Can be organized in all of the same ways as an

HMO • The philosophies of comprehensive care,

prevention, and cost control are present in both types of plans

• The primary difference between a POS plan and an HMO – Individuals in POS plans have more freedom of choice in

selecting doctors and other medical care providers – POS members have the option of using either the POS

providers or doctors unaffiliated with POS plan

1414

Point-of-Service Plans

• Because of the emphasis on prevention and cost control – Care can usually be provided in a more cost-effective

manner if members use POS doctors than if they go outside the plan for care

• To encourage patients to select POS providers – Patients must pay a significantly larger share of the

medical bills when they use non-POS doctors

• The flexibility of POS plans has made them quite popular – Between 1997 and 2001 the market share of POS plans

grew from 17 to 22 percent • While the market share of HMOs dropped from 31 to 23 percent

1515

Preferred Provider Organizations (PPOs)• Currently hold a significantly larger share of the health care

market than either HMOs or POS plans • About half of people receiving their health insurance through

their employers are members of PPOs • Most PPOs offer a reduction in the price of health care

service in return for certain concessions by the sponsoring organization – For example, doctors in a particular PPO might agree to lower their

fees by 15% for PPO participants – In exchange for the lower fees, the employers agree to

• Provide the PPO with a minimum number of patients each month• Pay their premiums promptly• Encourage their employees to take advantage of health education

programs that are designed to lessen health problems and lower costs

1616

Preferred Provider Organizations (PPOs)• Health services provided through PPO

arrangements may be extensive • In other instances, services provided by PPOs

are extremely narrow and may be focused only on a particular treatment – Such as vision care or prescription drugs

• A major difference between PPOs and POS plans – PPOs generally do not use primary care physicians to

coordinate individuals’ medical care

1717

Medicaid and Medicare

• Medicaid – Generic name for the variety of state-administered

programs that provide medical care to low-income persons

• Who can show sufficient financial need to qualify them for assistance

– Financed by both federal and state tax revenues • Benefits vary somewhat among the states

– Care provided through Medicaid has been growing at double-digit rates for several years

1818

Medicaid and Medicare

• Medicare – Designed to meet the growing need for health

insurance for persons age 65 or older – As well as those under age 65 who have been

receiving Social Security disability benefits for at least two years

– Has two basic parts • A compulsory hospital plan • A voluntary medical plan

– Called supplemental medical insurance

– Beginning in 2006, a third part will be added • Offering optional prescription drug benefits to Medicare

beneficiaries

1919

Mechanics of Cost Sharing

• Many health plans contain cost-sharing provisions that apply at the time of the loss

• Can be effective way to help control the use of medical services – Because insureds are more aware of the cost

of treatment

2020

Deductibles • Deductibles are used in health insurance to combine the risk

management tools of risk retention and transfer • The most common deductible arrangement in health insurance is

the calendar-year deductible – Covered losses are generated throughout the calendar year until they

exceed the stated deductible • Only after that point does the insured receive any reimbursement from the

policy • Per-cause deductible

– Each new sickness or accidental injury results in the assessment of a deductible

– Sometimes deductibles are applied on a family basis rather than on an individual basis

• Another variation is to waive individual deductibles after two or three members of the same family have had claims exceeding their applicable calendar-year deductibles

2121

Copays

• HMOs and POS plans sometimes charge patients a small dollar amount for some types of treatment

• This amount is a deductible applied on a per-service basis– Generally referred to as a copay

2222

Coinsurance

• The policy specifies that the insurer will pay a percentage (often 80%) of the covered loss after the applicable deductible has been satisfied

• Coinsurance is a particularly important element of POS and PPO plans – It often provides the primary financial incentive for

encouraging insurers to seek medical care from a particular network of doctors

• For example, one arrangement is to pay 90% of expenses after a small deductible

