15. Medical Insurance


The growth and change in the structure of health insurance has affected American health care since the end of World War II. When industrialized countries such as Canada and many countries in Western Europe were introducing government-provided health care, the United States was turning primarily to the private market to provide insurance coverage for Americans. This created the problem that many Americans could not afford health insurance. As health care costs continue to rise, so does the pressure to maintain high standards at a reasonable cost to both indi­viduals and the government.


Health insurance had its beginnings in accident insurance, which was first sold in the mid-1800s. In exchange for a monthly payment by a customer, the insurance company agreed to replace lost income resulting from an accident, and later resulting from a few specific illnesses, such as smallpox, diphtheria, typhoid, and scarlet fever.

In the 1930s a group of Dallas schoolteachers made an arrangement with Baylor Hospital to have any necessary hospital care provided in exchange for monthly premiums. This arrangement was the precursor to the Blue Cross and Blue Shield programs, which were incorporated as not-for- profit companies in each state. The amount of payment was based on the amount charged for the services provided. Other insurance companies began to offer health insurance using similar models. Labor unions began to negotiate for health insurance as an employee benefit that was not taxed as income in the same way as an increase in wages.

During World War II, Henry Kaiser created clinics in California to provide both inpatient and outpatient care for the workers in his shipyards. These clinics later opened themselves to other employers and individuals and became the Kaiser Permanente program. The employer paid a fixed amount per worker over a stated period of time for all necessary medical care. This method of payment is called capitation, and this type of health insurance is called a prepaid health plan. For many years Kaiser Permanente was the country’s largest health maintenance organization (HMO). The philosophy behind the HMO movement was a belief that health care costs could be lowered if members were restricted to specific providers and facilities. Covered services also included preventive medical care in the hope of preventing conditions that would be expensive to treat. Over time, the HMO model broadened from one in which physicians were salaried employees and worked in a central facility to one in which HMOs contracted with private physicians in each community.

By the 1960s, many larger and even medium-sized busi­nesses were providing company-paid health insurance ben­efits as a fringe benefit instead of increasing wages or salary. Health care costs began to increase faster than the general rate of inflation, with physicians beginning to earn large incomes. But certain groups of Americans—most notably the poor, elderly, and permanently disabled—were unable to obtain medical insurance through employment.

The federal government created two programs to try to close these large gaps in medical coverage. One was Medi­care, the health insurance program for the elderly, disabled, and those with end-stage kidney disease. Medicare is paid for with federal taxes paid by employers and workers. The second government insurance program was Medicaid, the health insurance program for low-income individuals and families. The Medicaid program has different names in dif­ferent states, and it is administered by each state. The federal government pays for the majority of required care and a smaller percentage of optional care, such as dental care, while the states pay for the rest. Each state sets its own criteria of eligibility for the Medicaid program.

Many senators, congresspersons, and physicians were against Medicare and Medicaid at the beginning, calling it “socialized medicine.” But there were precedents for the government’s involvement in paying for medical care. The Veterans Administration (VA) offered medical care for life for any man or woman who had seen active duty in the military, provided he or she wished to use the VA facilities. In addition, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) program was devel­oped to provide medical care at government expense for dependent spouses and children of active-duty military per­sonnel. Today the former CHAMPUS program is called TRICARE (because there are three different plans). A com­panion program, the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), covers dependent spouses and children of military veterans with service-connected disabilities.

At the beginning of the twenty-first century, American society is still trying to resolve insurance issues. Low-wage workers often do not get health insurance through their employers or have insurance only for themselves and not their dependents. For more than 10 years the federal gov­ernment has tried to pass legislation to expand insurance coverage to all or nearly all citizens, but the costs have made it difficult to gather enough support. The federal Patient Protection and Affordable Care Act, which became law in March 2010, attempts to define patients’ rights and ensure that all Americans will have access to affordable, high- quality health care and preventative care. It remains to be seen whether this law can accomplish its mission, or even if it will survive efforts to challenge its legitimacy and/or constitutionality.


Individuals and families have basically three ways to obtain health insurance coverage: through a group plan, by pur­chasing an individual policy, or through one of the govern­ment plans described earlier.

Most group plans are available through an employer. A group plan is one insurance policy that covers a group of people. Larger employers generally have several different plans available. The employer pays a portion of the insurance costs. The amount paid by the employer for unionized workers tends to be greater than for workers not in a union.

Some small business owners can purchase insurance through group plans sponsored by a trade organization. Individuals sometimes have access to group plans through professional associations, or even college alumni associations. The self-employed can deduct a portion of their health insur­ance costs from their business income, as companies do.

