The Employer's Guide Blog for Overseeing PBMs

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Health Insurers and the classic “Bait and Switch”

Of all the deceptive practices employed by health insurers, affecting both patients and plan sponsors, out-of-network coverage or lack there of may stand high above the rest.  In 2009, health insurers were accused of manipulating data which ultimately resulted in overpayments [patient] amounting too several hundred million dollars.

The insurers settled and agreed to set up an objective database of doctors’ fees that patients and plan sponsors could rely upon.  However, the settlement didn’t require insurers to use it.  Instead of using the new $95 million database, all of which was paid for by insurers, they pulled the classic bait and switch.  Insurers began determining out-of-network reimbursement rates based upon Medicare rates.

In most instances, a policy mimicking Medicare rates reduces reimbursement more drastically than the initial rates regulators were trying to increase.  Doctors receive lower payments for services rendered and patients have significantly higher out-of-pockets costs.  I don’t defend insurers’ exorbitantly low out-of-network rates, but can you can see the hypocrisy from regulators in so far as Obamacare?

Today, most health plans have one level of benefits for care rendered by an in-network provider and a lower benefit for services from an out-of-network provider.  Insurance carriers encourage use of in-network providers because doing so helps control claim costs.

In-network providers have contracted with the insurance companies to provide medical care at reduced prices.  In exchange, the insurance companies direct patients to the in-network providers.  The arrangement increases business for the providers and decreases claims cost for the insurance company.

Treatment out-of-network is a different story.  Out-of-network providers have no agreement or incentive to reduce prices and control cost.  At times, however, they may provide a level of care or service that a particular patient needs or wants.  Patients seeking care out-of-network need to be aware of the way their benefits will be calculated.  There is more to it than the out-of-network deductible and co-insurance.

Insurance policies have clauses and exclusions against treatment that is not medically necessary. There are also provisions that the carrier only allows the Usual, Customary, and Reasonable (UCR) charge for a service provided.  Over the last few years, many carriers have begun to define their allowable charge or UCR limit as the amount negotiated with in-network providers.  The difference can be substantial.  For instance, if the retail price of a surgery is $4000, the discounted amount could be $2500, a $1500 discount.

When his son, Ethan, was a baby, doctors said he had a rare liver disease.  The family, which was in a health maintenance organization, had to appeal three times to get approval for the out-of-network surgery that saved the boy, now 10.  So Mr. Glaser was overjoyed two years ago when his employer switched to a PPO that promised out-of-network coverage.  Including premiums and deductibles, he and his employer paid about $14, 600 a year for family coverage.  But he discovered that at 150% of Medicare rates, it still fell far short.  In the case of a $275 liver check up, for example, the balance due was $175. (NY Times 4/24/2012)

Jennifer C. Jaff said she maintained out-of-network coverage with $14,000 in annual premiums because she has Crohn’s disease and is at high risk of colon cancer, which killed three of her grandparents.  Last year, after a terrible experience with an in-network doctor, she said, she returned to a top specialist who had performed her colonoscopy and upper endoscopy.   Even with 250% Medicare rates as the benchmark Ms. Jaff owed $3,137 of a $4,200 doctor’s bill.  (NY Times 4/24/2012)

If in-network benefits were paid at 80%, the patient would owe $500 for the surgery (20% of $2500).  A patient receiving care out-of-network would not receive the benefit of the discount.  Out-of-network benefits may be paid at 60%.  The patient’s responsibility is 40% of the UCR amount of $2500 or $1000, plus the difference between retail and the UCR amount ($4000 – $2500) or another $1500.  The total owed by the patient would be $2500 on a $4000 surgery.

To avoid surprises, it is important that your employees understand how out-of-network benefits are calculated.  Some providers will agree to write off all or part of the balance.  A financial agreement before receiving services is critical.  After services are rendered, many providers are not willing to discuss discounts.

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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