– If the patient receives care from a provider within the network – However, if the patient receives care from a doctor who is

outside the network » The reimbursement rate may be only 60%

2323

Caps

• If the policy has both a deductible and coinsurance premium – The cost sharing with a major health problem can be

substantial • Policies of coinsurance provisions may include

an upper limit on the amount of cost sharing required

• Sometimes coinsurance caps are implied rather than stated explicitly

• Out-of-pocket cap – Applies the limit to amounts that the insured pays for

both coinsurance and applicable deductibles

2424

Maximum Limits

• A few health insurance plans have no limit on the amount of benefits that can be paid for covered expenses – Whereas others have a lifetime maximum that applies

to the sum of all benefits payable under the plan

• However, lifetime maximums may be able to be restored – Allowing an individual to collect more than the overall

lifetime maximum stated in the policy – Automatic restoration of the maximum may occur

gradually over time

2525

Maximum Limits

• As an alternative to a gradual restoration process – Some health policies allow insureds to provide evidence of

insurability that is then used to justify restoration of the entire lifetime maximum all at once

• Such evidence usually consists of a medical examination showing that the individual meets the same health standards required for new applicants for health insurance

• A health insurance policy may have various internal maximums that apply to particular health problems – Treatment for alcohol and drug abuse, for example, is often

insured for much less than the coverage provided for other types of health problems

– Internal maximums serve to protect the insurer from potentially excessive claims

2626

Health Expense Insurance

• Figure 17-1 shows a diagram of the groupings used to classify health insurance policies

• No sharp distinction among policies exists as to the type of medical expense for which indemnity is provided

• Insureds should familiarize themselves with their specific coverages – Because there is much less standardization among

health expense coverage than for many other types of insurance

2727

Figure 17-1: Health Insurance Classifications

2828

Hospital Insurance

• A hospital insurance contract is one of the basic health insurance policies

• Basic health insurance policies have fewer cost-sharing provisions than policies that are not considered to be basic health contracts

• Hospital insurance policies provide indemnification of necessary hospitalization expenses such as – Room and board when hospitalized – Laboratory fees – Nursing care – Use of the operating room – Certain medicines and supplies

• Specific dollar limits for hospital room and board may be stated in the contract

2929

Hospital Insurance

• Some contracts limit coverage by specifying a maximum time period for which costs will be reimbursed for any one illness or injury

• Covered expenses other than room and board are often referred to ancillary charges

• Certain exclusions are contained in hospital insurance policies – Many policies exclude convalescence, custodial, or

rest care; voluntary hospital stays for some types of cosmetic surgeries; private-duty nursing; and physical examinations unrelated to the treatment of an injury or a sickness

3030

Surgical Insurance

• Covers physicians’ fees associated with covered surgeries

• Both inpatient and outpatient surgical procedures are usually covered in order to prevent unnecessary hospitalizations when a procedure can be performed without an overnight stay in a hospital

• Some surgical policies pay only the fees charged by the doctor who actually performs the surgery – Whereas other policies also provide coverage for charges

associated with assistant surgeons and anesthesiologists

3131

Surgical Insurance

• Many surgical policies were written on a scheduled basis in the past – Several surgical procedures were listed in the policy together with

the specified maximums payable for each one

• However, it is better for the insured if the policy is written on an nonscheduled basis – Covered procedures are insured up to the full amount of what is

reasonable and customary • In judging whether a particular expense exceeds what is reasonable

and customary – Insurers analyze the range of fees prevailing in the relevant geographical

area at the time the surgery is performed– If the fee is more than what would be charged by most other surgeons then

some of the charges will be disallowed and will not be eligible for reimbursement

3232

Regular Medical Expense Insurance • Usually written in conjunction with other basic coverages

rather than as a standalone contract • Most policies primarily cover physicians’ services other

than for surgical procedures • Some policies require that the individual be hospitalized

– Whereas others do not have this restriction

• Coverage may be written to pay reasonable and customary fees – Or there may be specific limits associated with each covered

service

• Typical exclusions usually relate to routine physical examinations, dental care, and vision care

3333

Major Medical Insurance

• Usually have higher limits and fewer exclusions then do hospital, surgical, and regular medical expense contracts

• Some major medical policies are designed to be coordinated with underlying basic health insurance – Others are designed to replace basic health coverage and

insure all medical expenses within one policy • Called a comprehensive form

• Usually have substantial deductibles and coinsurance provisions

• Nearly always written on a reasonable-and-customary-fee basis

3434

Major Medical Insurance

• Covers all of the same types of expenses insured by hospital, surgical, and regular medical expense contracts