As part of the process of gaining the right to sell health insurance in a particular state, most insurance plans are required to offer individual policies to individuals or fami­lies who are not covered under a group plan. An open- enrollment period usually occurs at least once per year for individuals to purchase coverage. Discussion has occurred at the federal level about allowing individuals or families who purchase their own insurance to claim a tax credit, or a larger tax deduction, for the cost.

Taxpayer-funded, or government, health insurance is usually provided as an entitlement when other conditions are met. For instance, when an individual reaches age 65, he or she is entitled to Medicare benefits if he or she has worked for at least 10 years in Medicare-covered employ­ment. However, the individual must still file an application because the benefits do not begin automatically. An indi­vidual must meet other criteria for other government health insurance programs.


The amount of money paid by the consumer to purchase health insurance is called the premium. This premium can be paid monthly, quarterly, semiannually, or annually. All or part of the premium may be paid by the person enrolled in the insurance plan or by the employer. In exchange for the payment of a premium, the insurance company or managed care plan agrees to provide payment for specific services provided by physicians, hospitals, laboratories, and other health care providers. Payment for a service covered by health insurance is called a benefit, and each individual covered by the health insurance plan is called a beneficiary, enrollee, or member. The insured is the individual who has the insurance, but the plan may also cover dependents of the insured including a spouse and children.

When the premium is paid by a person’s employer, even if the employee is responsible for part of the cost, that premium is often paid with before-tax dollars. This means that the amount of the premium paid by the employer is not included in the amount of wages re­ported for the employee. The employee’s portion may also be deducted before tax is calculated. In this case, the employee cannot use the payment for insurance as a tax deduction.

Another way to pay for health care using before-tax dollars is a medical savings account. This is a fund set up by the employer before tax is taken out of a person’s earn­ings. The money in this fund can be used only for qualified health expenses, and it must be spent within a specified time frame. Money not used is lost to the employee.

Depending on the type of insurance policy, a patient may have to make certain payments for medical services. A deductible is an amount of money that must be paid for services provided to an individual or a family member in a group plan every calendar year before any insurance pay­ments. After the deductible has been met, the patient may be required to pay a percentage of the allowed charge or a fixed fee every time service is received. If the patient is responsible for a specific percentage of the allowed charges (such as 20%), the patient portion is called coinsurance. An example of an insurance plan with coinsurance is Medi­care Part B. If the patient is required to pay a fixed dollar amount every time he or she obtains medical services or fills a prescription, it is called a copayment. In some plans, the amount of the copayment is always the same, but often there are different amounts for different types of medical and/or pharmacy services.


Primary, Secondary, and Tertiary Insurance

If a person is covered by more than one insurance policy, the insurance to which the insurance claim is sent first is called the primary insurance. When the patient is the insured, that insurance is the primary insurance. Insurance held by another insured (such as a spouse) that provides additional insurance coverage would be secondary insur­ance. If a third type of insurance also covers the patient, that insurance would be tertiary insurance. As a general rule, private insurance must be billed before government insurance, and Medicaid is always the last insurance to be billed.

Coordination of Benefits

Some households have two working adults, both of whom are covered under separate employer health benefits. Coor­dination of benefits is a term for the rules insurance com­panies use to coordinate the payments for medical services so that no provider is paid more than 100% of the charge for any service provided.

If both members of a couple have insurance with coor­dination of benefits provisions, the following rules apply:

         If the employee who holds the policy is the patient, his or her insurance is the primary insurance for any services obtained. The spouse’s or partner’s insurance becomes the secondary insurance and can be used to pay only for any portion of the charge not covered by the primary insurance. The deductible for the primary insurance may not be covered by the secondary insurance.

          If a child is the patient, in most states the “birthday rule” applies. Under the birthday rule, the primary insurance for the child of parents who both have a family health plan is the insurance belonging to the working adult whose birthday comes first in the year. The insurance of the adult whose birthday is later is the secondary insurance.

          When the patient is a child of divorced parents, the rules can get somewhat complicated. If a court has decreed that one parent is the “responsible party,” that parent’s policy provides the primary insurance. A responsible party ruling is often made in cases of joint custody, although the responsible party can also be a noncustodial parent. If no court ruling is in place, the custodial parent’s policy is primary if the custodial parent has remarried. If there is no court ruling in place and the custodial parent has not remarried, the birthday rule remains in effect.

