Self Insured Health Plans – When an Insurance Company Isn’t the Insurance Company

To those not involved in the day-to-day workings of health insurance, it all can look the same.  You pay a premium and hopefully when you have a claim, the insurance company makes their share of the payment.  But not everything is as it seems.  Many times what you think is the insurance company is nothing more than a claims payment system.  When you have problems with claims getting paid, your beef may actually be with an organization much closer to home.  You might be a member of one of many self insured health plans in the country.

What are Self Insured Health Plans?

Self insured health plans are typically used in group health insurance.  Instead of a typical plan in which a policyholder pays a monthly premium and the insurance company pays claims, in a self insured (also know as self funded) arrangement the policyholder (the employer in a group plan) contracts with a claims administrator (called a Third Party Administrator, or TPA) to only pay claims.  The employer pays a fee to the TPA to process these claims.  The employer then pays the claims, not an insurance company.  The “premium” that the employer pays is actually a funding rate that is used for budgeting and COBRA purposes.

The reason that people can be confused about who is the insurer is that nowadays most insurance companies also perform TPA functions.  This allows group insurance plans to tap into the network discounts of the insurance company.

Self insured health plans leave the employer at risk of paying more out in claims than they budgeted.  However, there is less fixed expense in a self funded plan than a fully insured plan.

You will see a self insured plan more often with large groups since it is easier to predict the future claims of a large group than a small group.

How Do Self Insured Health Plans Affect a Plan Subscriber?

If you are on a self funded plan, it is important to note that if you have an issue with a medical expense being covered, your beef is not with an insurance company.  It is with your employer.  Self insured health plans dictate to the TPA what is covered and what is not.  The TPA is then required to administer the plan the way the group wants.  Of course, group plans must still adhere to Affordable Care Act guidelines.

That doesn’t mean that the TPA doesn’t make mistakes in claims processing; that still happens occasionally.  But if you are part of a self insured plan, determining what is covered is up to your employer.

How Do I Know if I’m Part of a Self Insured Health Plan?

There really is no way of knowing for sure if your employer’s plan is self funded unless you ask.  If you are part of a large group, the odds are that the plan is self insured.

As for the actual mechanics of a self insured plan, there is no difference as far as you are concerned.  You see a doctor, pay your share of the claim, and the rest gets paid by someone else.  Just know that if a claim is excluded from the plan, you should discuss with your employer first.

Self insured health plans are good options for everyone involved.  They help keep costs of insurance down for the plan, which allows an employer to hopefully keep the cost to their employees as low as possible.  Make sure you know who to go for if you have questions about your claims.

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What is Coinsurance for Health Insurance?

If you find yourself purchasing medical insurance for the first time, you need to know a lot about how a medical plan functions.  One of the things that is most important to understand is how coinsurance for health insurance works.

Fundamentals of Insurance

To understand how coinsurance for health insurance works in a medical plan, it is imperative to understand a basic principle of insurance: instead of an individual risking the chance of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and that company will take on the risk of the financial loss.  The greater the risk of loss, the greater the premium.

A way to lower the premium is to take on some risk of the loss for yourself.  One way to accomplish this is to implement coinsurance.

So What is Coinsurance for Health Insurance?

Coinsurance is when a health insurance policyholder pays a percentage of the covered medical claims.  The coinsurance is usually expressed as the percentage that the insurance plan pays, so if you see a plan has 80% coinsurance, that means that you will pay 20% of the claim amount, and the insurance company will pick up the remaining 80%.

There are other factors involved, such as a deductible and out of pocket maximum, but for now, just understand that for medical claims subject to coinsurance, you and the insurance plan split the cost of the claim.

Is Everything Subject to Coinsurance?

It depends on the plan that you have.  A typical major medical plan utilizes copays for things like office visits to primary care doctors, specialists, and the emergency room.  If you pay a copay for these visits, you usually will not be required to pay coinsurance on top of the copays, although some plans do actually require a copay plus a coinsurance for emergency room visits.

Most medical plans also have a limit on the total amount of out of pocket expenses one person is required to pay in a year.  If you reach this limit, then no further coinsurance is required.

