By David A. Hess
Premiums for health insurance are expensive and continue to escalate. A number of variables have contributed to the rise in health insurance premiums, including technology, prescription medicine and increased utilization. One contributor to increased utilization has been the plan design of health insurance products. The advent of managed care brought with it plan designs that had first dollar coverage for medical services. These types of plan designs shielded patients from having to know or having any interest in the actual cost of health care services.
Consumer-directed health products are designed to make patients aware of the costs of health care services. These health products are used in conjunction with health insurance products that have high deductibles. Patients are responsible to pay for costs up to the higher level deductible. After the deductible is met, the health insurer assumes financial responsibility for the patient’s health care costs. These deductible amounts can range from $1,050 to $10,500.
The theory associated with consumer-directed products is that, as patients assume more financial responsibility for their health care expenses and information about costs become available, patients will be more likely to shop for or take an interest in the cost of services (become consumers) and make rational cost-effective decisions. The theory further holds that, as patients assume more financial responsibility and become cost conscience, these actions will lead to a reduction in utilization of health care services and thus overall health care costs.
For physicians, this means that patients will increasingly have health insurance products with higher deductibles. It also means that patients will be paying for their health care services via Health Saving Accounts or Health Reimbursement Arrangements.
How Health Care Consumerism Works
In general, the consumer-directed health model has three components:
· A High Deductible Health Plan (HDHP).
· A Health Savings Account (HSA) or Health Reimbursement Arrangements (HRAs).
· Readily available information about health care costs for services.
Monthly premiums for the HDHPs are lower because of the higher deductible component of the plan. The patient assumes more financial risk because of the deductible for health care expenses and in return, the insurance carrier lowers premium. Patients typically use funds from an HSA or HRA to pay for health care expenses prior to the deductible being met.
HSAs are individual health savings vehicles, similar to IRAs or 401(k) plans that allow employers or individuals to fund tax-free dollars in an account to pay exclusively for qualified medical expenses associated with routine health care, or to save for future health care expenses. Money contributed to an HSA belongs to and is owned by the consumer, regardless of changes in employment or insurance status, and can be carried over from year to year. The owner of the account may use the money in an HSA for qualified medical expenses incurred by the account owner, his or her spouse, or dependents.
HRAs are entirely employer-funded accounts that employees can draw upon to pay qualified medical expenses. If not used, the money in these accounts stays with the employer.
Note that qualified medical expenses are defined by Internal Revenue Service Code Section 213(d). Examples of qualified medical expenses include medically necessary physician services, prescription medicine, inpatient hospital expenses, and dental and vision charges.
Collection Techniques and Strategies
A common denominator associated with these accounts is an HDHP, with emphasis on the “D” (deductible). The patient is responsible to pay for health care costs up to the level of the deductible. Some patients will have HSAs or HRAs funded by employers to assist them in meeting the deductible costs, and some patients will not. Regardless, the patient, not the health insurance carrier, is responsible for payment up to the level of the deductible.
Strategies for managing collection of payments from patients with consumer-directed accounts are provided below.
Review Participation Agreements with Payors. Before implementing collection controls and strategies to manage consumer-directed products, ensure that the management techniques selected are permissible according to the health insurers’ participation agreements.
Collection of Deductibles is addressed in many participation agreements, often stating that collection of co-payments, co-insurance and deductibles is permitted at the time of service. In entering into an arrangement with a new health insurer, determine that similar language is contained in the participation agreement.
Waiver of Deductibles is also addressed in many participation agreements. In general, these provisions prohibit waiving of deductibles and require collection of the deductible amount.
Fee Schedule Update/Development. Patients with consumer-directed products may ask about the practice’s fees for services. Money in an HSA belongs to the patient so that, when used to pay for qualified medical expenses, the patient will be spending his or her money. Consider having the practice’s fee schedule available to distribute upon request. If no fee schedule exists, one should be developed. If the practice has a Web site, consider adding this information to the site so patient inquires can be directed there. Another option is to provide patients with an estimate of what the services will cost, using the amount designated by the health insurer fee schedule.
Patients covered by health insurers with whom the practice does not participate, as well as cash-paying patients, may inquire about cash discounts for services. If the practice participates with Medicare or other insurance carriers, it is likely that the terms of the practice’s participation agreements prohibit offering a fee to a patient that is lower than the fee charged to Medicare or a health insurer with whom the practice participates.
Collection of the Top 30 Provider Reasonable Charges (PRCs) or Usual Customary Reasonable (UCR) Charges (that the practice generates from its participating health insurers). Patients with consumer-directed products will ask how much will be applied to their deductible for services rendered. If the patient has coverage through an insurer with whom the practice participates, the PRC or UCR will be applied to the patient’s deductible.
Collection of Deductibles at Time of Service. With the practice’s PRC and UCR information in hand, the practice can collect from patients what the health insurer will apply to the patient’s deductible. Subsequently, if the Explanation of Benefit (EOB) indicates that the practice overcharged a patient for services, the practice should refund the difference to the patient.
If a business decision is made to collect deductibles at the time of service, the practice should place signs in the office that read, “Payment of co-payments, co-insurance, and deductibles is expected at the time of service.”
Use of Health Insurer Electronic Interfaces. For example, Highmark Blue Shield’s Navinet system has a feature called “Benefit Accumulator.” This feature provides information about a patient’s benefits specific to out-of-pocket co-insurances, co-payments and deductibles incurred for the year. It also provides a history of this information from the prior year. This information can be accessed prior to, or at the time of, service.
Debit and Credit Card Transactions. As patients assume more financial responsibility for their health care costs via consumer-directed health plans, expect patients to request payment using a debit or credit card. Consider accepting credit and debit card transactions. Credit and debit cards offer real-time transactions and are more efficient than billing for services.
It is common for HSAs to issue checks and debit cards to those opening accounts. Patients who want to use money from an HSA to pay for services will likely have a debit card to draw against the funds. Patients with HRAs are also often issued debit cards to draw against funds in their accounts to pay for health care services.
Advising Patients of the Practice’s Financial Policy Changes. This is necessary when financial policy and control changes are made to assist with managing consumer directed health plans. Use these financial policy revisions, which should be in writing and provided to each patient, as an opportunity to contact and educate patients about the revisions. Encourage patients to ask questions so as to create an open dialogue whereby the practice can clearly explain its financial expectations.
With the advent of consumer-directed health plans, diligent management of the collection of payment for services is even more important. Patients with these consumer-directed products will have a greater personal financial responsibility for their health care expenses because these products are used in conjunction with high deductible health plans. It will not be uncommon for patients to have health insurance products with deductibles ranging from $1,050 to $10,500.
These high deductible health plans represent a trend from products that have first-dollar insurance coverage provided by the health insurer. Therefore, management techniques are needed to ensure collection from patients who will be assuming more financial responsibility for their health care expenses.
This document was reprinted with permission from the Pennsylvania Medical Society.
David A. Hess is Director of Contracting and Insurance Services at PMSCO Healthcare Consulting. Located in Harrisburg, PA, PMSCO is a subsidiary of the Pennsylvania Medical Society.