Third Party Payers: Private Insurance Companies (Nursing)

00:01 Today we're going to talk about a specific type of third party payer, private insurance companies.

00:07 As a reminder, third party payments are monetary reimbursements made to providers of health care services by someone other than the consumer who received the care.

00:17 The organizations that administer these funds are called third party payers.

00:21 Because they're a third party, they're external to that consumer provider relationship.

00:28 Third party payers market and underwrite policies aimed at decreasing consumer risk of economic loss because of the need to use health care services.

00:38 Private insurance companies are one type of third party payer.

00:43 Private insurers are private companies that are interested in making a profit.

00:46 Maintaining profits for stockholders means that insurance companies must control the medical loss ratio.

00:52 This is simply the money paid out for health care services.

00:55 They want to make sure that they're bringing in more money from consumers than they're paying out to providers.

01:01 If they can reduce the amount of money paid for health care services, then profits are increased.

01:07 And there are a few different ways that private insurers increase those profits.

01:12 The first way that private insurers attempt to increase profits is by reducing services.

01:18 Here we see insurance companies limiting the types of services provided or the amount of services provided.

01:24 If your insurance company covers say the cost of physical therapy, they may reduce the number of visits covered from 12 to 8, in an effort to increase profits.

01:35 Another way they try to increase profits or control that medical loss ratio is through increasing cost sharing.

01:42 This means making the consumer pay more money in premiums deductibles and co-pays.

01:50 The third way that private insurance companies strive to increase profits is by targeting healthy populations.

01:56 An insurance company will likely choose to advertise their services to a local school district instead of a local factory, because they know that teachers are less expensive to insure them factory workers.

02:09 Now previously, private insurers excluded or refuse to insure people with pre-existing conditions.

02:16 We saw this play out in a few different ways.

02:18 Insurers could simply say, "we will not insure you because you have a pre-existing condition", meaning that the onset and the diagnosis of that condition was prior to the start of the insurance coverage.

02:29 Or the insurance company could insure the individual but not cover any of the expenses related to that pre existing condition.

02:37 So if you were diagnosed with let's say, asthma, 10 years before you started an insurance plan, services related to asthma would not be covered by your plan.

02:46 Now, as you can imagine, this practice greatly benefited insurance companies but really hurt individuals.

02:52 Thankfully, as a result of the Affordable Care Act, this is now illegal and it's no longer allowed.

03:00 Another way that in the past, private insurers tried to protect that medical loss ratio was resorting to what we call rescission of coverage.

03:07 And this is really canceling coverage for failure to disclose a pre existing condition, or some other means of disqualifying coverage after a large medical claim.

03:18 However, with the Affordable Care Act, again, this is illegal, except in cases of consumer fraud.

03:24 Another way in which insurance companies try to save money and increase profits is through Consumer Driven High Deductible Health Plans.

03:32 Now to understand this type of plan, let's first look at the financial aspects of a typical health insurance plan.

03:39 And this type of plan, an individual pays their monthly premium, that monthly premium, let's say it's $500 a month.

03:46 So at the end of the year, they've paid $6,000 in monthly premiums, just to have that basic insurance plan.

03:53 On top of that, their out of pocket maximum that they can spend is $4,000.

03:59 This would cover things such as deductibles, co-pays, prescription medications.

04:04 So, the maximum expense at the end of the year would be $10,000.

04:09 That's a typical health insurance plan.

04:13 Now with a high deductible plan, that monthly premium is significantly lower, but the out of pocket maximum is significantly higher.

04:21 So here you may only pay say $100 a month for a total of $1,200 at the end of the year, but the out of pocket maximum can be as high as $13,000.

04:32 That means that at the end of the year, your total maximum expense out of pocket can be $14,200.

04:40 In comparison to $10,000 is significantly higher.

04:45 So as you can see, there's great potential for private insurance companies to increase profits with this type of plan.

04:51 So why would an individual elect to have this type of plan? Let's look at some of the benefits first.

04:58 As we just established those monthly premium are lower than a traditional plan.

