Phoenix Rising asked a good question in my last health insurance post: If you can explain a bit about in-network vs. out-of-network co-pays & deductibles, that might be really helpful for those who don’t already have an oncologist. Every insurance product in this country has a network. Federally administered Medicare has a network, and the …
Hey baby, what’s your network….Post + Comments (40)
At the most basic level, a network is a list of providers who have agreed to take a certain payment matrix for services rendered to people who have bought a particular insurance product. Insurance companies will reach these agreements in order to control costs.
Right now, there are three basic fee baselines in this country. The lowest price per service is the Medicaid baseline. Medicaid pays roughly the marginal cost of a service so it is the lowest level of payment. Most providers will take Medicaid payments for some of their patients becuase Medicaid traditionally has been a fast payer, so it helps with cash flow management. Furthermore, Medicaid makes it easy for new med-school graduates to qualify for payment so what often happens is a young doc at a small practice will see a higher percentage of their revenue and patients come from MA than they’ll see in fifteen years when they can afford to move to the burbs. The big issue with the Medicaid fee schedule is that it is very low so some providers won’t take it or more often they’ll take it for exisiting patients but not new patients. PPACA/Obamacare has raised the fee schedule to Medicare levels for PCP services to increase the number of PCPs who take Medicaid patients.
Medicare roughly pays out at average cost of procedure (with some serious back-end adjustments). Medicare’s fee schedule was the basis of the public option pricing scheme in 2009/2010 as the proposal was Medicare plus 5%. Obamacare has significant changes to the structure of the Medicare fee schedule that has begun to tie quality metrics, most notably hospital re-admission rates, to bonuses and clawbacks. But right now, Medicare is still fairly conventional fee for service at a fairly low price.
The third pricing baseline is chargemaster. Chargemaster is also known as usual and customary pricing and it is effectively the provider asking for the moon. Time Magazine had a great article on chargemaster last spring:
For example, the first line in the more than 163,072 lines of data in the CMS file released May 8 covers the treatment of “extra cranial procedures” (“without complications”) at the Southeast Alabama Medical Center in Dothan, Ala. When Medicare reviewed the list prices on bills it received for 91 patients getting that treatment at the Dothan hospital in 2011, the average chargemaster bill claimed by the hospital was $32,963. Medicare paid only an average of $5,777.
The second reason the compilation and release of this data is a big deal is that it demonstrates the point I tried to make in spotlighting the seven sample medical bills in Time’s “Bitter Pill” report: most hospitals’ chargemaster prices are wildly inconsistent and seem to have no rationale. Thus the release of this fire hose of data—which prints out at 17,511 pages—should become a tip sheet for reporters in every American city and town, who can now ask hospitals to explain their pricing.
Someone without insurance will be billed at the chargemaster rates and then negoatiated down to only 50% of the list price while still being massively ripped off.
Insurance companies negoatiate their rate structure agreements with providers based as either Medicare plus some more or as some percentage of Chargemaster. The reason for an agreement is that an insurance company can tell a provider that it can deliver 5,000 potential patients if they reach an agreement, or send those 5,000 patients elsewhere. When an insurance company has the preponderance of leverage, the rate is Medicare plus a kicker. When the providers have leverage, the rate is Chargemaster minus something.
The insurance company will build a network of docs and facilities that are willing to work for a given fee matrix. Providers out of network will submit chargemaster rates for their services to the insurance company. Depending on how a policy is written, the insurance company will pay between nothing and some percentage of the charged amount with the remainder being the responsibility of the individual policy holder. There are exceptions, most notably for emergency care and very specialized services that none of the network providers can provide, then the insurance company will take responsibility for the full charge. Even with the individual getting balanced billed for the rest of the out of network charge, the insurance company is on the hook for a signifcant sum.
The in-network matrix is far cheaper for the insurance company. The goal is to drive as many of their members to use as many services as possible from providers within this cheaper network. That is why the in-network deductible, co-payment and co-insurance are much lower for in-network services than out of network services. The idea, from the insurance company point of view, is to get the lowest possible price per service by having the patient stay in network if at all possible. Making a co-pay for a visit to an in-network doc $20 versus $100 for an out of network doc is one way to steer patients to network providers.