Currently there are over 2,000 health insurance carriers in the United States and almost 1,000 Health Maintenance Organizations (HMOs). Many of these carriers have several types of plans available to meet the needs of their insured's.

The insurance carrier may also be called an insurer, underwriter or administrative agent, but the term does not apply to HMOs. The insurance carrier provides coverage as outlined in the contract with the entity purchasing the insurance (company or employer or individual).

It is important for a provider to gather as much information as possible when developing a system to access third-party funding (insurance and HMOs). Understanding the terminology associated with health care and the way in which the system works will help the provider learn how to work within the health care system and maximize reimbursement.

Consumers generally know very little about their health care coverage and its benefits and limitations. They may understand the requirements of deductibles and coinsurance, but many do not know if their plan contains lifetime caps or limits on specific services. As the provider becomes an active participant in the third-party process, the need for knowledge regarding the differences among health-care plans will become obvious.

Most third-party payers issue an identification card, which provides the plan information necessary for claims processing. Most plan changes and open enrollment periods within various plans occur between October and January. Therefore, it is wise for the provider to request current plan information during a child's initial enrollment and again in January of each year. Filing with a plan that no longer insures the child is time-consuming and costly.

Plan specifics can vary significantly by both carrier and employer specifications. Therefore, even a child insured by the same carrier may have different plan benefits. The provider's billing personnel must call the carrier; identify themselves as a provider and request information about any policy limitations regarding the services being rendered. A sample benefit inquiry form is enclosed with this material. Most carriers will provide the necessary information. Obtaining coverage limitations prior to initiation of services saves time and administrative costs. The information provided by the carrier is not a guarantee of reimbursement to the provider.

With the exception of HMO or PPO (Preferred Provider Organization) plans, most standard indemnity carriers do not require prior authorization for evaluation or therapeutic services, but do require standard documentation procedures. It is not unusual for a carrier to request copies of documentation.

The following are standard documentation procedures which are accepted by most insurance carriers when services are provided by licensed, certified practitioners. Details regarding documentation requirements are noted at the end of this chapter.

  1. Physician authorization/order
  2. Documentation of the evaluation and results (report)
  3. Daily documentation of the services provided
  4. Progress documentation
  5. Documentation of continued physician authorization
  6. Documentation of discharge from treatment

Third-party Payers

Third-party payers can be categorized as follows: commercial, Blue Cross/Blue Shield (BCBS), HMO or PPO organizations, self-insured plans, CHAMPUS, Illinois Comprehensive Health Insurance Plan (CHP), Division of Specialized Care for Children (DSCC), Medicare, and Medicaid. The following pages will give a brief description of each type of plan.

Private Insurance

Each carrier offers many different plans. A single carrier may sell contracts to individuals and groups and may also act as an administrator for a separate entity. Even some government programs, such as Medicare, are administered by an insurance company. Furthermore, insurance carriers are often used as administrators for insurance benefits by companies who establish a "self-insured plan" for their employees' health care benefits.

Payment for services is made to the beneficiary or assigned provider, based on an indemnity table or schedule of benefits for the medical services. Assignment of benefits by the insured does not always guarantee direct payment to the provider. Some policies limit direct payment to the insured while others disallow assignment of benefits. In these cases, the provider is responsible for tracking funding and seeking payment from the insured.

The list of carriers identified at the end of this chapter represents the most frequently named and well-known carriers. The listing does not include all insurance carriers in the United States. Providers should contact the Illinois Insurance Commission for a list of current carrier sources in Illinois.

Medical insurance can be purchased through group or individual policies. Under group insurance, coverage is provided for a number of people through the use of a single policy. The contractual relationship is between the insurer and the named policyholder (usually the employer). Under an individual policy, the insured individual is the policyholder.

Group insurance coverage generally costs less and provides more comprehensive coverage than individual coverage because the "risk" absorbed by the insurer is less concentrated, and its administrative costs can be spread over a greater number of persons.