05:04 With this type of plan networks are not necessarily narrowed as much as they are with traditional plans.

05:09 So you have a wider variety of providers you can see who are covered by your insurance plan.

05:17 People who rarely use health care benefits save money.

05:20 So remember, your monthly premium with this type of plan is significantly lower than a typical plan.

05:26 This means that if you only seek preventative care services, and maybe go to the provider for one or two acute care visits per year, your costs will be much lower than if you're paying those high monthly premiums.

05:38 So rare users save money with this type of plan.

05:45 With a high deductible plan and we avoid market rate.

05:48 Some people will ask: well, why even have an insurance plan if the possible out of pocket expense is so high? Well, when we see a health care provider, there's a market rate that they charge for services, they send a bill for those services at this rate to the insurance company.

06:03 The insurance company then negotiates a lower reimbursement rate.

06:06 So with this type of plan, you're still paying that negotiated rate.

06:10 You're avoiding market rate.

06:14 With a high deductible plan, policyholders can open a health savings account.

06:18 Now this is different than a flex spending account that expires each year.

06:22 A Health Savings Account never expires.

06:24 The money rolls over each year to help cover those high out of pocket expenses.

06:30 Now let's discuss some of the downsides to this plan for individuals.

06:35 We've already established that the deductibles are high, there's a high out of pocket expense.

06:42 People managing chronic conditions find that their out of pocket expenses with this type of plan are very high.

06:48 Prescriptions, office visits, diagnostic tests are completely out of pocket until you reach your maximum.

06:54 For this reason, people with chronic conditions are at a major disadvantage, it gets very expensive very quickly.

07:02 And because of this, many people will avoid care altogether.

07:06 So let me share a personal story with you.

07:09 I have this type of high deductible plan.

07:11 I also have a daughter who had chronic ear infections.

07:15 Her pediatrician recommended that she get tubes put her in her ears to avoid future ear infections and long term complications.

07:22 Now with our plan, we understood that we were going to have to pay the entire cost of that surgery out of pocket until our maximum was met.

07:29 This was well over $10,000.

07:31 We had another option, we could have avoided surgery and allowed her to continue getting ear infections and just paying that lower cost of say $100 per pediatrician visit every time she had an infection.

07:44 Now for some people, avoiding surgery might be the only option they have financially, and that avoidance of care could lead to long term complications for them or their family members.

07:57 As we've established, out of pocket costs are high with this type of plan.

08:01 If used as intended, the individual save the money that they don't spend on those high monthly premiums each month and save it into their health savings account.

08:10 They save money there until they have enough to cover the full out of pocket maximum.

08:14 However, individuals traditionally elect to have this type of plan to cut down on costs.

08:20 Because of this, many don't save money to cover that out of pocket expense and can find themselves in debt due to health care related bills.

08:29 So let's work through how this all plays out in real life.

08:32 Consider two different people.

08:34 We have a 25 year old with a clean bill of health, no chronic conditions, no regular medications prescribed, sees the health care provider just a couple times a year for their preventative physical and the occasional acute conditions such as an upper respiratory infection.

08:49 For this person, a high deductible plan may be more financially beneficial, the monthly cost is lower, and it frees up more money to place in a health savings account or other savings mechanisms.

09:02 On the other hand, we have a 60 year old who has a family history of heart disease.

09:06 This person's health and health care utilization is much different than our 25 year old.

09:11 This person is likely to be on at least one medication for chronic conditions.

09:15 And with a family history of heart disease, they'll likely be advised to see a cardiologist yearly.

09:20 And with that visit comes a number of tests and possible referrals to other specialists.

09:24 So for this person, the pros may not outweigh the cons.

09:29 So how do you choose which plan is best for you.

09:33 Now, while it'd be great to say that it's a personal choice, in many cases, employers are not giving their workers much of a choice at all.

09:40 Employers will often raise that employee premium contribution so high that it deters them from taking that option, which means that our six year old may be forced into one of these high deductible plans, even if it's not the best option for them.

09:55 As a nurse, it's important to understand these different types of plans so we can help our patients navigate this complex system and pick the plan that's best for them.