Part I – An Overview
Health insurance companies are in business to make money. Reread that sentence three times, until it really sinks in. You, the insured person, are necessary only to pay into the company your monthly premium. They, the owner of the policy, and now your premium, have only one obligation: To pay a claim when forced to do so, and not one second sooner. The longer they take to pay a claim, and therefore improve earnings on the cash you pay them, the better off they are. That’s the game, and once you understand the game, it should become apparent what the conflict is when it comes to paying for the treatment of one of their insured’s – you. The provider has spent money to provide you treatment and needs to get paid, yet the insurance company wants to either delay reimbursement, or, deny payment altogether. The winner of the game is always the insurance company.
What follows are four articles on how this works. The first article, this one, provides an overview of the entire process. Subsequent articles provide more detail for clarity. The purpose is to educate you, the insured person/identified patient/family member, on how the game is played and what you can expect, from a financial perspective, at the end of your treatment.
Deductibles and Out of Pocket Costs
Insurance policies have varying ways of shifting financial responsibility. These include deductibles, co-insurance, co-payments and allowable expenses.
Let’s first understand an allowable expense. Read your policy carefully. Your policy may pay room and board, but it only pays what your insurance company considers the allowable amount for room and board, not what the hospital always charges. Your room charge may be $1,500/daily but your insurance only allows $800/daily. You typically do not know what the allowable amount is until a claim is paid, so be informed. You may want to ask your insurance company what they allow before you are admitted, if possible.
Deductibles are simple: It is the first amount of money incurred under the policy by the insured (you). In essence, the insured pays first. If you have a $1,000.00 annual deductible, the first $1,000.00 of allowable charges are paid by you. Note: It’s not the first $1,000.00 of medical expenses – it’s the first $1,000.00 of allowable charges.
Co-insurance is the percentage the insurance company pays of allowable charges after you pay the deductible. Percentages vary by policy, so best to check your policy for specific. There may be different co-insurance rates for in-network versus out-of-network benefits, and, there may be a different co-insurance percentage for medical benefits versus mental health and substance abuse benefits. Your policy contains specifics.
Co-payments are the amount the insured pays per visit. A $20.00 co-pay for office visits is typical of a co-payment.
Your out-of-pocket maximum is the sum of the deductible and co-insurance portion that you pay. It may, or may not, include co-payments.
Let’s say you go into the hospital and incur a $20,000.00 bill. What is your responsibility?
That’s right. You are responsible for all of the hospital’s charges. Read the fine print. Even though you assign the insurance benefits to be paid directly to the hospital, it is your responsibility to pay all of the bill regardless of what, if any, portion of the bill your insurance company pays.
Now that you understand that, let’s look at what typically happens.
The hospital bills your insurance company $20,000.00. The first thing the insurance company does is re-price the bill according to either the contract the insurance company has with your hospital (in-network), or, per the pricing policy of the insurance company on an out-of-network basis. If your hospital is in-network, then they accept the pricing of the insurance company as payment, plus your deductible and co-insurance portion. If the hospital is out-of-network, they will take what the insurance company pays and bill you for the difference, plus the deductible and co-insurance. Sometimes the hospital will write off the insurance company’s repriced difference rather than seek payment from the patient.
Hypothetically, let’s say the hospital is out-of-network with your insurance company and the $20,000.00 bill gets repriced to $15,000.00. The insurance company then subtracts your deductible from the $15,000.00 and pays their co-insurance percentage on the remainder. If your deductible is $1,000.00 and their co-insurance percentage is 70%, they pay the hospital $9,800.00.
Allowable charges $15,000.00
Deductible – $1,000.00
Co-insurance percentage x 70%
Amount insurance pays $ 9,800.00
What happens to the remaining $10,200.00? That’s what the patient may have to pay. May, as in, the hospital has some latitude here. Some may write off the $5,000.00 the insurance company repriced, others might not.
At the end of the day you, the insured, are responsible for 100% of the charges from the institution that provided you treatment for your illness. The insurance company will pay the minimum amount they can get away with and they will take as long as they want to do so. So be educated and beware. It’s a vicious game with only one winner.
Arrowhead Lodge provides long-term residential treatment for adult men who suffer from alcoholism and/or drug addiction as well as a co-occurring mental disorder, trauma, grief and loss. We are an insurance friendly rehab and work with insurance companies to help make treatment for these diseases affordable for their insureds.