How Can I Know What is Subject to Coinsurance for Health Insurance Plans?

Make sure to carefully read the benefit summary of any medical plan you are thinking about enrolling in.  The Patient Protection and Affordable Care Act (PPACA), more commonly referred to as Obamacare, requires insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for medical insurance plans.

SBCs are designed to succinctly display the benefits that a medical plan provides.  The language is easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis.

How Can I Know What Level of Coinsurance is Best for Me?

That really depends on the amount of risk you are willing to take.  A plan that requires less coinsurance from you will require more money paid in premium.  For lower premiums, choose a plan that asks you to pay more coinsurance.  If you do not want to take the chance of paying more out of pocket if you need medical services, then you’ll want a less coinsurance for you.  Just know that you’ll be paying more in premium.

But if you want more money for the rest of your daily expenses, coinsurance for health insurance is a great way to lower your monthly medical insurance premium.

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What is an Individual Out of Pocket Maximum in Health Insurance Plans?

When it comes to buying health insurance for the first time, there is much to learn about how a medical plan functions.  One of the things you will want to understand is what is meant by an out of pocket maximum, specifically an individual out of pocket maximum.

Fundamentals of Insurance

In order to get an idea of how an individual out of pocket maximum works in a medical insurance plan, you must understand a basic principle of insurance: instead of an individual assuming the risk of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and that company will accept some of the risk of the loss.  The greater the risk of loss for the insurance company, the greater the premium.

One way to lower the premium is to take on more risk of the loss for yourself.  A typical method employed to do this is to increase a policy’s out of pocket maximum.

So What is an Individual Out of Pocket Maximum?

An out of pocket maximum is exactly what it sounds like.  It is the maximum amount of money that you are required to pay out of pocket for medical expenses during the year.  In the past, it was up to the medical plan to determine what all was included in the out of pocket maximum, but under the Patient Protection and Affordable Care Act (PPACA), or Obamacare, all expenses (deductible, coinsurance, copays) will count toward the out of pocket maximum.

The individual out of pocket maximum is the maximum amount that one person on the health insurance plan will be responsible for.  Plans that cover more than one person also have a family out of pocket maximum, which is the most that the entire family will be required to pay.

Does Everything Count Toward an Out of Pocket Maximum?

As mentioned above, PPACA requires all out of pocket expenses paid to medical service providers count toward the out of pocket maximum.

Note that one thing that is not counted toward the out of pocket maximum is the premium paid to purchase the actual insurance plan, except for Medicaid and CHIP premiums.

How Can I Find Out More About the Individual Out of Pocket Maximum?

Make sure to carefully read the benefit summary of any insurance plan you are considering enrolling in.  The Affordable Care Act requires medical insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for all plans.

SBCs should succinctly show the benefits that a medical insurance plan provides.  The language should be easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis.

How Do I Know What Out of Pocket Maximum is Right for Me?

That really depends on the amount of risk you are willing to take.  A low out of pocket maximum will require more money paid in premium.  A high out of pocket maximum means lower premiums.  If you do not want to take the chance of paying a lot of money out of pocket if you need medical services, then you’ll want a lower out of pocket maximum.  Just know that you’ll be paying more in premium.

To find the current out of pocket maximums, visit the IRS website.

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What is a Preferred-Provider Organization or PPO?




When you are looking for a health insurance plan, especially for the first time, it can be a daunting task to decide what kind of medical plan to purchase.  With so many benefits and networks floating out there, it can be confusing to know which kind of plan to enroll in.  One type of medical insurance arrangement is called a preferred-provider organization, or PPO.

The Outline of a Preferred-Provider Organization

A PPO is a group of doctors, hospitals, and other health care providers that contract and form a network with an insurance company (or a third party administrator in the case of an employer self-funded plan) to offer health care services at a reduced rate.

With a PPO plan, an insurance plan subscriber has less out of pocket expense by using a provider in the PPO network.  The providers must accept as payment the contractually agreed-upon fee for the service(s) they provide.  This means they cannot bill the patient later for the difference between the contracted rate and the rate they usually charge for their services.  This is called balance billing and is not allowed when a patient sees a network provider.

