Healthcare Payment Models: Indemnity vs. Consumer-Directed

Origin: When was the model first implemented? What type of payment system is used - prospective, retrospective, or concurrent? Who pays for care expenses? What is the access structure like - gatekeeper, open-access, etc.? How do patients experience benefits and drawbacks because of the model?

Discuss how the model impacts providers, including its advantages and disadvantages.

Indemnity

The American Medical Association (AMA) opposed prepaid group practices in 1932 and instead favored indemnity-type insurance, which reimburses policyholders for expenses (Jones & Bartlett, 2007). These traditional health plans offer three coverage options (Howell, R.

, 2014). Two of these options are reimbursement plans where the plan covers approximately 80% of expenses and the patient covers the remaining 20%. The second option fully covers all expenses. The third option provides a fixed daily amount for a maximum number of days. Indemnity plans operate on a fee-for-service basis and review past services.

When opting for an indemnity plan, the patient assumes the duty of covering their own medical costs and must therefore file a claim with their insurance provider to receive reimbursement.

Get quality help now

Bella Hamilton

Verified writer

Proficient in: Health

5 (234)

“ Very organized ,I enjoyed and Loved every bit of our professional interaction ”

+84 relevant experts are online

Hire writer

Non-network indemnity plans offer insured individuals the flexibility to select doctors, hospitals, and healthcare facilities without limitations. These plans do not necessitate a primary care physician (PCP) or referrals.

Indemnity plans offer patients the freedom to oversee their own healthcare without needing to select a primary care physician or obtain referrals. Nonetheless, a drawback of these plans is that patients must submit claims to receive reimbursement for services, which can be a lengthy process. Furthermore, only services approved by the insurance provider will be reimbursed, while any uncovered services require full payment from the patient.

Providers have the option to request payment from patients upfront, ensuring they receive full payment for their services. They are not required to help patients with reimbursement paperwork. This approach can be beneficial in saving providers time and resources. However, a drawback of indemnity plans is that some patients may lack sufficient funds to cover the entire bill, which could deter them from seeking necessary healthcare.

Consumer-directed health plan

Consumer-directed health plans (CDHP) were created in response to public dissatisfaction with managed care and the increasing costs of healthcare (Bundorf,K. M., 2012). The primary goal of CDHP is to reduce expenses by giving patients the authority to make their own healthcare decisions.

Patients with a CDHP have to pay for medical services using a retrospective fee-for-service payment plan. These patients are responsible for the costs of these services until they reach a maximum out-of-pocket limit. After reaching this limit, any additional costs are covered by the insurance company. The insurer fully reimburses the medical provider, except in cases where a claim is submitted (AET), in which only a portion of the cost is reimbursed. Under a CDHP, patients must pay 100 percent of both pharmaceutical and medical expenses. However, once the yearly deductible is met, the patient only needs to cover a certain percentage of the costs.

Insurance providers may cover different percentages of in-network costs, with some plans offering 100 percent coverage. Patients who have a CDHP can access a network of contracted providers and are not required to choose a primary care physician or get a referral to see a specialist for medical care (Aetna, 2012).

The CDHP plan gives consumers greater control over their healthcare funds (Furlow, E., n.d.). It provides patients with better support tools through online platforms and phone services, empowering them to make decisions about their health. However, this increased decision-making ability may cause patients to skip necessary care, leading to delays in diagnosis and treatment and ultimately undermining the effectiveness of the plan.

When receiving services, there is a possibility of receiving higher payment amounts or accumulating greater debt. In the event of larger debts, healthcare providers will be required to employ more aggressive collection methods. Additionally, providers will have to allocate additional funds for staff members to communicate with patients before treatment and during collection efforts (Fifth Third Bank, 2008).

Point-of-service

HealthPartners, based in Minneapolis, was the first to introduce point-of-service (POS) plans in 1961. However, it took 25 years for this idea to become popular (Dimmit, B., 1996). In 1986, CIGNA Healthcare launched Flexcare as the first POS plan. By 1995, about 40% of employers with at least 200 employees offered POS plans. In a point-of-service network, providers typically receive a fixed capitated fee that remains unchanged regardless of the services provided. POS plans operate on a prospective payment system where insurance companies reimburse providers an agreed-upon predetermined amount before any patient receives services.

When patients visit a doctor, they must make a co-payment. After the doctor sees the patient, claim forms are sent to the insurer for the services provided. The insurer then processes these claims and reimburses the provider (Austin & Wetle, 2012). If a patient decides to see a doctor outside of their network, they are responsible for paying the full amount directly to the provider. Subsequently, the patient can submit a claim to receive reimbursement.

Gatekeepers, also known as primary care physicians, play a crucial role in point-of-service insurance plans. Although patients are not obligated to get referrals from their primary care physician for medical services from out-of-network providers, it is highly recommended. Choosing out-of-network providers often means paying most of the expenses. Nevertheless, if the primary care provider refers them to an out-of-network provider, the medical plan will cover the costs (Small Business Majority, n.d.).

Patients have the option to remotely consult doctors from any location, allowing them flexibility in terms of geography and the freedom to choose providers outside their network. This offers them more choices compared to an HMO. However, it is important to note that out-of-network providers may require patients to pay a high deductible, resulting in potential expenses. Conversely, in-network providers typically only ask for a minimal copay. If one does not use out-of-network providers, a POS plan may not be advantageous. Moreover, when receiving care from out-of-network providers, patients are responsible for submitting their own claims and reimbursement often takes months (Gustke, C., 2013).

