Traditional Fee-For-Service Health Plans

With traditional fee-for-service health plans, an employer purchases a policy from an insurance company and pays a premium on a regular basis. A group health insurance policy is a contract between the employer and the insurance company. The employee does not receive a policy but only a certificate of insurance under the employer's contract. In exchange for the premium, the insurance company agrees to pay for certain medically necessary items for the employees and dependent family members that are included as covered items under the policy.

Under a fee-for-service plan, insureds are free to seek necessary medical care from any physician they wish. With fee-for-service, the insurance company pays for part of your doctor and hospital bills.

The doctor often bills the insurance company directly for the services provided, and the insurance company pays for items covered by the policy. In some cases, the insured may have to submit a completed claim form and attending physician's statement.

Types of Coverage
Deductible
Coinsurance
Out-of-Pocket Limit
Lifetime Maximum
Medically Necessary
Usual, Customary, and Reasonable Charge

Types of Coverage

There are two types of injury and sickness insurance most people need--insurance to cover medical expenses and insurance to help replace income if you become disabled. Health insurance generally provides payment for medical treatment and/or hospital stays. It is often available on a group basis through an employer, union, or association.

Basic Coverage. Most people consider a basic health insurance policy first. These policies pay toward the costs of a hospital room and care while you are in the hospital. It covers some hospital services and supplies, such as x-rays and prescribed medicine. Basic coverage also pays toward the cost of surgery, whether it is performed in or out of the hospital, and for some doctor visits.

Major Medical Coverage. Major medical policies provide the most comprehensive coverage for medical services either in or out of the hospital. The benefits are not listed by procedure as they are in a basic policy. There may be a limit on total benefits of $250,000 or higher. The limit may be for a lifetime or for one injury or sickness.

Deductible

The deductible is the initial dollar amount that you must pay out-of-pocket before the insurance company pays its share. The deductible may range from $500 or more per year per individual or $2,500 or more per year per family. For example, if you have a $500 annual deductible, you will pay for the first $500 of covered expenses for each person insured.

If you are buying coverage for your family, ask how the family plan works. Some plans may not require each family member to pay the deductible after two people in the family have paid it.

Read the policy carefully. Some policies require you to pay a deductible on a calendar year basis or on a per sickness or injury basis.

Coinsurance

Coinsurance is your share or percentage of covered expenses you must pay in addition to the deductible. The most common coinsurance arrangement is for the insurance company to pay 80% and you pay 20% as coinsurance until a maximum out-of-pocket expense is reached. Coinsurance applies to each person and starts over again each year. Sometimes the policy will cover all expenses after a certain point. Look at the list of covered expenses for the policy to see how comprehensive it is.

Out-of-Pocket Limit

Many plans have an out-of-pocket limit. The out-of-pocket limit is the maximum dollar amount that you pay for covered services and supplies during a specified period, generally a calendar year. The maximum may be defined to include or exclude the deductible. Once the out-of-pocket maximum is paid, benefits are paid at 100% of the costs incurred after that time.

Lifetime Maximum

Your major medical policy puts a cap, such as $1 million, on the total amount the policy will pay toward your medical expenses. When the company has paid that amount, the policy will be "used up" and no more benefits will be paid for your medical expenses. If you expect to have significant medical expenses, make sure to check the plan's lifetime maximum.

Medically Necessary

Every major medical policy contains a provision that allows insurance companies to evaluate whether a service or treatment is "medically necessary" in treating a patient and whether it could adversely affect the patient's condition if it were omitted. Insurance companies can deny payment for a treatment that is not medically necessary. Most health benefit plans often require a review before certain medical procedures are done.

Usual, Customary, and Reasonable Charge

Most insurance companies do not use your actual bills to calculate their payments. Companies have their own fee schedule, often known as usual, customary, and reasonable (UCR) charges. The UCR charges are typical amounts paid for everything from a doctor's visit to heart surgery.

For example if your doctor charges $1,000 for a gall bladder operation while most doctors in your area charge only $800, you will be billed for the $200 difference. This is in addition to the deductible and coinsurance you would be expected to pay. To avoid this additional cost, ask your doctor to accept your insurance company's payment as full payment. Or shop around to find a doctor who will. Otherwise, you will have to pay the difference.

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