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3. 1. Healthcare Overview
2. Key Terminology
3. Major Players of Healthcare
4. Day in the life of a Claim
5. An enrolled Member seeks Medical service
6.Brief discussion on ICD-10 codes
Table of Contents
4. Healthcare Overview
According to the Health Insurance Portability and Accountability Act or ‘HIPAA’ healthcare is broadly defined and
includes any care, service, or supply related to the mental or physical health of an individual. It is also defined as the
treatment, management and prevention of illness and the preservation of the physical and mental well being of a person
with the help of medical and allied health professionals.
An individual can become a Member and pay regular premiums to get the healthcare services covered by a health
Members enrolled in health Insurance Company’s healthcare programs visit healthcare service providers such as a
Primary Care Provider(PCP), secondary care provider, specialist, hospital or pharmacy to receive healthcare services.
Each visit that a member makes to a provider is called an encounter. Encounter(s) filed together for the reimbursement of
the medical expenses for the services rendered by the provider is called Claim.
Claims are either filed on paper or sent electronically via fax or email. The claim is received by the insurance company,
validated for necessary information and then loaded into a database. The claim is then adjudicated (or tested for
authenticity) as per the company’s business rules and policies through the claims adjudication system.
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A member is a person who purchases insurance from (or enrolls with) an insurance company.
He can purchase the insurance coverage for himself and his family (also called his
dependents). This is known as Individual Insurance. In most cases, his employer will pay for
his insurance coverage. In such a case the employer becomes his plan sponsor and the
insurance is known as Group Insurance.
The main advantage with group insurance is the freedom of choice for a member. He is free
to choose any of the services offered by the insurance company. However, he has to pay for
those services. Reduction in this cost to the member is a great advantage with group
insurance. A group has much more bargaining power due to the simple fact that group
insurance is less risky for the insurer.
In case of some large corporations the company itself provides insurance to its employees.
Such groups are known as self-insured groups. They offer a great flexibility to the company in
providing insurance of choice to the employees. However, these companies do not have the
infrastructure to perform as an insurance company. So, they outsource the administrative
part to the insurance companies while retaining the money reimbursement part with
themselves. This way, they are able to achieve a balance between providing desirable
healthcare coverage to their employees without causing administrative overheads.
A Provider is that entity which offers actual medical services to the members. A doctor, a pharmacy or hospitals are all referred to
as providers. The providers enter into an agreement (contract) with the insurance company. Under this agreement they provide
medical care at reduced rates to the members, in return they are offered monetary benefits by the insurance company. These
monetary benefits are offered in various forms.
One of the most popular of these forms is a fixed monthly fee (capitation fee). The providers get this fee irrespective of the
number of encounters (a visit by a member to a provider is known as an encounter) they had in that month. While on one hand
capitation ensures a fixed monthly income for the provider, it also restricts his earnings. So, from the provider’s point of view it’s a
choice between a fixed income and a varying income (which may be more, or less, depending on his popularity with the patients).
For insurance company, capitation helps them to forecast their spending, as the total expenditure remains constant irrespective
of the number of members having to seek medical services.
Sometimes, individual providers form a group, which contracts with the insurance company. Such a group is called an IPA or an
individual practice association. Formation of an IPA gives the providers more bargaining powers with the insurance company and
assures them of an increased patient volume. In turn the insurance company is able to offer a range of providers to the members
at a single source, i.e. the IPA.
In general, a group of providers in a designated area are contracted by the insurance company to form a network (a group of
contracted providers within a designated area is said to constitute a network) of providers. The insurance company offers a better
deal to its members for using a provider within this network. The providers themselves have an increased patient volume and
hence offer services at reduced rates. This is one of the most stable models of managed healthcare.
Benefits can be described in two ways -
•The right of a member to receive services from the insurance company as per their mutual agreement, or,
•The major line of coverage provided by the insurance company. The insurance company may provide medical/dental/vision coverage. Then depending on the choice
of coverage the member is said to have medical benefits or dental benefits or vision benefits.
The general agreement between the Insurance Company and the member that details the benefits that can be provided to the plan holders i.e. the member is called a
Plan. While the actual legal document issued by the insurance company to the member, whom sets forth the terms and conditions of this agreement is called a Policy.
Thus, we can say that a plan is the general range of benefits offered by the insurance company. These when customized as per the member’s requirements and put
down on paper as a legal document forms a policy.
In case of Indemnity plans, the members visit a provider and pay him for his services. After that, they file a claim (a request to refund the expenses incurred) with the
insurance company. If the claim is found to be valid, the insurance company pays a part (usually 80%) of the expenses. Though they offer great flexibility to members
in their choice of providers, they are very expensive.
In case of managed care, the insurance company contracts with providers and form a network of such providers. The members pay a fixed monthly fee and need to
choose a provider within the network as their primary care physician or a PCP. The PCP manages their complete healthcare, right from providing services to filing
claims. Due to the control over the choice of provider, the insurance company is able to offer healthcare at reduced rates. The reduced cost of a managed care plan is
the main reason for members preferring them to indemnity plans.
