(excerpt from Understanding Health Insurance, 4th edition, by Jo Ann C. Rowell, published by Delmar Publishers, pages 42-50)
OBJECTIVES
On successful completion of this chapter, you will be able to
1. Define the following terms, phrases, and abbreviations.
insurance Physician's Current Procedural
medical care Terminology (CPT)
International Classification of
health care Diseases 9th RevisionClinicalpreventive services Modifications (ICD9CM)
health insurance HCFA 1500 (190) form
disability insurance nonparticipating limiting cha
liability insurance National Correct Coding Initiative
group practice
Medicare Health Insurance Portability and
Accountability Act
Medicaid national provider identifier (NPI)Welfare payer identifier (PAYERID)
CHAMPUS ambulatory payment groups
feeforservice plan (APGs)deductible capitation
coinsurance per capita payments
copayment PMPM payment (per member
copay month)
CHAMPVA feeforservice reimbursement
Health Care Financing Adminis thirdparty payer
tration (HCFA) global surgery feeHealth Care Financing Adminis feeforservice with utilization
tration Common ProcedureCoding System (HCPCS) episode of care reimbursement
2. Explain why it was necessary to standardize procedural terminology and develop a procedure coding system.3. Explain why HCFA regulated the use of the HCFA 1500 claim form Medicare billing.
4. Explain the purpose of the National Correct Coding Initiative.
5. List four features of the Health Insurance Portability and Accountability
Act of 1996.
6. List and describe the four types of thirdparty reimbursement seen in
practices across the country today.
7. List and describe the four methods of reimbursement seen in today's
health care practices.
WHAT IS HEALTH INSURANCE?
The dictionary defines insurance as: "Protection against risk, loss or ruin by a contract in which an insurer or underwriter guarantees to pay a sum of money to the insured in the event of some contingency such as death, accident or illness, in return for the payment of a premium." Among the many types of insurance are health, disability, liability, malpractice, property, and life insurance.
To understand the meaning of the term "health insurance" as it is used in this framework, differentiation between medical care and health care must be made. Medical care encompasses diagnostic and therapeutic measures provided by members of the health care team to persons who are sick, injured, or concerned about their health status. Health care expands on the definition of medical care to include preventive services These services are designed to help the individual avoid health and injury problems. Preventative or proactive examination may bring about early detection of problems resulting in treatment options that are less drastic and less expensive. Both medical care and health care are concerned with maintenance of the best quality of physical and mental wellbeing possible, within the individual's existing physical limitations.
Health care insurance or health insurance is a contract between a policy holder and an insurance carrier or government program to reimburse the policyholder for all or a portion of the cost of medically necessary treatment or preventive care rendered by health care professionals. Because both the government and the general public talk in terms of "health insurance," this text will use that term exclusively.
DISABILITY AND LIABILITY INSURANCE
Disability insurance, for the purpose of this text, is defined as reimbursement for lost income resulting from a temporary or permanent illness or injury, and will be discussed in Chapter 15.
Although liability insurance is not covered in this text, it is important to understand what it entails and how it influences the filing of health insurance claims. Liability insurance is a policy that covers losses to a third party caused by the insured, by an object owned by the insured, or on the premises owned by the insured. Liability insurance claims are made to cover the cost of medical care for traumatic injuries, lost wages, and in many cases, remuneration for the "pain and suffering" of the injured party. Most health insurance contracts state that the health insurance benefits are secondary to liability insurance. When negligence by another party is suspected in an injury claim, the health insurance carrier will not reimburse the patient for medical treatment of the injury until one of two factors is established: 1) it is determined there was no thirdparty negligence, or 2) in cases where third party negligence did occur, the liability carrier determines the incident is not covered by the negligent party's liability contract.
To file a claim with a liability carrier, a regular patient billing statement addressed to the liability carrier is used, not a health insurance claim form. Be sure to include the name of the policyholder and the liability policy identification numbers. If the liability insurer denies payment, a claim is then filed with the patient's health insurance plan. A photocopy of the written denial of responsibility must accompany the health insurance claim form.
MAJOR DEVELOPMENTS IN HEALTH INSURANCE
1900- 1940Health care, like the rest of society in this country, has undergone tremen dous changes during this century. For the first 40 years or so, medical prac tices were largely general practitioners in solo practice, and patients were the only responsible party for payment to physicians and hospitals for the health care services they received.
In the late 1920s and early 1930s there were isolated instances of people banding together to find innovative ways to improve health care for their local community. Several of these efforts resulted in the development of con tracts with the local hospital and/or local physicians for prepaid health care. These contracts called for the participating hospital or physician to perform specified medical services in exchange for a predetermined fee that would be paid to the provider of care on either a monthly or yearly basis. These early prepaid medical care arrangements were so successful that soon those original policies were expanded to include more individuals and providers in a given region. These prepaid health plans were the beginning of today's health maintenance organizations (HMO) or managed care plans.
In the early 1940s, a new concept in prepaid health care began to emerge. This plan stipulated that policyholders on these medical care contracts should pay a small amount for each medical service received if their earned income was above a set level. At the same time, policyholders whose earned income fell below the stated level would not have to pay for their medical services.
Major Development in Health Insurance 1940 to the Present
The number of prepaid medical insurance plans increased rapidly during World War II. Many employers needed a way to retain good workers and to attract new employees at a time when they were operating under government enforced pay scales. Government restrictions applied only to wages; there were no restrictions on the number or amount of benefits other than wages an employer could offer employees. Many employers began to offer employersponsored medical or health insurance policies as an incentive.