Coordination of benefits issues can be avoided if indi­viduals in households with two working adults make modifications in their benefits. In order to reduce premium costs, some employers allow employees to take cash instead of health insurance if the family already has insurance. In cases where the company covers the complete cost for individual but not family coverage, only the husband or the wife needs to pay for family coverage. Of course, available plans should be compared for cost and benefits when deciding which policy to extend to family coverage.

          If the patient is a Medicare recipient who also is covered by an employer’s policy, the employer’s policy is the primary insurance and Medicare is the second­ary insurance. Patients with Medicare may also have supplemental insurance to cover what would nor­mally be a patient responsibility. These plans, which are clearly defined as Medicare supplemental insur­ance, are considered secondary insurance.

Participating and Nonparticipating Providers

If the physician has a contract or agreement with a third- party payor (insurance carrier [company] or managed care organization), he or she is called a participating provider (PAR). One of the requirements is often that the physician accepts the insurance carrier’s determination of the allow­able fee and may not bill the patient for any additional amount that the insurance company did not allow. A nonparticipating provider (nonPAR) has no contractual agreement with the third-party payor and can bill the patient for the difference between the insurance payment and the amount billed. A PAR receives payment from the insurance carrier directly. A nonPAR must obtain payment from the patient (who receives reimbursement from the insurance carrier) unless the patient signs a form authoriz­ing assignment of benefits. This term is used for the patient’s request that the insurance carrier pay the provider directly. This authorization is usually part of the new patient information form.

Types of Reimbursement

Two basic types of insurance reimbursement exist: capita­tion and fee-for-service.

Under capitation, the primary care physician receives a monthly, quarterly, semiannual, or annual payment from the managed care insurance company. Specialists are usually not paid by capitation. The reimbursement per patient may vary depending on age and sex, but it does not depend on the amount of care the patient receives.

As discussed earlier, capitation moves some of the risk away from the managed care company and onto the primary care physician who treats the patient, and most physicians prefer other payment methods. In most circum­stances, there will be enough healthy patients who cost the physician less to treat than the amount being paid by the company to make up for the few sick patients who cost more to treat.

Under fee-for-service insurance, the health care pro­vider, including all physicians, is reimbursed for each treatment or procedure performed. In this case the only difference between traditional fee-for-service insurance and managed care is that managed care companies often negotiate a fee schedule that is lower than traditional indemnity plans.

In many instances, however, if the physician or other medical provider agrees to accept assignment of benefits, he or she cannot bill the patient for any portion of the charge not paid by the insurance company except the deductible and copayment or coinsurance.


Several different types of health insurance are currently available. When learning about insurance, it is helpful to learn the characteristics of different types of insurance, although the medical assistant may also be responsible for finding out more specific information related to individual insurance plans.

Fee-for-Service Plans

Traditionally, private insurance plans provided payment, either to the physician or to the patient, for each medical service provided. These traditional plans are called fee-for- service plans or indemnity plans. The term indemnity means an obligation to compensate an individual for loss or damage. Until the late 1980s, fee-for-service plans dominated the health care industry. They were provided through private insurance companies and also through the Blue Cross and Blue Shield plans, which were estab­lished in each state as not-for-profit, quasi-governmental agencies. Since the late 1980s, the percentage of individuals covered under traditional fee-for-service plans has steadily decreased. Fee-for-service plans usually have a deductible, and the insurance pays for a percentage of the allowed charges (commonly 80%).

Putting It All into Practice

My name is Sandra O’Keefe, and I am a regis­tered medical assistant. I work in the office of three dermatologists. With the advances in laser technology, there are many new procedures for removing spider veins, birthmarks, scars, hair, and tattoos. We also do Mohs micrographic surgery, a technique that removes skin cancers one layer at time with immediate tissue analysis. Using this technique the physicians can be sure that all malignant cells have been removed while taking a minimum of healthy tissue.

Billing in our office is somewhat complicated because many of the procedures are not covered by insurance. In general, insurance companies will pay for procedures that are medically necessary, like removal of skin cancers. They do not cover procedures that are strictly cosmetic, such as removal of spider veins (small varicose veins on the skin). Then there are some procedures that sometimes are covered by insurance and sometimes are not, such as the removal of birthmarks on the face.

When a procedure is medically necessary, we have to obtain preauthorization from the patient’s insurance company, and some­times we need to provide documentation for the insurance company to review before they give their approval. When a procedure is not covered, we have to be sure that the patient is willing to pay for it and knows how much it will cost. We can help arrange for the patient to obtain financing in order to pay for the procedure over a period of time.