Three types of medical care insurance are sold by commercial carriers:

  1. Basic hospital/medical/surgical coverage generally refers to services specifically identified as being covered at 100% (that is, first-dollar coverage) of the charges up to specific limits. The plan may specify a deductible, and services may be provided in various settings including a hospital, home or office. Examples of basic coverage could be: a) 180 days per illness per calendar year for hospital inpatient room and ancillary charges, or b) $250 per calendar year for outpatient diagnostic services.
  2. Major medical coverage is designed to activate once the basic limits are met and to cover items not paid under the basic contract. This type of coverage is usually dependent on deductible and co-insurance provisions which require that the insured incur an out-of-pocket expense each calendar year in conjunction with the payment of major medical benefits. There is usually a lifetime maximum major medical benefit total.
  3. A comprehensive medical plan combines the aspects of both the basic and major medical and concepts. It is an increasingly popular mode of coverage from the insurer's and, to a lesser extent, from the insured's perspective. The insurer saves money by reducing the administrative costs in distinguishing between basic and major medical claims and by eliminating the "first-dollar" basic benefit. The insured saves premium expenses in exchange for foregoing the 100% basic coverage. A common example of a comprehensive plan would be a $200 deductible followed by 80% coverage (or 20% co-insurance) of the next $4,000 followed by 100% coverage per individual - all on a calendar year basis applicable to covered services. In this example, the insured's liability would be $1,000 per person with perhaps a $3,000 family out-of-pocket limit.

General insurance questions can be referred to:

Illinois Department of Financial & Professional Regulation
320 West Washington, Floor 6
Springfield, Illinois 62767

Consumer Division (Health Section)
(217) 782-4515 or (217) 782-7446

Blue Cross Blue Shield (BCBS)

Nationwide, the most recognizable service type organization involves the Blue Cross/Blue Shield (BCBS) concept. Although originally separate entities, Blue Cross and Blue Shield have merged to provide comprehensive coverage for hospital and non-hospital services. A person becomes a member or subscriber by entering into a contract with the BCBS plan. BCBS functions much as a commercial carrier does, except in its language definitions for contracts and subscribers: BCBS routinely requires providers to meet BCBS standards and enroll in order to become participating providers. The provider requirements for reimbursement by BCBS vary by plan and state.

Historically, there was a clear distinction between the BCBS and "commercial" carriers. The Blue Cross/Blue Shield concept was based on the promise of provision of hospital/medical services as required by the patient. The insured person was described as a subscriber to Blue Cross/Blue Shield plans; the plans established contractual relationships with hospitals and doctors. In the early 1980's, the BCBS concept began to change. The district Blue Cross and Blue Shield plans combined to form Blue Cross/Blue Shield of Illinois. Blue Cross/Blue Shield of Illinois now operates as a commercial carrier.

Managed Care Alternatives

Managed care is a concept, which integrates the insurance (financing) aspect with the medical/health care delivery and management function. Managed care is in contrast to the traditional system of medical care consumption in which the consumer obtains medical care from a variety of providers whose income increases directly with the number and complexity of services rendered. This alternative delivery system is available through the Preferred Provider Organization (PPO) or the Health Maintenance Organization (HMO) model. A listing of some of the largest HMOs and PPOs available in Illinois is provided as the end of this chapter.

HMO Plans

A health maintenance organization (HMO) is a system for organizing, delivering and financing health care. HMOs can have a variety of forms, names and sponsors and can be either for profit or nonprofit. The Health Maintenance Organization and Resource Act (42 U.S.C., 300C) defines a HMO as a "legal entity which provides a prescribed range of services known as basic health services." Basic health services must be provided to HMO members either directly or indirectly by the staff of the HMO or through medical groups or individual practice associations. There are many different arrangements for providing the services. Routinely, the insured of a HMO does not pay the medical provider on a fee-for-services basis. Instead the premium paid by the patient or the patient's employer covers all care outlined in the policy, and the patient does not incur deductibles and coinsurance costs. The provider is paid directly by the HMO. There are HMO plans, however, that require the patient to pay a fixed co-pay amount for specified care, such as $10 per physician visit.

The HMO must control the provision of services so as to contain costs. It is the controlled utilization of services that is the specialty of the HMO. Consequently, HMO managers are reluctant to pay for services performed by non-HMO staff. A joint agreement between the provider and HMOs should be pursued to best serve the child enrolled in the HMO. Some ways in which the provider and HMO could work together:

  • Contract with the practitioner as a provider.
  • Transport the child to an HMO site for service.

HMOs are popular prepaid health plans because the insured or the employer pays a fixed premium and the patient knows that additional medical costs will not be incurred. HMOs routinely provide or arrange for the provision of the following services: physician and hospital services; laboratory and x-ray procedures; mental health and therapeutic services; prenatal, postnatal and well-baby-care; immunizations and routine health examinations; and prescription drugs with a co-payment. Some HMOs also provide for long-term rehabilitative services, home health services, and eye and dental care. A HMO charges a fixed periodic premium independent of the quantity of services provided a particular enrollee. The implication is the HMO does not gain any substantial revenue by providing more services.