When a subscriber goes outside of the preferred-provider organization, the providers usually still receive an amount from the insurance company less than what they bill.  However, the providers are free to balance bill the patient for the difference between what they were paid and what they charge.

It is extremely beneficial for a patient to visit an in-network physician or hospital when needing medical services, whether it be an office visit for a cold or for major surgery.  Not only does it reduce the out of pocket expenses of the plan subscriber, but it also keeps costs down for the insurance company, which in turn results in lower premiums in the future.




Can I See Any Doctor I Want?

Yes, in contrast to an HMO, you are free to see any doctor you want, in or out of network, without a referral from your primary care physician.

Why Don’t All Providers Join a Network?

Not all providers choose to join a preferred-provider organization.  Providers that do not join have various reasons, but they all have to choose the best business model for their practice.  Is it better to be in a network with reduced fees but more patients, or be in out of a network where they may not attract as many patients but they are free to charge whatever they want.

Why Isn’t My Doctor in My PPO Network Anymore?

There could be two main reasons that your doctor is not in your network anymore.

First, it could be that the provider’s contract expired and was not renewed.  Either the practice and the insurance company could not reach an agreement or the physician just decided not to be in a network anymore.

Or, it could be that you switched insurance companies.  Not all doctors are in every network.  Maybe he or she can reach an agreement with one insurance company but not another.  It is up to the doctor to decide which network works best, and it is up to the insurance company to decide which doctors they want in their preferred-provider organization.

How To Decide if a Preferred-Provider Organization is Right for You

If you are trying to decide if a PPO is right for you, you’ll need to compare the cost of the monthly premium, plan design features, and contracted providers with other types of plans.  If your doctors are in network, a preferred-provider organization is a good option for your health insurance needs.

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What is a Network Discount in a Health Insurance Plan?

There are a lot of confusing aspects about a health insurance plan, specifically a medical plan.  Something that causes much head scratching is the concept of a network discount.  Just what is a network discount, now is it applied, and how is it beneficial?  First, though, one must understand what a network is.

By having a health care service performed at a network provider, the network discount keeps an individual’s health care costs down.

What is A Medical Insurance Network?

Insurance arrangements such as a preferred-provider organization (PPO) and point of service (POS) plan allow plan participants to visit any doctor or facility (providers) that they would like.  However, in an effort to keep the cost of health care down, insurance companies create a network of providers that accept a set amount for each covered service.  Insurance plan policyholders in turn are able to pay less for medical services by using a provider in the network.  The network providers bring in less revenue than they otherwise would, but they are able to attract more patients since the patients get better benefits.

What is the Network Discount?

The network discount, then, is the difference between what a provider bills for a medical service and what the provider is contracted to receive through the patient’s insurance plan.  For example, if your family doctor charges $100 for an office visit, and the contracted rate through the insurance network is $60, then the network discount would be 40% (($100 – $60)/$100).




How are Discounts Determined?

Network discounts are negotiated between each provider and insurance company.  If a provider isn’t happy with the potential arrangement, he/she/it is free to stay out of the network.  However, that could possibly mean less business.

It is not always a percent discount that is negotiated.  The rates that can be charged by a network provider can be based on a fixed fee for medical services, a percent discount off of billed charges, or in the case of an inpatient hospital facility, a per day amount.

However, the negotiated rate is developed, a discount percentage can still be calculated by figuring the amount saved through the network divided by the billed charge amount.

Is a Network Discount Beneficial?

The easy answer for a medical insurance policyholder is a resounding yes.  By having a health care service performed at a network provider, the network discount keeps an individual’s health care costs down.  And if the patient still wants to go out of network, he or she is free to do so, just with a higher out of pocket cost.

For the provider, the network discount is a double-edged sword.  The discount means that the physician and/or facility will bring in less revenue than they would with a non-network patient.  However, the trade-off is that the provider will be on the in-network provider list and will attract more patients.

In any event, the network discount will mean medical services will be available at a lower cost both to the health insurance plan member and the insurance plan itself.  This equates to more money in the pocket of the patient and lower medical insurance premiums (which itself will result in more money in the pocket of the patient).

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