POS plans, such as HMOs and PPOs, enforce stringent rules on healthcare providers. These rules typically involve having a primary care physician (PCP) responsible for overseeing routine care, referrals, precertification for in-network services, and paperwork related to in-network care.

PPOs, which stands for Preferred Provider Organizations, is a shortened form of the term.

Preferred Provider Organizations (PPOs) were created in the 1970s as an expansion of fee-for-service care. PPOs guide individuals to healthcare providers who have mutually agreed on a cost control plan (Kiplinger, 2014).

PPOs create a unified network by negotiating contracts with healthcare providers, specialists, hospitals, and pharmacies. Within this network, these providers agree to offer discounted healthcare services. PPOs use both prospective and retrospective methods to ensure that necessary medical tests and treatments are carried out by providers for reported injuries instead of seeking higher reimbursement.

A PPO (Preferred Provider Organization) necessitates an upfront payment by the insured individual to the insurer. After this payment is made, the insurer handles any extra medical expenses. Nevertheless, preventive care services are excluded from the deductible. Some services may call for co-pays or a percentage of the overall medical cost. PPOs provide flexibility as patients can obtain treatment from both in-network and out-of-network providers without requiring referrals or choosing a primary care doctor.

Patients who have a Preferred Provider Organization (PPO) plan can freely select any medical provider or facility for their healthcare. If they choose to receive treatment within their PPO network, the costs will be reduced. They are not required to pick a primary care physician and can directly consult with a specialist from the PPO network without needing a referral from their primary care physician. Nevertheless, if patients decide to seek care from a provider outside of their PPO network, they might encounter increased expenses and potentially no coverage.

PPOs provide providers with a large number of patients as these patients prefer to receive care within the network rather than paying extra for out-of-network services. This can result in additional revenue for providers due to the larger patient base. However, if providers do not receive full reimbursement for their medical services because they are not paid a capitated fee, they may experience financial losses. Health savings account.

The Medicare Prescription Drug Improvement and Modernization Act (Stevens, S., 2005) introduced health savings accounts (HSA) in December 2003. These accounts are specifically designed to be used alongside high-deductible insurance plans, providing assistance in covering medical service expenses.

Health savings accounts operate using a fee-for-service payment model, meaning patients are responsible for paying for their medical services. The insurance company will only begin covering additional medical costs once the patient reaches their maximum deductible.

An HSA, or Health Savings Account, is a medical expense plan where the patient is responsible for their healthcare costs. To qualify for an HSA, the patient needs a high-deductible insurance plan and pays for it with their own money. Individual deductible amounts usually start at $1,100, while family plans begin at around $2,200. The funds in an HSA can be used to pay for different medical expenses and are tax-free.

Health savings account plans provide patients with the freedom to choose their own medical providers and facilities, eliminating the need for referrals or specific networks. With a HSA, patients can independently manage their accounts and finances, making decisions on how their money is spent and where they receive care. Regardless of employer contributions, all funds deposited into a HSA belong to the patient and are not subject to taxes or qualified medical expenses.

However, there are potential drawbacks for patients including the unpredictability of illness and challenges in budgeting. If HSA funds are used for nonmedical expenses, they will be taxed and may result in fines. Additionally, some individuals may struggle with affording high deductibles.

On the other hand, providers benefit from receiving direct payments from patients without intermediaries involved which saves time and resources. This can increase awareness among patients about the services they use and potentially lead some individuals to avoid treatment in order to avoid expenses.

References

The book titled "The United States Health Care System, Combining Business, Health, and Delivery" by Austin, A. & Wetle, V. was published in 2012 and is the 2nd edition. It was published by Pearson Education and is based in Upper Saddle River, NJ.The 6th edition of "The U.S. Health System: Origins and Functions" by Barsukiewicz, C.K., Raffel, M.W., & Raffel, N.K. was published in 2010 and is available from Cengage Learning in Mason, OH.The article "Consumer-Directed Health Plans: Do They Deliver?" by Bundorf, K. M. (2012) can be accessed at http://www.rwjf.org/content/dam/farm/reports/reports/2012/rwjf402405.

To access the Summary of Benefits and Coverage provided by Aetna, simply click on this link.

The information originates from a document called "Exploring Consumer-Directed Health Care" authored by Furlow, E. To access the document, please visit https://www.ciab.com/WorkArea/DownloadAsset.aspx?id=318.

The document named "The Impact of Consumer-Directed Health Care on Providers" was released in 2008 by Fifth Third Bank. It can be found at https://www.53.com/doc/cm/rc-cdh-provider-impact-10012008.pdf.

Stevens, S. (2005). Pros and Cons of Health Savings Accounts. Retrieved from the provided website.

Kiplinger. (2014) What to Know About Preferred-Provider Organizations. Retrieved from the given URL.

Dimmitt, B. (1996). Can Point-of-Service Go The Distance? Retrieved from Business and Health, Medical Economics Inc., ISSN 0739-9413, Volume 14, Issue 8, p.42.

Small Business Majority offers information on group coverage options, which can be found at the following link: http://healthcoverageguide.org/part-one/group-coverage-options/#Point-of-Service+Plans+%28POS%29.

Gutske's 2013 article on the Bankrate website provides an analysis of the advantages and disadvantages of health insurance POS plans. The full text can be accessed at http://www.bankrate.com/finance/insurance/pros-cons-health-insurance-pos-plans.aspx.