If you've ever had surgery and wondered why the insurance company may not have paid 100 percent of your surgeon's fee, this may help you understand the meaning of "usual and customary" charges.
Most insurance companies offering major-medical insurance today base the payment of claims related to surgical fees on the practice of usual and customary (U&C) fees. This method of determining whether the charges of a physician for surgery are reasonable dates back to the early 1950s and the development of the major-medical insurance programs.
Usual and customary reimbursement is based on a surgeon's customary charge for the procedure and the fee charged by peer physicians in that given geographic area for the same procedure.
Typically, "usual and customary" takes into consideration the charges of a significant percentage of all physicians, perhaps 8 out of 10 doctors within a geographic region. In this case, the insurance company would be using the 80th percentile in determining its U&C charges. The insurance plan then calculates the amount payable on the claim on the basis of this U&C fee or what 80 percent of physicians would charge for that service in that geographic reason, whichever is less.
For example, Dr. Smith in Boston charges $2,100 to perform an appendectomy. The insurance company's U&C statistics indicate that 80 percent of the surgeons in this geographic area charge a fee for appendectomies of $1,785 or less. The company would then pay Dr. Smith $1,785 on the basis of the U&C fees in the Boston area. Since this is a freedom-of-choice plan in which an insured can choose the providers, Dr. Smith may then bill the patient for the $315 balance due ("bill balance"). In some cases, however, the physician may accept the company's payment of $1,785 as the payment in full and not bill the member for the balance.
Insurers obtain U&C information in two ways. If the company has a large enough volume of claims, it builds and maintains its own database, sorting claims by medical procedure and geographic area. Otherwise, the company subscribes to a service that gathers claims information from scores of insurers and builds and maintains a database and fee profiles, which the service sells to other companies. Because they're adjusted every 6 to 12 months, U&C charges have the advantage of adjusting automatically to inflation, without plan changes.
The usual and customary profiles, which apply only to surgeons' fees, are updated every six months, and claims under the GHLIT plan are paid at the 80th percentile.
In general, insurance companies find that using the U&C basis helps keep the high-end fees reduced and, therefore, hedges against the increasing cost of medical care. Plus, U&C seems to be a system that is fairest to physicians and patients.
Now, how can GHLIT participants save money?
The AVMA's GHLIT Major-Medical Plan is underwritten by the New York Life Insurance Company. NYLIC uses the U&C method of claims adjudication. The U&C profiles, which apply only to surgeons' fees, are updated every six months, and claims under the GHLIT plan are paid at the 80th percentile (as explained earlier).
Unlike the example of Dr. Smith, participants in the AVMA's GHLIT Major-Medical Plan can avoid paying fees in excess of the U&C limits by selecting the PPO Plan Option, thus using the First Health PPO Provider. Preferred provider organizations or PPO are managed-care networks. Discounts result when First Health negotiates with physicians to accept lower-than-normal fees. First Health's contract contains a provision ensuring that physicians will not "bill balance" fees over the U&C limits.
Participants in the AVMA's GHLIT Major-Medical Plan can avoid paying fees in excess of the usual and customary limits by selecting the PPO Plan Option, thus using the First Health PPO Provider.
Aside from the U&C charges, using the GHLIT PPO Option can also have a positive effect on an insured's general out-of-pocket costs. GHLIT insureds using the First Health PPO network of physicians and hospitals often benefit from lower out-of-pocket payments. For instance, the GHLIT PPO Plan pays 90 percent of all eligible medical expenses after the member pays the deductible. However, the plan pays only 70 or 80 percent of these expenses (depending on various plan options) if a member goes to health care providers not participating in the PPO network. A combination of the reduced charges through the PPO and the U&C limits helps the company to keep claims cost down, which, to an extent, helps to mitigate increases in rates.
For information on the GHLIT Major-Medical Plan or the First Health network, call (800) 621-6360.