Understanding Health Insurance

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The Real Medical Billers Club is open to all students and alumni of Laurus College. Its goal is to present reviews and practices on topics that might benefit our Laurus College Medical Billing students.

If you’ve had a class about health insurance, this article will serve as a little refresher. Even if you haven’t had that course yet, this article can give you a head start. We’re gonna go over some scenarios and some terms you need to know. Then we’ll have some practice scenarios to help explain a patient’s responsibility when they visit a doctor’s office.

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What is health insurance?

Health insurance is really just a contract between the subscriber and the insurance company. This contract outlines who will pay for medical care and preventive services. The insurance company offers plans to the subscriber and the subscriber picks the plan that best fits their needs. If the subscriber is receiving health insurance through their employer, they might only have one plan to pick from. Subscribers need to compare the plans and determine the best fit for their needs.

Compare the premium cost of each plan. Perhaps if you are younger or healthier you may want to choose a plan with a lower premium that is more restrictive or has a higher deductible. If you have a spouse or significant other and want to put him or her on the plan, what is the cost? If you have children what is the cost?

Types of Health Insurance Plans

There are a lot of types of health insurance. Health insurance is not the same as it was years ago. You used to be able to look at the subscriber’s medical card and it displayed much more information about the plan. Now the card is a bit more like a treasure map. You have to use it as clues to navigate and find the information. When they started electronic billing insurance companies stopped putting as much information on the card and more in the computer.

Health Maintenance Organization (HMO)

Usually on a Health Maintenance Organization (HMO) subscribers need to either go to a specific facility or doctor that is assigned on their health insurance card. Usually, if a subscriber picks an HMO they will only have a copay. You will need to choose a primary care physician and most of the services will need to be authorized by that physician. To change your primary care physician you need to call the health plan.

HMOs help people stick to a budget. You know what your out-of-pocket costs will be, and a lot of people choose an HMO to control their costs. It’s easier for people with low or fixed incomes. On an HMO the primary physician is sort of like the gatekeeper. Subscribers usually have to get a referral for additional services.

Preferred Provider Organization (PPO)

Usually, preferred provider organizations (PPO) give subscribers more freedom to pick a doctor in the network. This allows patients to switch doctors or see specialists without having to wade through the red tape of referrals. For a PPO subscribers have the freedom to see any provider who is contracted with that health insurance plan.

Point of Service Plan (POS)

A POS combines the ease of use of an HMO and the flexibility of a PPO allowing a patient to choose which they’d like to use. Generally, a POS plan requires the subscriber to obtain referrals before seeing a specialist. However, unlike an HMO, subscribers are able to see out-of-network doctors for a higher fee.

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Photo by National Cancer Institute on Unsplash

Terms You Need to Know

Co-payment – a flat fee the patient pays each time for medical services.

Co-insurance – a percentage the patient is responsible to pay based on the level of services provided during the office visit. The co-insurance is taken from the contracted rate, not the billed amount.

Deductible – the amount the patient is responsible to pay before any reimbursement is issued by the insurance company.

Billed amount – the cost of the service as determined by the health care professional.

Contracted rate – the amount the health insurance company is contracted with the health care professional to pay for that service. This is not always the same as the billed amount. The co-pay is rolled into the contracted rate.

As a medical biller or front office worker, you need to know that there is a difference between the amount charged and the amount collected. We have to make sure we’re charging the right amount. If the allowed amount is higher than the remaining deductible you only collect the deductible amount from the subscriber. The rest of the cost will be collected from the insurance company.

The doctor has to set their billing rate high enough to satisfy the collected rate from multiple insurance companies. For example, one company might allow $85 and another $80. If the doctor’s billing rate was $75 they wouldn’t get the full allowed amount reimbursed. Doctors and office managers negotiate contracts with insurance companies.

Contractual Adjustments – the difference between the amount billed and the contracted rate is the amount the medical biller will write off. The patient is not responsible for this amount. For example, if the billed amount is $100.00 and the contracted rate is $75.00, the additional $25.00 will be adjusted off.

Preventative services are an exception. For example, services such as annual visits, mammograms, and colonoscopies have a zero co-pay, zero co-insurance, and zero deductible. This was done because a lot of people were not doing preventative care and it was instituted in the affordable care act. 

