The (Secret) Language

One of the things that makes value based consumption of sick care related products and services difficult is not being able to speak or understand the language and terms being used.  It can often leave us feeling like outsiders.

Below are some of the key terms and concepts to help break down the language barrier.

Advanced Premium Tax Credits

A tax credit that can reduce what you pay for insurance. When you apply for coverage in the Health Insurance Marketplace, you estimate your expected income. If your estimate falls in the range to save, you can use an advance payment of the premium tax credit to lower your monthly insurance bill.

If at the end of the year you’ve taken more premium tax credit in advance than you’re due based on your final income, you’ll have to pay back the excess when you file your federal tax return. If you’ve taken less than you qualify for, you’ll get the difference back. (from the glossary at healthcare.gov)

Note that you can only take advantage of APTC when you buy your insurance through the Public Exchange.

Allowed Amount, also known as the Eligible Expense, Payment Allowance, or Negotiated Rate

Maximum amount on which payment is based for covered health care services.  If your Provider Charges are more than the allowed amount, you may have to pay the difference.  (from the glossary at healthcare.gov)

The Allowed Amount is specific to the rate negotiated between one commercial insurance company (payer) or plan and a give provider, and is often specific to geography or market.  Medicare and Medicaid Allowed Amounts also vary by market, but are generally the same for all providers, with exceptions made for additional premiums for hospitals and academic teaching facilities.

For example, the Provider Charge (aka Charge Master Rate) for a lab test, let’s say a Complete Blood Count, may be $125.00. The Allowed Amount for one specific provider in one city might be;

Medicare Allowed Amount – $16.10

Blue Cross, Blue Shield Plan B Allowed Amount – $22.31

Aetna Plan A Allowed Amount – $21.97

Medicaid Allowed Amount – $9.83.

If the provider is in network for the insurance plan, and the service is an included benefit (the most common scenario), then the difference between the Provider Charge and the Allowed Amount is written off by the provider (and may be considered bad debt).  Note that there used to be a practice, called Balance Billing,  by which the difference could be billed to the patient.  In the vast majority of states, this is now illegal under these circumstances (in network provider, included benefit), EXCEPT in the case of ambulance services and some other exceptional carve outs in some states.

If the provider is out of network for the insurance plan, but the service is considered a covered benefit, the insurance plan may do one of two things;

Pay an amount they consider ‘reasonable and customary’ to the provider.  Note that this will NOT be an ‘Allowed Amount’, since it was not negotiated between the plan and the provider ahead of time.  If the plan makes such a payment, the way they arrive at what they consider to be ‘reasonable and customary’ is unpredictable.  This is somewhat unusual, so if your plan agrees to do this, you have a GREAT plan.  But you’re still on the hook for the balance.   In this situation, you should attempt to get the provider to accept the insurance plan’s reasonable and customary payment as payment in full, or to accept an additional small amount from you, but they’re under no legal obligation to do so.

Pay nothing, in which case the patient is responsible for 100% of the Provider Charge unless they negotiated a discount with the provider in advance.  In this situation, you should attempt to negotiate to pay a ‘reasonable and customary’ amount, but the provider is under no legal obligation to do so.

If the service is an excluded benefit, there is no Allowed Amount, and the patient is responsible for 100% of the Provider Charge unless they negotiated a discount with the provider in advance.  In this situation, you should attempt to negotiate to pay a ‘reasonable and customary’ amount, but the provider is under no legal obligation to do so.

Annual Limits

A cap on the benefits your insurance company will pay in a year while you’re enrolled in a particular health insurance plan. These caps are sometimes placed on particular services such as prescriptions or hospitalizations. Annual limits may be placed on the dollar amount of covered services or on the number of visits that will be covered for a particular service. After an annual limit is reached, you must pay all associated health care costs for the rest of the year.  (from the glossary at healthcare.gov)

A common example is a plan that covers up to 20 ‘Other Practitioner’ office visits (such as a physical or occupational therapist). Any additional visits would be beyond the annual limit and would be out of pocket expenses.

Prior to PPACA, there were many plans with overall annual or lifetime limits for all services (for example $1m annual/$2m lifetime), which left anyone with a sever chronic condition or a bad accident vulnerable to policy cancellation and medical bankruptcy.  Under PPACA, overall annual or lifetime limits are no longer allowed.