• Additionally, after satisfaction of applicable cost-sharing provisions – Major medical policies may cover expenses not

addressed by basic health contracts • Such as prescription drugs, ambulance services, physical

therapy, crutches, and wheelchairs

• Excess major medical – Usually pays only after another major medical policy

has exhausted its limits

3535

Dental Insurance

• A newer form of health expense coverage • Coverage services typically include fillings, crowns,

extractions, bridgework, dentures, root canal therapy, X rays, treatment of gums, and orthodontics

• Preventive care such as oral examinations, X rays, and semiannual cleanings are nearly always covered

• Most policies have relatively low annual limits and some limit coverage by applying fee schedules for various dental procedures

• Deductibles and coinsurance provisions normally are used for nonpreventive types of care

• Cost sharing is usually waived for routine examinations, cleanings, and X rays

3636

Long-Term Care Insurance

• With increased life expectancies and an aging population – There is an increase in risk of loss associated with the

eventual need of many persons for nursing home care or other assistance with daily living

• The market for long-term care (LTC) insurance is growing rapidly

• All states have adopted legislation regulating LTC insurance – Some standardization is achieved for a product that is

still evolving

3737

Long-Term Care Insurance

• It is important to consider the following points when comparing different LTC policies – Some policies cover only the named insured

• Whereas others cover the insured’s spouse as well – Policies must specify the conditions that trigger

benefit payments • To qualify for favorable tax treatment the LTC policy must

make benefits available when insureds cannot perform two or more of the following activities of daily living

– Eating, bathing, toileting, transferring, dressing, and continence

– Most policies specify a maximum daily benefit and an overall minimum limit on the number of days for which the benefit will be paid

3838

Long-Term Care Insurance

• When selecting a policy, insureds usually must select an elimination period – A form of a deductible – For example, a policy with a twenty-day elimination period would

not pay benefits during the first twenty days of a covered stay in a nursing home or other eligible facility

• The longer the elimination period, the lower will be the premium

• Some early LTC policies excluded losses related to Alzheimer’s disease – Or paid only for skilled and intermediate nursing home care and

not custodial care • Many policies have options that make benefits available

for adult day care, home health care, and other miscellaneous forms of assistance that might be needed by people at an advanced age

3939

Medicare

• Currently includes both a compulsory hospital insurance plan and a voluntary and medical insurance plan

• The hospital insurance, often referred to as Part A, provides coverage in the following main areas – Inpatient hospital care – Skilled nursing home care – Home health services – Hospice care

4040

Medicare

• Medicare’s supplementary medical insurance (Part B) covers doctor bills and related expenses that are medically necessary

• Persons covered under Part A are automatically covered under Part B– Unless they reject the coverage

• A monthly premium is also charged for Part B– Which has its own set of deductibles and coinsurance

provisions

4141

Medicare

• Currently all Part B beneficiaries pay the same flat monthly premium – However, in 2007 the Medicare reform law passed in

2003, beneficiaries with incomes exceeding a certain amount will pay higher premiums

• Expenses covered under Part B– Bills for physicians’ services, physical and

occupational therapy, speech pathology, diagnostic X ray and laboratory tests, blood transfusions, radioactive isotope therapy, medical equipment and supplies, ambulance services, organ replacements, and artificial limbs and eyes

4242

Medicare

• In general, neither Part A nor Part B will pay for the following – Services that are not medically necessary– Payments covered by workers’ compensation benefits– Services performed by a relative– Services rendered outside the United States – Routine physicals, eye exams, hearing aids, dental

care, foot care, and cosmetic surgery – Prescription drugs taken at home– Most immunizations– Private nurses

4343

Medicare

• One of the largest gaps left by Medicare is the lack of coverage for prescription drugs

• Beginning in 2006 optional prescription drug coverage will be available – The monthly premium will initially be about

$35– With a $250 deductible – After that, the beneficiary will pay 25% of the

cost for drug costs up to $2,250

4444

Medicare

• Because of the existence of deductibles, coinsurance, and coverage limitations in the Medicare program – Many persons purchased private insurance to “fill in

the gaps” – Sometimes referred to as Medigap insurance – These policies are the subject of past controversies

alleging deceptive sales practices and coverages – Standardization of Medigap policies is achieved

through a system devised by the NAIC

4545

Other Health Expense Insurance

• Many other specialized forms of health insurance are available including – Prescription drug coverage that is separate from both

major medical and basic health insurance coverages – Vision care insurance

• Covers the cost and eyeglasses, contact lenses, and periodic routine eye exams

– Dread disease coverage • Designed to pay expenses associated only with particular

diseases such as cancer

– Accident insurance

4646

Disability Income Insurance

• Provides periodic income payments to the insured while he or she is unable to work as a result of sickness or injury