Our physicians accept several different types of insurance including government plans, managed care plans, and traditional insurance plans. When patients are covered by managed care plans, we have to be sure that they have the proper referrals to cover each office visit, as well as the procedure. In some cases the insurance covers a consultation visit but the proposed treat­ment plan is not approved, and then the patients must decide about paying for any recommended procedure themselves. We do our best to complete all of the paperwork to obtain insurance coverage for our patients, but we are limited by the rules of each insurance company. ■

What Would You Do? What Would You Not Do?

Case Study 1

Diane Bennett is a 35-year-old woman who has come to the office for treatment of a lesion on her neck. She has been referred from her primary care physician for up to three visits for consultation, diagnostic studies, and treatment. She is seen by one of the dermatologists in the practice, who recommends that the lesion be removed surgically in the office with a biopsy. During this visit the patient tells the physician that she has two other lesions she would like to have removed, one on her arm and one on her abdomen. The physician inspects the lesions and asks Sandra to contact the patient’s managed care plan for authorization to treat the additional lesions. The patient says, “My physician gave me a referral to be treated by you. What’s the problem? If these lesions need to be removed, I don’t want any delay.” ■

The insurance company determines the allowed charge in two ways:

         Through a fee schedule. A fee schedule says the insur­ance company will pay the specified percentage of a particular amount for a particular procedure. Any additional charges are the patient’s responsibility.

          Through service benefits, which define covered ser­vices but not the exact payments. Under service benefit plans, the insurance company will agree to pay the specified percentage of charges that are usual, customary, and reasonable (UCR) for the procedure and the state or region of the country in which it was performed. The usual fee is the amount that a physi­cian usually charges or charges most often. The cus­tomary fee is the amount charged by physicians in the same specialty in the same geographic area (usually the 90th percentile amount of the charges of all physi­cians in the area. A reasonable fee meets the two criteria described earlier or is justifiable if there are special circumstances. Based on statistics kept by the insurance company, the fee actually charged by the physician is reviewed. The insurance company’s payment is based on its own determination of what is UCR.

Under a traditional fee-for-service plan, a patient can make an appointment with any doctor, in any specialty, he or she wishes, and the insurance will pay the designated amount for the services. Some plans do have lists of approved providers for whom they pay 100% of charges and pay only a percentage of charges for other providers (similar to a preferred provider organization [PPO], discussed in more detail later in the chapter).

Managed Care Plans

Since the introduction of the Kaiser plan, HMOs have evolved into many forms. Both private insurance companies and government insurance plans offer HMOs, as well as other types of managed care plans. The various HMO models and their descendants, collectively, are known as managed care. This term is used in two ways: It describes the movement to control health care costs while improving preventive care and is a general term for insurance programs reimbursing care provided in this way. Managed care plans negotiate reimbursement amounts and limit patients to those providers and facilities with whom they have contracts.

Most insurance plans today involve some form of man­aged care. The patient’s care is managed by the insurance plan in several ways:

         Each patient chooses one physician as a primary care provider (PCP), a physician who provides most of the patient’s care and also determines what other medical services the patient requires.

          Care is usually restricted to specific providers, labora­tories, and hospitals that have accepted the insurance plan’s fee schedule or capitation payment plan.

          The patient may or may not have access to providers and services outside the insurance plan. If there are tiers of providers, the patient must usually pay more for services obtained outside the plan. In addition, the patient may be subject to balance billing if he or she seeks service from a provider who is outside the managed care plan. This means that the patient must pay the difference between the amount allowed by insurance and the amount charged for services.

          The insurance plan may require referrals from a PCP for services including consultations with specialists, therapy such as physical therapy or speech therapy, care outside of the medical office, and some diagnos­tic tests. The PCP functions as a “gatekeeper” to limit and approve access to specialty services. (The process of referrals is discussed later in this chapter.)

          The insurance plan usually requires prior notification and/or utilization review (reviewing proposed or current care to determine medical necessity) before authorizing referral to specialists, certain procedures, therapy, surgery, and other types of care.

Health Maintenance Organization Models

In the original HMO concept, all medical care was provided for 1 year for a fixed premium, with no deductibles or coinsurance. The patient was responsible only for a fixed amount for each visit or prescription (copayment).

HMOs have always practiced preventive medicine, on the theory that much of the cost of medical care can be eliminated through routine care by PCPs. To reduce the cost of specialty care, PCPs including physicians, nurse practi­tioners, and physician assistants act as “gatekeepers,” seeing patients first for nearly all illnesses and referring them to specialists only when necessary. The PCP is paid by capita­tion. HMOs are usually incorporated and regulated state by state. They are subject to regulation requiring more com­prehensive quality assurance programs than other types of insurance. Medical record audits allow the HMO to check the records of any physician’s patients to make sure the physician is not performing unnecessary procedures or ordering unnecessary tests.