HMOs attempt to offer a competitively priced insurance product by controlling costs through utilization management and by contracting with selected referral providers. HMO enrollee have a legal right to medical care provided by a HMO, in contrast to the traditional sector in which the medical care provider has a right to accept or not accept a particular patient.

HMOs accept voluntary enrollment of subscribers for a specified time frame. HMOs reimburse providers by two methods:

  1. Fee-for-service basis
    Independent providers and group practices contract with the HMO to provide a specific range of services. Under this reimbursement method, the medical provider agrees to supply the services to the HMO's enrolled participants on a discounted fee-for-service basis. The provider may discount the usual and customary fee charge by as little as 5 percent or as much as 30 percent. The discount varies by contract.
  2. Capitation rate
    The HMO determines a fixed rate of payment for the HMO enrollee, based on age and other statistical variables, and pays the HMO enrollee's identified primary physician a fixed rate per month. Any additional care or services authorized by the primary physician must be paid for from the capitation rate previously determined. The capitation rate method is primarily used in the group practice model, and the system only remains profitable for the group practice when there are many healthy HMO enrollees to cover the cost of care for the enrollees in need of greater medical care. HMO members agree to see a primary-care physician who is either employed by or contracts with the HMO. The primary physician serves as the "gatekeeper" by providing routine medical care and initiating referrals to medical care specialists who may be employed outside the HMO.
    The majority of HMOs require prior authorization (otherwise known as pre-certification) for therapeutic and psychological services. This means that the HMO must grant permission for the provision of services prior to the initiation of intervention. Initial prior authorization is often obtained verbally by telephone, but some HMOs have established written procedures for obtaining such authorization.
    Basically, HMOs require the same documentation procedures as the insurance industry, plus the additional step of obtaining prior authorization. Thus, it is imperative that the prior authorization mechanism be documented by the provider. The HMO may issue a prior authorization or certification number which must be noted on the claim form when submitting the bill for services. Documentation of the HMO contacts and the type, frequency and duration of services authorized assists when collecting reimbursement. An HMO may even request copies of progress notes when treatment continues for more than 90 days.
    The duration of therapeutic intervention a HMO will authorize also varies by HMO policy and plan specifics. Some HMOs will grant a limited number of therapeutic visits and others will authorize a specific time period. Most HMOs do not authorize more than 90 days of services without reauthorization. A provider may require practitioners to obtain prior authorization, or it may establish a system whereby documentation is provided to a billing specialist who then secures the HMO's authorization.
    Regardless of who obtains the prior authorization, the term of that prior authorization must be documented. Prior to expiration of the original authorization period, new prior authorization must be obtained.

Preferred Provider Organization (PPO)

Most PPOs adhere closely to the managed-care model (that is, utilization management) and offer economic incentives to enrollees who select low-cost providers. PPOs are often associated with self-insured (funded) plans.

A PPO is similar in operations and benefits to an HMO that functions in an independent practice model. The PPO contracts with selected health care providers to treat enrolled patients for a negotiated fee. PPOs do not usually assume the risk that the HMO does for significant medical illness by the patients enrolled, however. The PPO patient is usually enrolled in the health care plan of a major carrier or a self-insured plan.

PPOs were developed as an alternative to the traditional fee-for-service system that requires the patient to assume deductibles and coinsurance and the HMO system that may contain many restrictions. The PPO allows the patient to reduce the cost of care and expand benefits by obtaining health care services from the preferred providers or to seek health care from non-participating providers at a higher cost. Each PPO develops its own standards and contracts to meet the needs of the patients and their employer or contracting group.

PPOs maintain a strong utilization review program and monitor participating providers' practice and referral patterns. Similar to a HMO, the PPO may require prior authorization for therapeutic intervention. The provider needs to determine the plan specifics when a PPO is identified as a child's health carrier. PPOs generally enforce strong utilization review programs and require patients to seek care through their established provider network. PPOs will allow a practitioner to enroll as a preferred provider and then monitor the type, frequency, duration and outcome of services.

