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With different types of cost sharing between insurance plan and patient, calculating an out of pocket ahead of a procedure can be very complicated. Calling a representative from a particular plan is always a good idea, but sometimes they don't know how to calculate the estimated out of pocket either. When they do, you should also check their work to be sure that you are quoting the correct information to the patient. In this post, we will go over the terminology and methods used to calculate patient out of pocket expenses prior to surgery.
Terminology
Some commonly used terms:
Billed charges: How much your office/doctor charges for a service. This is typically listed by CPT code.
Coinsurance: The amount of money, expressed as percentage of contracted rate, that the patient owes as part of their cost share after the deductible is satisfied.
Contracted rate: How much your contract states the insurance company will pay you. This is typically listed by CPT code. Sometimes called covered charges.
Copay: The amount of money the patient owes at the time of service. This is still due after the deductible is paid in full, but no longer due after the annual out of pocket maximum (stop loss) is reached. They typically do not count toward a deductible.
Out of pocket maximum: The maximum amount of money the patient will pay in a year. After the out of pocket maximum is reached, the patient will have no more out of pocket expenses for the year.
Primary insurance: The plan that pays first. This company must adjudicate (process) the claim before any secondary or tertiary payers get involved.
Secondary insurance: The plan that pays second. They will only pay after the primary insurance has adjudicated the claim. Most commonly seen with Medicare Supplemental plans. Medicare is the primary and will pay 80% of the contracted rate after the deductible, and the supplemental (secondary) plan pays the remaining 20%.
Tertiary insurance: The plan that pays third. This is a very uncommon situation but they will pay what the primary and secondary have not paid.
How to do the calculation
The first step is to determine what kind of plan they have. Do they have a coinsurance type plan or a copay type plan? Important note: these calculations are for what is due at the physician's office (NOT at an ambulatory surgery center or hospital). You will get this information, as well as their remaining deductible, remaining out of pocket maximum, copay, coinsurance, etc directly from their insurance. You may call the number on the insurance card, go through the insurance portal, or use your clearinghouse to get this information. At the same time, you must ensure that the plan will be active on the date of service. This is called verifying eligibility and benefits.
Copay plan:
A copay plan is the most straightforward. They will owe the full contracted rate until the deductible is reached + the copay. After the deductible is reached, all they will owe is the copay until the out of pocket maximum is reached. After the out of pocket maximum is reached, they will owe nothing and the insurance company will pay directly. Some examples will make this easier to understand. To make the math easy, we're going to use nice round numbers and use cataract surgery in an ambulatory surgery center as the example. We are also going to assume that the office collects estimated out of pocket up front and submits their claims before the surgery center.
OOP = contracted rate (up to deductible) + copay (until out of pocket maximum is reached)
Example 1. Low deductible: $200 deductible, $500 contracted rate, $200 outpatient surgery copay, $1000 facility fee
OOP = $200 (contracted rate up to the deductible) + $200 copay = $400
The patient owes $200 (the contracted rate up to the deductible) to the office, the copay of $200 goes to the surgery center, and the remaining of the contracted rate is paid by the insurance company. In this example, that means that the office will collect $200 deductible from the patient and $300 from the insurance company. The surgery center will collect the $200 copay from the patent and $1000 from the insurance company.
Example 2. High deductible: $1000 deductible, $500 contracted rate, $200 outpatient surgery copay, $1000 facility fee
OOP = $500 (contracted rate up to the deductible) + $200 copay + $500 (facility fee up to the contracted rate) = $1200
The patient owes $500 (the contracted rate) to the office, the copay of $200 goes to the surgery center, and the center collects the facility fee up to the remainder of the deductible ($500). For most plans, the $200 copay does not count toward the deductible but does count toward the out of pocket maximum. Therefore the total out of pocket is $1200.
Coinsurance plan:
In a coinsurance plan, the insurance company will pay a percentage of the contracted rate after the deductible is met. The prototypical example is Medicare without secondary insurance. Medicare pays 80% after the deductible is met. For this sample calculation, we will assume a $200 deductible.
OOP = contracted rate (up to deductible) + coinsurance (after deductible)
Example 1. Low deductible: $200 deductible, $500 contracted rate, 20% coinsurance, $1000 facility fee
OOP = $200 (contracted rate up to the deductible) + 20% * $300 + 20% * $1000 = $660 total out of pocket.