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Insurance Example Questions

Question #1

Sally Smith has a PPO plan. She goes to see Dr. Walker for a cold. Her plan states she has a $30.00 copay.

How much will Sally pay for her visit today?

A. Zero

B. $10.00

C. $30.00

Answer: Sally will pay $30 because she’s going in for a cold. If it was for preventative services her copay would be zero.

Question #2

Sally Smith just completed open enrollment through her employer and decided to switch to an HMO medical plan. She chose Dr. Green as her primary care provider. Her copayment is $10.00 and is due at the time of services.

Sally decides she does not like her primary care provider so she makes an appointment to see Dr. Walker. Sally checks in for her appointment and gives the front desk her medical card. The card says Sally is assigned to Dr. Green.

Can Sally see Dr. Walker?

Answer: First we have to look at what plan Sally has. An HMO requires the subscriber to choose a primary care doctor. In order for Sally to change her primary care physician, Sally will have to call her health plan. The requirements for changing a primary care physician are different depending on the health plan. For example, a health plan may require Sally to wait 30 days before switching her primary care physician.

Question #3

Bryan has a PPO plan and is going to see Dr. Walker for an earache and sore throat.

Bryan has the following benefits:

  • Deductible of $250.00 ($0 has been satisfied).
  • A copay of $20.00

Dr. Walker sees Bryan and prescribes medication for him to take.

  • Office visit billed amount – $100.00
  • PPO plan contracted rate – $80.00
  • What will Bryan pay for the services today?
  • What will Bryan’s deductible be afterward?

Answer: Since Bryan has not yet met the deductible he will need to pay for services. Bryan will need to pay the contracted rate between the PPO and Dr. Walker. The $20 co-pay is included in this amount so Bryan’s final total would be $80. He will have to pay $170 more before his deductible has been satisfied.

Question #4

Bryan comes back a month later for his annual preventative physical. The doctor’s charge for the physical is $200.00 and the contracted is $175.00

  • Bryan has a deductible of $250.00 ($80.00 has been met).
  • He has a copay of $20.00

How much will Bryan pay for his physical today?

A. Zero

B. $175.00

C. $20.00

D. $200.00

Answer: Because this is a preventative exam Bryan will pay $0 in co-pay or deductible. Once a year preventative services have no out-of-pocket cost to the patient. Preventative services are covered at 100% of the contracted rate. The exact services that are covered depend on the patient’s age and other factors.

Question #5

Michael has a PPO insurance plan and has a co-insurance of 20%. Michael sees Dr. Walker for a sinus infection.

  • Office billed amount – $200.00
  • PPO contracted rate – $160.00

What will Michael pay for today’s visit?

Answer: Because of Michael’s 20% co-insurance he will pay 20% of the contracted rate. $160.00 * .20 = $32. The front office can collect a co-pay upfront, but when it is co-insurance you have to know what the charges are so you can do the math. When the patient checks in you don’t know what level of visit the doctor will perform. You’ll want to collect the co-insurance when the patient is leaving.

Question #6

Bryan is at the office to see the doctor for the results of his bloodwork. Bryan has satisfied his $250.00 deductible and has a co-pay of $20.

  • Bryan has a deductible of $250.00 ($250.00 has been met).
  • He has a copay of $20.00

How much will Bryan pay for his visit today?

Answer: The insurance will consider this visit not preventive if something is found in the bloodwork (such as hyperglycemia). If there is nothing found, the office will likely just call the patient and tell them the lab work is okay. If the patient returns to the office it’s probably because the doctor is now dealing with an additional health issue and the co-pay applies.

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The Real Medical Billers Club

If you are a Laurus College student or alumni the Real Medical Billers Club is a great way to brush up on your skills and put your knowledge to the test. You can meet up with medical billing instructors and your peers to keep yourself sharp and up-to-date!

> Learn more about the Medical Billing Program at Laurus College!

Patricia Lincoln Avatar

About Patricia Lincoln

Patricia is a CPC (Certified Professional Coder) with an extensive background in medical coding, billing, compliance, and related fields. She has taught coding, billing, and terminology courses academically, as well as trained and managed many coders professionally over the years. Patricia has also taught medical documentation seminars for groups of physicians in various cities across the U.S.

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