By Lisa Zamosky
A few weeks ago I wrote about how many insurance companies have changed the way they reimburse out-of-network care. Instead of paying a percentage of the actual prices health care providers charge (called usual, customary, and reasonable (UCR) charges), many insurers have instead begun using Medicare rates to calculate how much of your out-of-network medical care they’ll pay for.
Medicare rates are considerably lower than UCR – as much as 50% less – which means consumers pay a higher percentage of the cost of their care.
A reader of this blog left a comment in response to that post asking for clarification about some of the details discussed. Given the huge financial impact this insurance industry change can have on how much a medical visit or treatment costs, I wanted to respond to his questions in another post.
Here’s what the reader, Brian, said:
I am confused. Is not most out-of-network still tied to an insurance plan? As such, the member’s [cost] responsibility is based on UCR and not billed charges. Therefore if plans move to the lower Medicare fee schedule, then that should equate to less cost to the member. What am I missing here?
Out-of-Network, Out of Luck
The answer to Brian’s first question – Is not most out-of-network still tied to an insurance plan? – is no.
Only in-network doctors and hospitals have signed a contract with your insurance company agreeing to see members at the insurer’s rate of payment.
Out-of-network doctors and hospitals have no legal relationship with your insurer, and they can charge whatever they like for the medical services they provide.
There is a tie, however, between you and your insurer. If you have a plan that allows you to receive care from an out-of-network provider, your insurer will pay some amount of money — often 70% or 80% of the cost — to help you pay for those visits.
Defining What Counts as Customary
Let’s say you go to a doctor that isn’t contracted with your insurance company (so he’s out-of-network) to have a plantar wart removed from the bottom of your foot. And, let’s say that doctor charges you $10,000 for the procedure.
Your insurance company, per the terms of your health plan, has agreed to reimburse you 70% of the cost of your out-of-network doctor visits.
But $10,000 to remove a plantar wart is an outrageously high price, and far outside the range of what most doctors charge for this procedure.
To guard against outrageous charges, insurers must determine what a “reasonable” cost for each service is. It’s that amount – the amount deemed reasonable – that your insurer will use to define the true price of the visit and for which it will reimburse you 70%.
So, if the average cost to remove a plantar wart is $250, your insurer will reimburse $175, or 70% of what it counts as a reasonable charge. The fact that your doctor submitted a bill for $10,000 to remove your wart becomes irrelevant to your insurance company. It’s not a real number in its eyes.
Back to Brian’s question:
If plans move to the lower Medicare fee schedule, then that should equate to less cost to the member.
Unfortunately, that’s not the case. Insurers applying common Medicare rates instead of UCR charges actually results in lower costs for insurance companies and higher costs for members.
Let me illustrate the difference with a real-world example. On the Fair Health FH Medicare Compare web-based tool, I punched in a New York City zip code for a colonoscopy.
The out-of-network procedure is billed by doctors in that region at an average rate of $1,799.99. Let’s assume my insurer reimburses 70% for out-of-network care.
If UCR charges are applied, the procedure will cost me $540. If, instead, Medicare rates are used, the same procedure, billed at the same rate of $1,799.99, will cost me $1,558.98.
That means that by applying Medicare rates, rather than UCR, my insurance company just saved itself $1,018.98. And I just picked up an extra bill of the same amount.
Confusing by Design
The fact is that the details of our health plans can be incredibly confusing. That’s scary because the harder it is to understand what your insurance company really means when it says it will pay 70% of a doctor’s visit, the greater the likelihood that we get zapped with an unexpected bill.
I want to thank Brian for his questions and invite other readers to speak out about the aspects of insurance they find confusing.
Did this help clarify the issue about how out-of-network costs are paid, or make it more confusing? Share your thoughts in the comment section below.