Balance Billing

When a provider bills you for the difference between the Provider Charge and the Allowed Amount. For example, if the Provider Charge is $100 and the Allowed Amount is $70, the provider may bill you for the remaining $30. A preferred provider may not balance bill you for covered services.  (from the glossary at healthcare.gov)

Balance billing from in network providers for allowed benefits is unusual and even illegal in most states, with the exception of ambulance services and other exceptional carve outs.

Note that if an out of network provider bills an insurance plan, depending on the plan, they may pay either nothing or what they deem to be a ‘reasonable and customary’ amount.  Or if the service is an excluded benefit (regardless of whether it comes from an in network or out of network provider), the insurance plan will likely pay nothing, and the provider is entitled to bill the individual or family for whatever the insurance plan does not pay – up to the full Provider Charge.   While the use of the term is (unfortunately) inconsistent, most would not consider these last two scenarios to be Balance Billing, and the billing as described is legal in almost every state.

Charge Master and Charge Master Rates (see Provider Charges)

Coinsurance

Your share of the costs of a covered health care service, calculated as a percentage (for example, 20%) of the allowed amount for the service. You pay coinsurance after you’ve met your deductible. For example, if the health insurance plan’s Allowed Amount for an office visit is $100 and you’ve met your deductible, your 20% coinsurance payment would be $20. The health insurance plan pays the rest. (from the glossary at healthcare.gov)

It’s important not to confuse Coinsurance with Co-payment (or Co-pay), which is based on a dollar amount instead of a %.  Also understand that both coinsurance and Co-pay generally represents your out of pocket obligation after your deductible has been met, up to your Out of Pocket Limit or maximum.

Under some plans, you may have some services covered by Coinsurance or Co-pay before your deductible is met.  For example, prescription drugs may have a Coinsurance or Co-pay amount that starts from your first prescription and isn’t subject to your deductible.

Copayment or Co-pay

A fixed amount (for example, $15) you pay for a covered health care service, usually when you get the service. The amount can vary by the type of covered health care service.  (from the glossary at healthcare.gov)

It’s important not to confuse Co-payment or Co-pay with Coinsurance, which is based on a % of the bill instead of a fixed dollar amount.  Also understand that both coinsurance and Co-pay generally represents your out of pocket obligation after your deductible has been met, up to your Out of Pocket Limit or maximum.

Under some plans, you may have some services covered by Coinsurance or Co-pay before your deductible is met.  For example, prescription drugs may have a Coinsurance or Co-pay amount that starts from your first prescription and isn’t subject to your deductible.

Deductible

The amount you owe for covered health care services before your health insurance plan begins to pay. For example, if your deductible is $1,000, your plan won’t pay anything until you’ve paid $1,000 for covered services. Some plans pay for certain health care services before you’ve met your deductible.  (from the glossary at healthcare.gov)

In most plans, there are exceptions to deductibles for services such as preventative care office visits, for which your plan may pay for 100%, or all except your co-pay.   Note that deductibles are often quoted with one number applying to an individual and another to a family, as well as one number for in-network providers and another for out of network providers.

For example:

In Network; individual $5,300/family $10,600.

Out of network; individual $10,600/family $21,200.

If you are on an individual policy, only the individual numbers apply to you. If you’re on a family policy, only the family numbers apply; so if one member of your family consumes, for example, $8,250 in services, you would have to pay all $8,250 since the quote for an individual applies only to one person policies – not one individual within a family.

If you choose to see an out of network provider, you’ll pay out of pocket up to your out of network deductible, and those amounts will not count towards your in network deductible.

Eligible Expense (see Allowed Amount)

Early and Periodic Screening, Diagnostic, and Treatment Services (EPSDT)

A term used to refer to the comprehensive set of benefits covered for children in Medicaid.  (from the glossary at healthcare.gov)

Essential Health Benefits

A set of health care service categories that must be covered by certain plans, starting in 2014.

The Affordable Care Act ensures health plans offered in the individual and small group markets, both inside and outside of the Health Insurance Marketplace, offer a comprehensive package of items and services, known as essential health benefits. Essential health benefits must include items and services within at least the following 10 categories:

ambulatory patient services

emergency services

hospitalization

maternity and newborn care

mental health and substance use disorder services, including behavioral health treatment

prescription drugs

rehabilitative and habilitative services and devices

laboratory services

preventive and wellness services and chronic disease management

pediatric services, including oral and vision care.