Self-Insured Plans

Self-insured plans represent a form of health insurance under which the health care benefits are designed and dictated by the employer. Due to the rapidly increasing high cost of health care, this type of health plan is growing because major corporations have found it less costly to provide their own health care plans and dictate the benefits.

Some employers and employee groups have been able to achieve cost savings by assuming all or a portion of the risk of health benefits offered to their employees. Some organizations have also demonstrated the ability to realize savings by processing health claims and paying medical care providers directly. These situations of assumed risk and claims administration are usually referred to as "self-insurance" or "self-funded" or "self-administered."

An employer that performs these functions from within its own resources is not "insured" since there is no transfer of risk. The employer retains the potential for loss for all covered medical expenses incurred by the employees and dependents. An employer can transfer some of this risk by purchasing "stop-loss" coverage from a commercial carrier. For a premium, the commercial carrier will assume the covered medical expenses of an individual who has reached some stated threshold, perhaps $50,000 in medical expenses in any one policy year. The employer may also pay for commercial coverage, which reimburses the employer for medical expenses paid out in total, perhaps $1,000,000 for all covered employees.

An employer that performs these functions from within its own resources is not "insured" since there is no transfer of risk. The employer retains the potential for loss for all covered medical expenses incurred by the employees and dependents. An employer can transfer some of this risk by purchasing "stop-loss" coverage from a commercial carrier. For a premium, the commercial carrier will assume the covered medical expenses of an individual who has reached some stated threshold, perhaps $50,000 in medical expenses in any one policy year. The employer may also pay for commercial coverage, which reimburses the employer for medical expenses paid out in total, perhaps $1,000,000 for all covered employees.

Self-insured health plans are not subject to the state laws that regulate the insurance industry. The Employee Retirement Income Security Act (ERISA) prohibits individual states from considering self-insured/funded plans as insurance companies for regulation purposes. For regulatory questions regarding self-funded plans contact:

Pension & Welfare Benefits Administration
Room N-6544
200 Constitution Avenue NW
Washington, D.C. 20210

CHAMPUS/CHAMPVA

Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) is a federal program created for the benefit of dependents of personnel serving in the uniformed services. The federal government maintains CHAMPUS, not as an insurance program, but rather as a service-connected benefit. Hence, the sponsor (the person on active duty) is not covered under the CHAMPUS program; only dependents are covered as are retired personnel and either dependent. Civilian Health and Medical Program of the Veterans Administration (CHAMPVA) follows the CHAMPUS model and serves families of veterans with 100% service-connected disability or the survivors of a veteran who died as a result of a service-connected disability.

It is expected that CHAMPUS/CHAMPVA dependents will not seek civilian medical care except when such care is not available at a nearby military medical-care facility. Prior authorization for medical care in the civilian community is required if the sponsor lives within 40 miles of a military or public health care facility.

Covered CHAMPUS services rendered at nonmilitary facilities are generally the same as those services covered by commercial medical insurance policies. Outpatient care is subject to a $50 fiscal year (October 1 to September 30) deductible per individual ($100 per family), then 75% coverage to a family out-of-pocket maximum of $1,000 for active-duty sponsors, $10,000 for all others. These out-of-pocket amounts only apply to CHAMPUS covered expenses. (April 1992)

CHAMPUS coverage is secondary to commercial health plans, but primary over other governmental programs such as Medicaid.

Fiscal agents for the CHAMPUS/CHAMPVA programs are chosen on a nationwide competitive basis. The current CHAMPUS fiscal agency for Illinois is:

TRICARE as of 1997

Illinois Comprehensive Health Insurance Plan

The Illinois General Assembly created a Comprehensive Health Insurance Plan (CHIP) May 1, 1989, to offer a program of health insurance to certain eligible Illinois residents who have been denied major medical coverage by private insurers. The program is designed to provide health insurance (within the constraints imposed by a limited amount of state resources) to eligible residents who can afford but are unable to find major medical insurance coverage in the private marked due to a pre-existing health condition or disability. CHIP polices are underwritten by the State of Illinois, by authority of the CHIP Act, amended by Public Act 87-560, effective September 17, 1991, which partially subsidizes the cost of the plan. The plan administrator is Blue Cross/Blue Shield of Illinois.

Information can be obtained by calling or writing to:

Office of the Board of Directors
Illinois Comprehensive Health Insurance Plan
400 West Monroe Street, Suite 202
Springfield, Illinois 62704-1823
Phone (800) 962-8384