Medical Expense Policies and Managed Care

How Do Medical-Expense Policy Designs Differ?

Major medical can be written as broader standalone coverage or layered over underlying basic hospital and surgical benefits. The plan document defines what is eligible.

• A deductible is the amount that must be met before the plan pays certain covered costs.
• A copayment is a fixed amount the member pays for a covered service.
• Coinsurance generally sets a percentage share of the covered or allowed amount.
• An exclusion names a service or loss outside coverage.
• Cost sharing is the member's share of covered-care costs.

A scheduled benefit pays the amount listed for a covered service. Identify the service, its stated amount, and any day or frequency limit. Add separate benefits when the contract provides them.

How Do You Calculate a Scheduled Benefit?

Suppose a policy pays $220 per covered hospital day plus $900 for a listed surgery. The insured has three covered hospital days and that surgery.

1. Hospital benefit: 3 days × $220 = $660.
2. Surgery benefit: $900.
3. Total scheduled benefit: $660 + $900 = $1,560.

Use the actual covered days, not the maximum possible stay. Apply written exclusions and their exceptions to the service involved.

Some policies pay a fixed amount for a covered event rather than reimbursing the provider's actual charge.

• The benefit may be paid to the insured even if another plan pays the provider.
• Check whether the policy is comprehensive medical coverage or supplemental coverage with a narrower purpose.

Exam Tip: Gotchas

• A schedule’s maximum is a limit, not an automatic payment. Calculate the benefit for the actual covered days and listed services.

How Do Managed-Care Plan Designs Differ?

• A provider network is the group of providers contracted with the plan.
• A primary-care provider handles general care and can coordinate specialist care.
• A referral is an order from a primary-care provider for specialist or other specified care when the plan requires it.

These are common patterns, not guarantees. The plan's summary and contract explain its actual network, referral, and payment rules.

• A covered service can still require prior authorization, advance plan approval for a named service, or have to meet the plan's clinical need criteria (medical necessity).
• Check service-specific referral exceptions. A plan may permit direct access to certain care while requiring a referral for other specialist visits.
• A point-of-service plan may pay self-referred care at a higher cost-sharing level, even when the provider is in network. A missing referral does not always mean no benefit. The contract controls.

How Does a Referral Change This Example?

The allowed amount is the amount the plan recognizes for the service; it may also be called an eligible expense. Balance billing charges the member the difference between a provider's bill and the allowed amount when permitted.

Suppose a plan pays 80% of a $100 allowed charge with a referral and 50% without one. The deductible is met, and no balance bill applies.

1. With a referral: the plan pays $80, so the member owes $20.
2. Without a referral: the plan pays $50, so the member owes $50.
3. The provider’s network contract has not changed.

If a client wants to keep seeing a specialist outside the network, compare whether each plan covers that provider, whether a referral is needed, and how much more the client may pay. The letters HMO, PPO, or POS alone do not settle those questions.

How Do Utilization Review and Provider Access Work Together?

Managed care organizes access and costs through provider arrangements and review processes. Utilization review checks whether care meets plan criteria.

• Preauthorization reviews a named service before it occurs.

• Concurrent review evaluates care while it is underway.

• Case management coordinates providers and settings for complex care needs.

• Authorization does not mean every later claim will be paid.

• The plan can still check eligibility, the claim's billing codes, contract terms, and whether a service was received as approved.

Compare provider access as well as cost.

• An in-network provider agrees to plan terms for covered services.
• An out-of-network provider may charge more, and the plan may pay a smaller share or none.
• A low premium does not tell the whole story about access or total cost.
• Check the current plan, network, provider and practice location when reviewing a directory. A different plan, old listing or another office location may not establish participation for the intended visit. Confirm unclear information with the plan and provider.

Exam Tip: Gotchas

• HMO, PPO, and POS describe plan structures; they do not by themselves tell the full benefit.
• A provider network and a covered-service list answer different questions.

How Do You Calculate the Member's Total Cost?

• Start with the covered service’s allowed amount and the applicable deductible, copayment or coinsurance. Compare the same service and provider under each plan’s actual terms.
• If a deductible applies and the eligible expense is below the amount remaining, the member pays that eligible expense. The stated coinsurance applies after the deductible is met.
• When balance billing is permitted, add the excess to the member's ordinary cost sharing.
• Do not assume every nonnetwork bill permits balance billing. Federal surprise-billing protections apply to many emergency services and certain nonemergency services at in-network facilities. Apply the protections and contract terms relevant to the stated facts.

Example

A provider bills $1,000. The allowed amount is $700, and the plan pays 70% after the deductible is met. Balance billing is permitted.

1. Plan payment: 70% × $700 = $490.
2. Ordinary member cost sharing: $700 − $490 = $210.
3. Amount above the allowed charge: $1,000 − $700 = $300.
4. Total member cost: $210 + $300 = $510.

What Should You Check on Exam Day?

• How do HMO, PPO, and POS network rules differ?
• Does authorization guarantee claim payment?