Insurance policies must cover these benefits in order to be certified and offered in the Health Insurance Marketplace. States expanding their Medicaid programs must provide these benefits to people newly eligible for Medicaid.   (from the glossary at healthcare.gov)

Excluded Benefits, Services, or Products

Health care services that your health insurance or plan doesn’t pay for or cover.  (from the glossary at healthcare.gov)

If you purchase or use any Excluded Benefits – either intentionally or accidentally –  you will likely pay Charge Master rates (unless you’ve negotiated with your provider ahead of time), and your out of pocket expense does not count against your deductible.

Narrow Network

These networks give patients access to a limited number of providers, and can pose a risk since the chances of an unintended use of an out of network provider increases.

These plans vary in their ‘narrowness’ across different types of providers and hospitals. Plans typically seek to include known high-value providers, and exclude known high cost providers that lack evidence of high value. They also seek better pricing terms with providers in Narrow Networks, on the presumption that they drive higher volumes. Premiums for narrow-network plans are typically lower than for broad networks, and analysis by McKinsey found that these premium differences are widening. One study showed that Narrow Networks reduce spending substantially – by as much as 36%.

About 90% of consumers on the health insurance exchanges had at least one narrow network in their market in 2015. In total, 11% of networks in silver plans sold in the marketplaces are considered “extra small”—meaning they cover fewer than 10% of physicians in the plan region. Another 30% are “small”—covering between 10% and 25% of the area’s physicians. The study shows that health maintenance organizations are more likely to have small physician networks compared to preferred provider organizations. The researchers also show that networks vary when sized by physician specialty: in primary care, 36% of networks are considered small or extra-small, compared to 23% for internal medicine subspecialties, and 59% for oncology.

Negotiated Rate (see Allowed Amount)

Network, or Provider Network

The facilities, providers and suppliers your health insurer or plan has contracted with to provide health care services.  (from the glossary at healthcare.gov)

These are the providers your plan considers ‘in-network’, and covered by the plans negotiated rates. Use of physician, hospital, or other provider that is not listed (‘out of network’) will, unless you’ve negotiated with the provider in advance, usually result in the you receiving a bill at the provider’s Charge Master rate, which is often several times more than the usual and customary rate.

Out of Pocket (OOP) Limit or Out of Pocket Maximum

The most you’ll have to pay for covered services in a policy period (usually one year). After you reach this amount, your health plan will pay 100% for covered essential health benefits.

It includes the yearly deductible and may also include any cost sharing you have after the deductible. It doesn’t have to count premiums, balance billing amounts for non-network providers and other out-of-network cost-sharing, or spending for non-essential health benefits.

The maximum out-of-pocket limit for any individual Marketplace plan for 2016 is $6,850 for an individual plan and $13,700 for a family plan.  (from the glossary at healthcare.gov)

It’s very important to understand that the OOP Limit does NOT include out of network providers, UNLESS a separate out of network OOP Limit has been defined.  OOP Limits also don’t include excluded benefits.  So for most situations, you can estimated your overall financial risk for a given policy year to be the sum of all of the monthly premiums (that you are responsible for – not including any premiums your employer may pay on your behalf) + the Out of Pocket Limit, IF you avoid the unintended use of out of network providers and excluded benefits.

Payment Allowance (see Allowed Amount)

Provider Charges, also known as Charge Master Rates

The Charge Master is a list of all the services and products that a healthcare provider might provide, and their associated – for lack of a better term – ‘list prices’.  These prices are the Provider Charges, and are often referred to as Charge Master Rates.

For example, a provider may do some in office laboratory tests, including a Complete Blood Count. In their Charge Master, they may have a price (the ‘Provider Charge’) for the CBC of $125.00. They know that they’ll rarely actually get paid that amount. But they will submit this amount to an insurance company as the ‘Provider Charge’ for that service, knowing that the insurance company will pay them the Allowed Amount (the negotiated rate) that they’d previously agreed to and documented in a fee schedule. In this case, the insurance company might pay an Allowed Amount of $18.25.   The provider would then accept the $18.25 as payment in full for that service, and write off the difference of $106.75 ($125 – $18.25) as bad debt.  For profit hospitals, in some cases, even submit the total of all bad debt (which for a hospital is a very large number) as a deduction on their income taxes. Not for profit hospitals will often add their bad debt numbers to those published as spent on charity care.

