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

Lesson 45 of 92 · All lessons · Up next: Health policy riders →

The other provisions, part three

Even after a loss is covered, four provisions decide how much of the bill the policy actually pays:

  • Eligible expenses decide which charges the policy recognizes at all.
  • Copayments are flat dollar amounts the insured pays per service.
  • Preauthorization requires approval before certain care.
  • Benefit maximums cap what the insurer will pay.
The diagram asks how much of a health claim the policy pays, and shows four boxes in a row, joined by arrows from left to right. The first box, eligible expense, lists a covered service, medically necessary, and within the usual, customary and reasonable charge. The second box, preauthorized, says approval is needed before planned admissions, surgery and costly imaging, and that if it is skipped the benefit is cut. The third box, cost sharing, lists the copay as flat dollars, the deductible as paid first, and coinsurance as a percentage. The fourth box, benefit maximum, lists visit or day limits and annual or lifetime caps, with a note that under the Affordable Care Act there are no dollar caps on essential health benefits. Below the boxes, a bar shows a fifteen hundred dollar bill where the reasonable charge is one thousand dollars. The first one thousand dollars is shaded as eligible. The last five hundred dollars is greyed out as above the reasonable charge and not eligible. A note says only the one thousand dollars goes on to cost sharing, and that out of network the provider may balance-bill the five hundred. At the bottom, two boxes compare a thirty dollar copay with twenty percent coinsurance. With the copay, the insured pays thirty dollars on both a one hundred dollar visit and a three hundred dollar visit. With twenty percent coinsurance, the insured pays twenty dollars on the one hundred dollar visit and sixty dollars on the three hundred dollar visit. A closing line says the benefit maximum caps the insurer's payments, while the out-of-pocket maximum caps the insured's share.
A claim passes four checks: eligible expense, preauthorization, cost sharing and benefit maximum, with a UCR example and a copay versus coinsurance comparison.

Eligible expenses

A health policy never promises to pay whatever a provider bills. It pays eligible (covered) expenses: charges that are

  • for a service the policy covers and does not exclude,
  • medically necessary to diagnose or treat an illness or injury, and
  • no more than the usual, customary and reasonable (UCR) charge, meaning what providers in

the same area typically charge for the same service. In a network plan the equivalent is the allowed amount the insurer negotiated with the provider.

Charges above the eligible amount are not the insurer's to pay, and they never count toward the deductible. If a provider bills $1,500 for a scan and the UCR amount is $1,000, only $1,000 is eligible. A network provider must write off the difference; an out-of-network provider may balance-bill the insured for the $500.

Florida's coordination-of-benefits law uses the same yardstick: a plan may reduce its benefits because of other coverage only if the plans together pay 100 percent of the total reasonable expenses actually incurred (Fla. Stat. 627.4235(2)).

Copayments

A copayment (copay) is a flat dollar amount the insured pays for a particular service, such as $30 for an office visit or $10 for a generic prescription.

  • A copay is a fixed dollar amount; coinsurance is a percentage. On a $100 visit and a

$300 visit, a $30 copay costs $30 both times, while 20 percent coinsurance costs $20 and then $60.

  • Copays are typical of HMOs and other managed care plans, and often apply to routine services

without the deductible having to be met first.

  • Copays generally count toward the out-of-pocket maximum.

Florida law expressly lets an issuer modify copayments or deductibles in return for the insured's adherence to health promotion and disease prevention programs, a wellness incentive (Fla. Stat. 627.6487(8)(b)).

Preauthorization

Preauthorization, also called precertification or prior authorization, requires the insurer's approval before certain nonemergency care: planned hospital admissions, most surgery, costly imaging such as an MRI, and some specialty drugs. It is a cost-containment (utilization review) tool that confirms the care is medically necessary before it happens.

  • If required preauthorization is not obtained, the policy may reduce the benefit by a

stated penalty or deny the claim.

  • Emergencies are not delayed for approval; the insurer is notified shortly after, commonly

within 24 to 48 hours of admission.

  • Preauthorization is not a guarantee of payment. Eligibility, exclusions, cost sharing and

benefit limits still apply.

Related cost-containment tools include a second surgical opinion and concurrent review of a hospital stay while it is under way.

Benefit maximums

A benefit maximum caps what the insurer will pay:

  • a lifetime maximum, the most the policy will ever pay for one insured;
  • an annual or calendar-year maximum;
  • per-cause maximums and internal limits, such as a daily room-and-board limit or a set

number of visits or days per year.

Do not confuse the benefit maximum, a cap on the insurer's payments, with the out-of-pocket maximum, a cap on the insured's share.

Under the Affordable Care Act, major medical plans may not impose lifetime or annual dollar limits on essential health benefits; limits on visits or days are still common. Florida's essential health benefits statute refers to the 10 federal categories and requires a policy built under it to include at least one service in each (Fla. Stat. 627.443(2)(a)).

Florida's optional group coverage for mental and nervous disorders shows internal limits in statute: limits must be no less favorable than for physical illness, except inpatient benefits may be limited to not less than 30 days per benefit year and outpatient consultations to $1,000 per benefit year (Fla. Stat. 627.668(2)).

Key terms

Sample questions

Which charges does a health insurance policy pay as eligible expenses?

  • Covered, medically necessary charges up to the usual, customary and reasonable amount
  • Any amount the provider bills, as long as the service is covered
  • Only charges the insured has already paid out of pocket
  • Any service a physician orders, whether or not it is medically necessary
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