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).