Specialty Group Practices Emerge
World War II was also responsible for a change in the structure of medical practices. As the war progressed and the number of wounded increased, the military recognized the need for physicians caring for the wounded to become trained in specific areas of treatment. When the war ended in 1945, the majority of the military doctors discharged from the armed forces elected to use their veterans' educational benefits to further the study of the special ized training they had received in the military. When these physicians reentered civilian practice, many physicians joined together to practice in small groups as they had done in the military, rather than solo practices. The first
group practices to emerge were single specialty groups. Later, some physicians began to form multiple specialty group practices. A group practice is defined by the American Medical Association as: "three or more doctors joined together to deliver health care who agreed to make joint use of equipment, supplies and personnel, and divide income by a prearranged formula."
Employer-Sponsored Health Insurance
In the early 1950s, there was a big demand for medical or health care insurance. This demand encouraged many insurance companies to expand into health care and prompted new corporations to enter the market. The upward surge in the numbers of persons covered or "lives" prompted many changes in the medical offices. Insured patients began to request that the offices bill their insurer carrier before making payments on their accounts. They agreed to pay the balance due after the carriers determined the insurance portion of the claim. Each insurance company had a unique set of billing requirements. The complexity of the new billing procedure greatly increased the paperwork
and practices had to, therefore, increase the size of their billing staff.
Procedural Terminology Coding
By the mid 50s, the increased demand for filing insurance claims led some persons in the medical community to attempt standardization of the procedural terminology reported on the claims. Almost simultaneously, insurance companies began to use computers for the collection and organization of procedural data on the claim form for statistical purposes. The use of computers led the medical community to develop a numerical coding system that could easily be entered into the computer. By the mid 60s, some areas of the country had a procedural coding system in place. The system developed by the California Medical Society became the prototype for the Physician's Current
Procedural Terminology (CPT) system published by the American Medical Association and currently used on all outpatient claims in this country.
The standardization of diagnostic data on claims submitted by physicians today was achieved by adopting a diagnosis coding system known as the International Classification o f Diseases (ICD9). This system was developed by the World Health Organization. Previously, this system had been used to report diagnoses by the hospitals in this country.
Emergence of Government-Sponsored Programs
The next phase of health insurance dawned in 196566, when the U.S. Congress enacted legislation to set up three governmentsponsored health care programs: Medicare, Medicaid, and CHAMPUS.
• Medicare was originally designed to cover individuals aged 65 or older and retired on either Social Security or the Railroad Retirement program.
• The Medicaid program is jointly funded by the state and local governments to provide health care benefits to indigent persons on welfare (public assistance), the aged, and/or the disabled. Some states expanded this mandate to cover certain other medically needy individuals who meet specific special statedetermined criteria.
• CHAMPUS, the Civilian Health and Medical Program of the Uniformed Services, was designed as a benefit for dependents of personnel serving in the armed forces, and the uniformed branches of the Public Health Service and the National Oceanic and Atmospheric Administration. This program relieved the overtaxed armed forces medical services by allowing the dependents to seek medical care from civilian health care providers when the necessary care was not available at a nearby government medical treatment facility.
Billing Complexity Increases
This legislation introduced complexity in the form of governmentmandated billing and eimbursement regulations for the three government programs.Another outcome of this legislation was the beginning of investorowned hospital chains and the growth in universityowned, multispecialty medical centers throughout the country.
By the early 1970s, medical practices were dealing with four categories of patients: those enrolled in the government programs, those enrolled in private or commercial plans known as feeforservice plans, prepaid health maintenance organizations, and those without insurance coverage.
Both the government programs and the private commercial plans operated on a feeforservice plan that allowed for complete freedom in the choice of health care providers. Reimbursement was made either according to a set fee schedule, or on the usual and customary charges for a specific service in a given geographic region. Payment was made only for medically necessary treatment, with little or no payment for preventive care. The patient was responsible for payment of a yearly deductible along with a copayment. The deductible is a specified amount of annual outofpocket expenses for covered health care services the insured must pay to a health care provider before the insurer pays benefits. Coinsurance is defined as a specified percentage of each fee for a covered service the patient must pay to provider.
Health Maintenance Organization Growth
At this same time, Health Maintenance Organizations (HMOs), which lacked support from organized medicine, attracted the attention of the general public due to lower premiums. These organizations were able to offer prepaid care at a lower premium than the feeforservice plans by restricting health care to the HMOs panel of participating providers. HMOs also required the patient's primary care physician to preauthorize all services performed by specialists. The HMO patient rarely pays a yearly deductible but may be responsible for a small copayment for each service rendered to the patient. A copayment perhaps better known as a copay is a stipulated fee per visit or service.
In the late 60s, many studies were conducted by private agencies comparing the quality of care given by HMOs with the more traditional health care plans. Most of these studies concluded that the quality of HMO care was equal to the traditional plans even though the HMO premiums and outof-pocket expenses were lower. Congress took note of the results of these studies and moved to encourage the growth of HMOs by enacting the Health Maintenance Organization Act of 1973. This legislation allowed the government to assist HMOs if they met specific federal requirements. This legislation also required employers with 25 or more employees, sponsoring health insurance plans, to offer a choice between a traditional feeforservice plan and at least one federally funded HMO plan.
Government Program Reorganization
The Veterans Health Care Expansion Act of 1973 authorized the formation a new government sponsored program known as CHAMPVA, the Civilian Health and Medical Program of the Veterans Administration. This program parallels CHAMPUS coverage for spouses and children of veterans with 100percent serviceconnected disabilities or who died as a result of a serviceconnected disability.
In 1977, the Carter administration combined the administration of the Medicare and Medicaid programs under a single administrative agency. The administrator of the Health Care Financing Administration (HCFA) is appointed by the President and reports directly to the Secretary of Health and Human Services. Since then the HCFA has become a powerful influence on the operations of the practice of medicine.