In this example, the patient owes the full deductible. There is a $300 balance remaining after the deductible is satisfied ($500 - $200 = $300). Of that $300 remaining, the patient will only be responsible for 20% as per their coinsurance plan. Twenty percent of $300 is $60 and 20% of $1000 is $200. Therefore the total out of pocket for this service is $200 + $60 + $200 = $460.
Example 2. High deductible: $1000 deductible, $500 contracted rate, 20% coinsurance, $1000 facility fee
OOP = $500 (contracted rate up to the deductible) + 0 (no coinsurance since deductible exceeds contracted rate) + $500 (remaining deductible) + 20% * $500 = $1100 total out of pocket.
In this example, the patient will pay their whole deductible before the coinsurance "kicks in." $500 of that deductible is owed to the office as the contracted rate. The other $500 of the deductible is owed to the facility as the contracted rate. The patient will then owe 20% of the remainder of the facility fee (20% of $500 = $100). Therefore the total out of pocket is $500 + $500 + $100 = $1100.
Nuance: Holding Claims
As you've noticed from the examples above, even though the contracted rates and cost of the service doesn't change, who collects how much from the patient changes drastically based on the specifics of the insurance plan - particularly the deductible. It is generally easier to collect from an insurance company than a patient who does not want to pay the out of pocket cost share that they owe. Consequently, some offices practice holding claims. Holding claims is a billing technique used to ensure that your office has to collect as little deductible as possible.
The term "holding claims" (or "holding a claim") means to not submit your claims to insurance before other healthcare providers submit claims that use up the deductible. If you hold your claims, your office will be paid your full contracted rate directly by the insurance company without any cost share from the patient (since the deductible has already been met). We will examine the copay examples from above to enhance clarity.
Held claim example 1. Low deductible: $200 deductible, $500 contracted rate, $200 outpatient surgery copay, $1000 facility fee
OOP = $200 (contracted rate up to the deductible) + $200 copay = $400
Please see above for the OOP calculation. In this example, your office would have to collect the full deductible from the patient before surgery. However if you wait until after the facility files their claim, the facility will need to collect the $200 deductible + $200 copay and your office will be paid $500 directly without needing to collect anything from the patient at all.
Held claim example 2. High deductible: $1000 deductible, $500 contracted rate, $200 outpatient surgery copay, $1000 facility fee
OOP = $500 (contracted rate up to the deductible) + $200 copay + $500 (facility fee up to the contracted rate) = $1200
Please see above for the OOP calculation. In this example, your office would have to collect the full deductible from the patient before surgery. However if you wait until after the facility files their claim, the facility will need to collect the $1000 deductible + $200 copay and your office will be paid $500 directly without needing to collect anything from the patient at all.
Timely Filing and Billing Complexity
As you can see holding claims mitigates payment risk. So why doesn't everyone do this? The primary reason is that it can be complicated, especially since you have to be very careful to meet your timely filing deadlines. In every insurance contract, there is a description of the requirements you must meet to submit your claims. The most important one for holding claims is timely filing.
Timely filing simply refers to the claims submission deadline. Most commercial insurance companies require you to submit your claim within 90 days of the date of service (DOS). If a claim is submitted 91 days after the DOS, the claim will be denied and never paid. Medicare and Medicaid generally allow claims to be submitted 365 days after the DOS.
So if you want to hold claims to try to minimize OOP collection from patients, you will create additional billing complexity (particularly when deductibles reset on January 1). You will have to keep track of individual patient's deductibles (reduced by claims submitted from other healthcare providers) and the timely filing deadline for each one of those services. In a busy eye clinic, keeping track of these factors becomes very complicated very quickly. As a result the practices that tend to hold claims usually only do it for straight Medicare/Medicaid and hold all those claims until the fourth quarter. At that point in the year, you can be reasonable sure that deductibles have been met and the patient will not owe you anything directly. However this is going to have cashflow implications.
This is Pretty Complicated. What Should I Do?
What is right for your practice isn't right for another practice. If you are doing your own billing and have robust means to track your claims and patient deductibles (e.g. just starting out), it is very reasonable to hold claims as long as you meet the timely filing deadlines. If you are in a busy practice, holding claims is likely going to enhance complexity to the point that the money you lose on missing timely filing is not offset by the amount you gain by not collecting from patients who refuse to pay.
In either case, it is good for your practice and your patients to get the estimated out of pocket to your patients in writing and collected prior to any procedures. Remember those estimates are just estimates using information you received directly from the insurance company. Insurance company representatives and portals (where you will get your information) are wrong sometimes, so I recommend documenting that the estimate may change after claim adjudication and making that very clear to your patients before the service is rendered.
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