• Benefit duration – Benefits terminate at the earlier of

• As soon as the disability ends• When benefits have been paid for the maximum benefit

duration period

– Short-term disability (STD) insurance usually pays benefits for up to six months

– Longer-term disability (LTD) insurance arrangements pay for a longer period of time, such as 5 or 10 years

4747

Definition of Disability

• Contracts with very strict definitions tend to be less expensive and less useful to insureds – For example, if an insured is not considered disabled unless

confined to his or her home except for trips to see a doctor • Few people would qualify for benefits even though their health

conditions may prevent them from earning a living

• Most policies link their definitions to one’s ability to work – Some policies require the insured to be unable to engage in any

type of paid work in order to collect benefits – Other types provide the insured is disabled if they are unable to

perform the major duties of any occupation for which he or she is reasonably suited through education, training, or experience

4848

Definition of Disability

• The most liberal definition is the own occupation definition – The insured is considered disabled if unable to

perform the major duties of his or her own occupation

– Results in the highest premiums – Most LTD policies that use this definition do so

for an initial period time • After which the definition changes to the less liberal

“any occupation for which reasonably suited”

4949

Definition of Disability

• Many LTD policies also provide some coverage for partial disability – But this may be restricted only to those periods that

follow a period of total disability – The definition of partial disability often is similar to the

definition of total disability • As an alternative, partial disability may be defined solely in

terms of a person’s earnings – Contracts that use this type of income-related definition usually

specify that an insured is considered to have some residual disability that qualifies him or her for partial disability payments

» As long as earnings are less than some percentage of the former level

5050

Elimination Period

• Both STD and LTD policies use elimination periods • When a disability occurs, no benefits are payable during

the elimination period – Thus, they are really deductibles that reduce premiums by

eliminating coverage for small losses

• The longer the elimination period the lower the premium – The premium savings tends to decrease at a diminishing rate as

the elimination period becomes longer

• Sometimes STD policies have different elimination periods that depend on the cause of the disability – Disabilities due to sickness are subject to longer elimination

periods than those resulting from an accident

5151

Benefit Level

• Disability insurance policies are designed to replace only a percentage of earnings – So that the insured has a financial incentive to

recover and return to work

• Benefit levels of 50 to 75 percent are common – Subject to overall maximum limits

• Some policies provide for cost-of-living adjustments in benefits

5252

Benefit Level

• Insureds should be aware that if they are completely unable to engage in any type of gainful employment due to accident or illness – Social Security may provide some disability income benefits for

covered persons after a five-month elimination period• However, if the definition of disability in the insurance

policy is more liberal than the Social Security definition – Then an insured may be eligible for insurance benefits but not

for Social Security payments • Insurers offer Social Security income options that can be

added to basic disability income policies – The basic monthly payment is increased by a stated amount if

the insured is receiving insurance benefits that does not qualify for disability payments under Social Security

5353

Continuation Provisions

• Used to describe the contractual rights regarding the renewal of a health insurance policy

• Policies with more guarantees for renewal will have higher premiums

• The importance of these provisions has diminished with the passage in 1996 of the Health Insurance Portability and Accountability Act – Requires insurers to continue to renew their health expense

insurance policies regardless of the health of the insureds– Does not affect the continuation rights of other types of health

policies

5454

Continuation Provisions

• A term contract expires at the end of a specified period of time and cannot be renewed – Generally used in connection with special events or

trips for which a particular form of health insurance is desired

• If an insurer retains the right to cancel a policy at any time for any reason – The contract is said to be cancelable

• States generally require that at least five daysfor notice of the cancellation be provided

5555

Continuation Provisions

• It is more common for a policy to be – Optionally renewable

• Generally places no restrictions on the rights of insurers

• Increases in premiums and termination of coverage are solely at the discretion of the insurer

