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Other provisions III: eligible expenses, copayments, preauthorization, and benefit maximums

Why these four provisions matter

A health claim is not paid simply because the insured saw a provider. Four policy provisions work together to decide what the insurer pays and what the insured pays: the definition of eligible expenses, the copayment (and its cousin, coinsurance), any preauthorization requirement, and the policy's benefit maximums. In Texas these provisions live in the policy form itself, and accident and health policy forms and their required and optional provisions are regulated under the Insurance Code (Tex. Ins. Code ch. 1201; Tex. Ins. Code Title 8).

Eligible expenses

An eligible expense (often called a covered expense) is a charge the contract actually promised to pay toward. A charge normally has to pass several tests:

  • It must be for a benefit the policy lists, and not fall under an exclusion or limitation.
  • It must be incurred while the coverage is in force, on or after the effective date and before termination.
  • It must be medically necessary as the policy defines that term.
  • It is usually limited to an allowable, reasonable, or negotiated amount rather than whatever the provider bills.

If a charge fails any test, it is simply not an eligible expense. The insured owes it, and it generally does not count toward the deductible or out-of-pocket limits either.

Copayments and coinsurance

A copayment is a fixed dollar amount the insured pays for a particular service — an office visit, an emergency room visit, a prescription fill — usually collected at the time of service. Coinsurance is a percentage of the eligible expense instead of a flat amount. Both are cost sharing, and both apply only to eligible expenses. Cost sharing never turns an excluded charge into a covered one; it only divides a covered charge between insurer and insured.

Preauthorization

Preauthorization — also called precertification or prior authorization — requires the insured or provider to obtain the insurer's approval before certain non-emergency services, such as an inpatient admission, surgery, or an advanced imaging study. The review confirms that the service meets the policy's medical necessity and setting requirements. Two points are easy to test on:

  • Failing to preauthorize when the policy requires it can reduce or deny benefits for an otherwise covered service. Emergency care is typically excepted, with notice required within a stated period after admission.
  • Preauthorization is not a guarantee of payment. Coverage must still be in force, the charge must still be an eligible expense, and every other provision still applies.

Benefit maximums

A benefit maximum is a ceiling on what the plan will pay. Maximums come in several shapes: a scheduled amount per service, a limit per benefit period or per calendar year, a per-condition limit, a cap on the number of visits or days, or an aggregate maximum for the contract. Once a maximum is exhausted, later charges of that type become the insured's responsibility even though they would otherwise be eligible.

Putting them in order

The provisions apply in sequence, and each one can stop the claim.

A top-to-bottom flowchart titled Order of operations on a health claim. The chain begins with a gray box, charge incurred for a service. An arrow leads down to step one, a blue box asking, is it an eligible expense? with the notes: listed benefit, coverage in force, medically necessary, allowable amount. A branch to the right leads to a red box: no, not covered, the insured pays all, and the amount usually gets no credit toward the deductible. If yes, the flow continues down to step two, a blue box asking, was preauthorization obtained, if the policy requires it, with emergencies excepted. A branch to the right leads to a red box: no, benefits may be reduced or denied. If yes, the flow continues to step three, a green box, deductible applied first. Then step four, a green box, copayment or coinsurance, a flat dollar amount or a percentage, which is the insured's share. Finally step five, a yellow box, the insurer pays the balance up to the benefit maximum, with a branch to the right in red saying amounts above the maximum are the insured's responsibility. The key idea is the sequence: eligibility, then preauthorization, then cost sharing, then the benefit maximum.
Eligibility, then preauthorization, then cost sharing, then the benefit maximum — each step can stop or shrink the payment.

Eligibility comes first, preauthorization second, cost sharing third, and the benefit maximum last. Reversing that order is the most common source of wrong answers on these items.

Sample questions

Which statement best describes an "eligible expense" (covered expense) under an accident and health policy?

  • Any amount a licensed provider bills the insured, because the provider's charge sets the benefit.
  • Any charge the insured pays out of pocket, whether or not the policy lists it as a benefit.
  • A charge for a benefit the policy lists, incurred while coverage is in force, medically necessary as defined, and generally limited to an allowable or negotiated amount.
  • Any charge the insurer's preauthorization staff reviewed, even if the policy excludes the service.
Preview

This is a preview. The full lesson and question set require an active plan.