Insurer Networks and Your Company’s Claims Ratio
Posted On July 16, 2015
For any employer, understanding the concept of a provider network is crucial to figuring out how to reduce a company’s medical claims ratio. Having analyzed thousands of claims, we at bayzat have seen the impact this can have on a group’s health insurance costs firsthand.
For a hospital or clinic, becoming part of an insurance company’s provider network is important because it usually means increased business from health insurance policyholders. In return, the insurer is able to negotiate discounted rates with the healthcare providers. This is an important part of what a medical insurance company does as it allows them to reduce the value of claims made by their customers.
The discounted rates a health insurance company negotiates can be drastically lower than what an individual would typically pay. For example, a consultation with a specialist at Belhoul Specialty Hospital costs AED 300. However, an insurer will be charged around 40% less each time one of their customers gets a specialist consultation.
For a customer, there is also a strong incentive to stay within the provider network. Policy members do not have to pay out of their own pockets (except for any deductible or co-payment) as these hospitals and clinics will settle the bill directly with the medical insurance company. If a patient goes outside the network, they have to pay for the full treatment cost from their own pocket, fill out a claim form and then get reimbursed by the insurance company. This can be a real headache, especially if you have to physically mail the claim form and medical receipts to the insurer. In addition, it usually takes almost two months for the insurer to reimburse you.
So what happens when a policyholder goes outside the network?
In some cases, the insurer penalizes the policyholder in the form of a co-payment. For example, many medical insurance plans require the patient to pay for 20% of the treatment if it is received outside of the provider network. In other words, the patient is only reimbursed for 80% of the cost. Furthermore, most insurance companies do not reimburse you based on the actual treatment cost, but rather according to the ‘reasonable cost’ of the treatment or procedure.
Despite these ‘penalties’, if an employee gets the same treatment within the network versus outside the network, the claim charged to the insurer will still be higher in the latter case. We looked at insurer claims for specific treatments both inside and outside the network: if an employee gets treated for bronchitis outside the network, on a reimbursement basis, the claim can be up to 60% higher compared to if the employee went to a facility in the provider network. Similarly, getting treated for lower back pain can lead to a claim that is approximately 35% higher if it is received outside the network.
Employees should be educated about the benefits of staying within the provider network. Even better, companies should make it easier for them to stay within the network by allowing them to find their provider network anytime, anywhere (see bayzat enterprise).
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