Where the Provider Charges hurt patients is when …

The patient is uninsured

The provider is out of the insurance plan’s network

The service is an excluded benefit under that insurance plan

In each of those cases, the Provider Charge gets billed to the patient in full.   The patient, not knowing any better, might pay the whole thing even though the provider usually only really expects to collect 10-30% of the bill, depending on the different mix of procedures. 

What makes this confusing is that healthcare doesn’t follow the normal rules of supply and demand to arrive at prices.  There isn’t really even an accepted definition of a Reasonable and Customary price for a given service.  The best we can do is take an average of negotiated Allowed Amounts between many providers and plans in a given geographic area.  But that information usually isn’t available.  So there is no real connection between a Provider Charge and an Allowed Amount, nor is there between a Provider Charge and a Reasonable and Customary amount.

The reason the difference between the Provider Charge and the Allowed Amount grew over time was because hospitals used to negotiate fee schedules with commercial insurance companies using discounts from their Charge Master prices. Hospitals kept raising them, and insurance companies kept demanding deeper discounts. Eventually, insurance companies abandoned Charge Master based negotiations and instead either used their own numbers (some of which were rational, some arbitrary) or used Medicare reimbursement schedules as a baseline.

If this whole Charge Master thing sounds absurd, it is; and it’s an embarrassment to many hospital CEO’s.

Qualifying Life Event

A change in your life that can make you eligible for a Special Enrollment Period to enroll in health coverage. Examples of qualifying life events are moving to a new state, certain changes in your income, and changes in your family size (for example, if you marry, divorce, or have a baby) and gaining membership in a federally recognized tribe or status as an Alaska Native Claims Settlement Act (ANCSA) Corporation shareholder.  (from the glossary at healthcare.gov)

Tiered Network

In a tiered network, consumers have access to a broad network of providers, but pay somewhat higher out-of-pocket costs for seeing higher priced or less efficient providers. The out-of-pocket costs are substantially lower than they would be for out-of-network providers in a narrow network, but the two network structures use many of the same cost-control levers. Consumers in a tiered network therefore have greater access to high-cost and ostensibly high-quality providers than they would in a narrow network. The premium savings may be somewhat smaller, but the cost-quality tradeoff may be more palatable.

Total Out of Pocket (OOP) Costs

This is the total of everything you will have to personally pay for.   Total OOP forecasting is helpful for personal financial planning (ie do I have enough in an HSA or FSA to cover anticipated needs), and for comparing the financial merits of different plans.

Total OOP Costs includes the sum of …

Your share of monthly premiums.  For most of us, this is 100%, but for some, our employers pay a part.

Anticipated use of primary and speciality care (exclusive of annual wellness visits) and surgical or inpatient services for included benefits, up to the limits of the plan’s deductible.

Use of excluded benefits (either intentional or accidental).

Use of out of network providers (either intentional or accidental).

Summary of Benefits and Coverage (SBC)

An easy-to-read summary that lets you make apples-to-apples comparisons of costs and coverage between health plans. You can compare options based on price, benefits, and other features that may be important to you. You’ll get the “Summary of Benefits and Coverage” (SBC) when you shop for coverage on your own or through your job, renew or change coverage, or request an SBC from the health insurance company.  (from the glossary at Healthcare.gov)

When evaluating different insurance policies, it’s the SBC that allows you an ‘apples to apples’ comparison; it should include the same information and be formatted the same way regardless of what insurance company is offering the plan.  Be sure to seek this out to make an informed comparison.

An SBC looks like this (first page of eight) …

Example Summary of Benefits

A full sample SBC with all the information populated can be found here.   This example has attributes for one specific plan filled in.   If you’ve asked for a copy of an SBC for a plan you’re considering, and it doesn’t look like this, then you don’t have the SBC yet.  Keep asking until you do.

A blank example of an SBC with details on each attribute can be found here.  This blank example doesn’t include any attributes specific to a given plan – it’s the common template that all insurance companies are required to use.