The model of managed care as described above is known as a HMO or a health maintenance organization. It has a major disadvantage that it limits the choice of
providers to a network. Members cannot avail services from a provider not contracted with the insurance company. Members who wish to have a greater flexibility in
the choice of providers have the option of going for other managed care plans POS or point of service plans and PPO or preferred provider organization plans.
POS provides the member with the option of having HMO type coverage at a lower fee, while having the option of Indemnity type coverage at a higher fee. PPO is
also similar to POS with the added advantage that in the HMO type coverage the member is not needed to have a PCP.EPO or exclusive provider organization, a
hybrid of HMO and POS plans, is a recent addition to the stable of managed care plans.
The recent trend has been to go for PPO plans, as it offers the best of both Indemnity and Managed care plans.
17. What is a Claim?
A claim is filed by an insurer. It contains the details of the policy, a filled-out claim form and treatment bills, including
those from tests and rehabilitation prescribed by the doctor, the nature of the treatment with diagnosis information and/or
other documentation of medical expenses. A claim has an extensive life process, starting with a provider or subscriber.
This session discusses the basic lifecycle of a claim:
Claims are mainly categorized as:-
18. All claims are date stamped and sorted into batches by line of business:
Single page claims
Single page facility/institutional
Single page miscellaneous
Day in the Life of a Claim
19. Before leaving, batches are put through a final process:
Each claim is assigned a document number
The document number will allow retrieval of copy at a later date
The batches are delivered to the claims processing unit
Day in the Life of a Claim
20. Batches are received in health insurance companies and assigned to claims
processors by Supervisor.
The processor accesses the batch entry screen and enters all the claims within
After claims within the batch are entered, it is released to the claims Processing
Some claims are received electronically or are optical scanned directly into claims
Day in the Life of a Claim
21. Electronic Error Correction (EEC) suspense processing accesses suspended claims and corrects
system edits claims for eligibility, benefit availability, and so on
When this is complete, the claim will either pay or reject
An explanation of benefits is sent to the subscriber
If provider is participating, a voucher and check is sent
On completion of claims adjudication, member receives a check for payment of the expenses. The
member is also sent a letter called the explanation of benefits (EOB). EOB gives the details of the
services rendered to him by the providers and the amount of expenses to be borne by the member for
the services he has used. It also gives the amounts applicable to him.
Day in the Life of a Claim
If the member is enrolled in an Indemnity plan, then things are very simple. He can go to any provider of
his choice. He pays the provider then and there and files a claim with the insurance company. However, it
is necessary that he should have satisfied his deductible for that particular year.
In case of managed care plans, the flow is a bit more complicated. The member first has to visit his PCP.
The PCP will try to provide as many services as he can. But, if a medical condition arises which requires
treatment from a specialist, the PCP will provide a referral to the member. This referral authorizes the
member to seek medical services of a specialist provider. The PCP will also file a claim on behalf of the
member. The member only has to pay fixed copay to both the PCP and the specialist. This is the flow in
case of HMO and EPO plans.
In case of POS and PPO plans, the member can seek services from out of network providers. However,
they will have to meet a deductible before they can avail this facility. Also the concept of coinsurance will
come into picture. In case of PPO plans the member has the added advantage that he does need to have
a PCP for
An Enrolled Member seeks Medical Service
23. Brief discussion on ICD-10 codes
ICD is defined as International classification of disease. Physicians and other health care providers classify
and code all diagnoses, symptoms and procedures record in conjunction with hospital care in the United
ICD-10 codes differ in length and structure from their predecessors. The increased length and modified
structure will provide more thorough detail about conditions, injuries, or illnesses. In contrast to ICD-9 codes,
the new code set will include specific detail about how an injury occurred, what parts of the body are affected,
and the severity of a condition. This level of specificity means a drastic increase in the number of codes.
Characteristic Diagnosis Codes Procedure Codes
Code Set Name ICD-9-CM ICD-10-CM ICD-9-PCS ICD-10-PCS
Number of Codes 15,000 80,000 4,000 73,000
Number of Characters 3 to 5 3 to 7 3 to 4 7
Type of Characters Numeric Alpha-numeric Numeric Alpha-numeric
Format XXX.XX AXX.XXX X XXX.XX AXX.XXX X
Brief discussion on ICD-10 codes
Before the ICD-10 codes can be used however, physicians and others in the health care community
had to transition to use of the new version of HIPAA transaction standards known as 5010.
Why ICD-9 to ICD-10
ICD-9 codes are old format. ICD-10 reflects the 10th
revision of codes. The ICD-10 code set
reflects advances in medicine and uses current medical terminology. The code format is expanded,
which means that it has the ability to include greater detail within the code. The greater detail
means that the code can provide more specific information about the diagnosis. The ICD-10 code
set is also more flexible for expansion and including new technologies and diagnoses.
1. Procedure codes
• HCPC codes (Healthcare Common Procedure Coding System)
• CPT codes (Current Procedural Terminology)
2. Diagnosis codes
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