– Conditionally renewable • Specify the allowable reasons for nonrenewal but

prohibit termination due to deterioration of the insured’s health

5656

Continuation Provisions

• The most valuable and most expensive continuation provisions are those associated with guaranteed renewal policies and noncancelable contracts – Termination of coverage is prohibited before a specified

age as long as the insured pays all premiums when due– A guaranteed renewable policy can have its premium

increased only if premiums are raised for an entire class of insureds

– Noncancelable contract premiums are fixed in advance and cannot be increased during the life of the contract

• Premiums do not have to be level during the entire period, but they cannot deviate from the schedule specified when the policy is issued

5757

Grace Period and Reinstatement

• Insurers must provide a grace period for the payment of premiums not received by the due date

• Often 31 days, although a period as short as ten days is allowable for premiums payable on a monthly basis

• Coverage remains in effect for claims arising during the grace period – But the policy lapses following expiration of the period

• Lapsed policy can be reinstated under conditions stated in the contract

• But insurer is not required to reinstate a lapsed policy

5858

Claims • The insured generally is required to provide written notice to the

insurer within 20 days or as soon as practical– When an illness or accidental injury occurs

• The insurer is required to provide appropriate claim forms within 15 days after being notified of the claim

• Generally, within 90 days of the loss – The insured must submit details proving the incurred expenses being

submitted for payment by the insurer • After the insurer receives all of the information supporting a

particular claim – It is allowed a reasonable period to check the claim’s validity – If the insurer deems it necessary, it has the right to require the insured

to submit to a physical exam • With few exceptions, after three years have passed since the

insurance was issued – Misstatements in the application generally cannot be used as grounds

for denying a claim, unless fraud was involved

5959

Claims

• Legitimate medical expenses covered by the policy must be paid immediately – With disability income claims payable at monthly or shorter

intervals

• Generally, benefits are paid directly to the insured – Although they can also be paid to physicians, hospitals, or other

medical providers if the insured requests it and the insurer agrees

• When an insurer denies a claim – The insured may file a lawsuit disputing the decision

• Individual health insurance policies specify that such suits are not valid if filed sooner than 60 days or later than three years

6060

Miscellaneous

• Individual health insurance policies must contain clauses stating that the policy and attached endorsements constitute the entire contract between the insured and the insurer

• If a health policy contains a death benefit – The insured must be allowed to change the

designated beneficiary by providing written notification to the insurer

6161

Optional Provisions

• Occupation – Insurers can specify that no coverage will be provided for losses

incurred while committing a felony or while working in an illegal occupation

• If such actions contributed to the result in injury or illness

– When insured changes to a more hazardous occupation following the issuance of a health insurance policy

• The insurer is allowed to reduce the benefits to whatever the paid premium would have purchased for a person engaged in the more hazardous occupation

• Misstatement of age – If age is misstated in a health insurance application

• The benefits can be adjusted to equal what could have been purchased had the true age been known

6262

Optional Provisions

• Other insurance – Many health insurance policies contain clauses

stating how much the contract will pay when there are other policies that also cover the loss

– Insurers are allowed to reduce their benefits when there is another health insurance covering a loss

• Particularly if the insurer has not been notified about the existence of such coverage before the loss

– A premium refund for the excess coverage must be paid to the insured

6363

Optional Provisions

• Miscellaneous – It is common for health insurance policies to state that

contractual provisions that conflict with state statutes are automatically amended to meet minimum requirements specified by the state in which the insured resides at the time the policy is issued

– Another possible provision is to allow the insured to deduct unpaid premiums from claim payments

– Some insurers provide that losses resulting from the use of drugs or other intoxicants are not payable unless the drugs were taken on the advice of a physician

6464

Health Care Reform

• Beginning in the late 1990s numerous proposals were made to enact into federal law a “patients’ bill of rights” – Would protect patients in a variety of ways

from abusive practices by insurers, HMOs, and other health insurance providers

• Philosophical disagreements and other pressures have prevented enactment of such proposals

6565

Guaranteed Access to Health Care

• One concern involves those who have no health insurance – Particularly those who are unable to obtain coverage due to

existing health problems

• The passage of the Health Insurance Portability and Accountability Act of 1996 – Guarantees that many individuals and small businesses will be

able to obtain health insurance • Regardless of the health of the individuals involved

• Limitations are placed on the right of an employer to deny health benefits to new employees who have ongoing health problems when hired

6666

Guaranteed Access to Health Care

• The protection provided under this new law is not universal for individuals – Guarantees generally apply only to individuals

who have previously had health insurance protection

– No provision exists for unemployed persons or those who have not yet been able to obtain insurance

6767

Health Savings Accounts

• In 2003 Congress passed legislation creating Health Savings Accounts (HSA)

• The basic idea is that people will be more careful consumers of health care if they are paying for much of their care with their own money – Rather than relying on insurance to pay for most

health care costs • To be eligible for a HSA

– A person must be covered under a high-deductible health plan

• Defined as a plan with a deductible of at least $1,000 for individual coverage or at least $2,000 for family coverage

6868

Health Savings Accounts

• The individual or his or her employer has the ability to make an annual contribution to an HSA up to the amount of the deductible

• All contributions are tax-deductible – Distributions are tax-free as long as they are

used to pay for qualified medical expenses

• Unused balances can roll over from year to year

6969

Health Savings Accounts

• Proponents argue – HSAs will introduce a new element of consumerism into

the health care market – These plans are only beneficial to the healthy and wealthy

• Will result in adverse selection as healthy people opt for them– Leaving only unhealthy people in traditional health plans

– Those choosing HSAs may consume too little health care• Leading to poor health and ultimately higher health care costs

• Supporters feel that HSAs will introduce stronger market forces into the health care arena – That will result in reduced health care cost increases

7070

Minimum Required Benefits

• The zeal of some HMOs and POS in pursuing cost control – Has led some of these plans to deny inpatient hospital

stays in perhaps questionable circumstances • Including childbirth and mastectomies

• The Newborns and Mother’s Health Protection Act mandates that plans that cover childbirth provide a minimum of 48 hours of inpatient hospital care following a regular delivery – With at least 96 hours of inpatient care following a

caesarean

7171

Minimum Required Benefits

• The states have also been very active in this area – Areas often addressed include mental health care,

mammography and other screening tests for cancer, alcohol and drug abuse treatment, and well-child care

• Mandated coverages increase the cost of health insurance – May lead some employers to cease offering health

insurance to their employees • Leading to a larger number of uninsured

7272

Patients’ Bill of Rights

• Although no federal patients’ bill of rights has been enacted – Many managed care companies have voluntarily

changed their policies in recent years to address many issues of concern

• Direct access to specialists – HMOs and POS plans usually control the accessibility

of their patients to specialists • Proposals abound to allow patients to bypass their primary

care physicians when they need to see certain types of specialists including

– Obstetrics, gynecology, and pediatrics

7373

Patients’ Bill of Rights

• Definition of an emergency – HMOs require that their physicians be used in all

cases except for emergency situations – However, when individuals are confronted by actual

situations • They often have found themselves in disagreement with their

health providers about the definition of an emergency

– Many federal proposals include a provision requiring HMOs and POS plans to define emergencies in a standard manner

• Consistent with a prudent nonmedical person’s definition

7474

Patients’ Bill of Rights

• Liability provisions – Should an HMO or other such entity be legally

liable for coverage decisions?• For instance, if an HMO improperly refuses to pay

for a heart transplant and the patient dies – Should the family be able to sue the HMO for damages?

– Highly contentious issue in Congress and in the courts

7575

Other Proposed Restrictions

• Any willing provider laws – The essence of cost savings potential of HMOs, PPOs, and POS

plans is the ability of these organizations to construct networks of select physicians and other health care providers

• Who agree to adhere to the network’s cost-saving philosophy as well as their mechanisms for reviewing the quality of care provided

– However, some providers who are not included in the networks being formed believe they will suffer financially as a result of their exclusion

• They have convinced legislatures in many states to pass any willing provider laws

– Force HMOs and other networks to accept all physicians and other health care providers who agree to the network’s terms in the structures

– Eliminates the ability of HMOs to select only certain doctors

7676

Other Proposed Restrictions

• Anti-gag provisions – Some early HMOs and POS plans discouraged their

physicians from discussing alternative forms of treatment with their patients

– These gag provisions prohibited doctors from acting as advocates for their patients

– Several states passed legislation prohibiting these types of gag provisions

• Allowing physicians more freedom to act in the best interest of their patients

– Rather than being concerned only about the lowest cost treatment plan

– As doctors reacted negatively to gag provisions in their contracts, many HMOs and POS plans dropped that concept entirely