Staff Model Health Maintenance Organization

The staff model HMO hires its physicians directly and pays them a salary for providing health care to members. The patient can receive care only at plan facilities. This type of plan was more common when the HMO movement first began and is rare today.

Network Health Maintenance Organization

The network model HMO contracts with various group practices for services to its members. Typically, the physi­cians also see patients who have other types of insurance. The HMO members must be referred to in-network pro­viders if possible. Out-of-network coverage is allowed only in cases of emergency or urgent services.

Other Managed Care Models

Health care plans that are regulated by state and federal laws as insurance plans instead of HMOs may still maintain many features of managed care. Depending on the state, there may be separate regulatory agencies.

Preferred Provider Organization

A PPO provides coverage for in-network and out-of-net­work services to its members, but there is a financial incen­tive to use in-network services. These plans usually have deductibles and coinsurance. Patients may be required to pay a percentage of in-network costs, but they must usually pay a higher percentage of out-of-network costs.

Exclusive Provider Organization

An exclusive provider organization (EPO) is similar in struc­ture and operation to a PPO, but its members must receive all health care services only within the network in order for them to be covered. Employers agree that the EPO is the only organization it will contract with for health services to employees. If a member receives health services outside the network (except for emergencies or when travelling out of the area), the cost will not be covered by insurance. In this way the EPO is similar to an HMO, but its legal structure is different because it is regulated as an insurance plan and not an HMO. The payment method is fee-for-service.

Independent Practice Association

The physicians of an independent practice association (IPA) work independently in the community but formally organize a physician association. They are paid from funds collected from subscribers of the health plan minus admin­istrative costs, marketing and sales costs, and other overhead costs. IPAs often have a “hold back”—a portion of the agreed fee that is not paid to the physicians until after the end of the association’s fiscal year, when the association determines if it has earned a profit or had financial losses. This way, the association requires member physicians to share some business risk.

Point-of-Service Plans

The point-of-service (POS) plan combines an in-network plan that is regulated as an HMO with an out-of-network plan that is regulated as an insurance plan. Members receive two certificates, one for an HMO for services provided by in-network providers and one for an indemnity carrier for out-of-network services. The POS plan functions as a com­bination of an HMO and a PPO. Members have a higher financial obligation when they seek out-of-network services. When they remain within the network, their only financial obligation is a copayment each time they seek service.

Government Plans


Medicare is a federally funded plan administered by the Centers for Medicare and Medicaid Services (CMS). It pays for health care services for the following individuals:

    Individuals older than 65 who are eligible for Social Security

    Retired railroad employees and some retired federal employees

    Individuals who have been permanently disabled for 2 years

    Blind individuals

    Individuals with chronic renal disease who require dialy­sis or kidney transplant

    Kidney donors

The Medicare plan has several parts. Medicare Part A provides coverage of hospitalization services. Medicare Part B covers physician and other provider services. Together these two parts make up what is called the Original Medicare Plan. The patient’s Medicare card identifies what type of coverage the patient has (Figure 46-1). Medicare was expanded to provide more choice in the types of available plans in 1997 (also known as Part C).

Figure 46-1 Identification card for Medicare.

went into effect in 2006. It adds a prescription drug benefit to the Original Medicare Plan and Medicare Advantage Plans that did not include this benefit. If the patient is enrolled in a Medicare Advantage plan, the physician must be a member physician of that plan in order for services to be covered.

Individuals aged 65 and older on Social Security, those younger than 65 but who collect Social Security disability benefits, and those who receive railroad retirement benefits are automatically enrolled in Medicare Part A. There is no premium for participation in Medicare Part A. The first day of each hospital admission is not paid by Medicare; this is the Part A deductible. Medicare Part A is funded through a tax paid by working individuals on all of their earned income.

Anyone eligible for Medicare Part A may also obtain Part B coverage. However, they must apply and pay a premium to obtain Medicare Part B or to enroll in one of the Medicare Advantage Plans. Former federal employees, who receive federal employee pensions rather than Social Secu­rity and are not covered by Medicare Part A, can purchase Medicare Part B coverage.

Medicare claims are handled by insurance companies that contract with CMS. A fiscal intermediary (insurance company that contracts to review and pay Medicare claims) processes claims in each state or group of states. The amount of payment for any service is standardized nationally.

Payment for hospitals for claims under Part A is based on diagnosis-related groups (DRGs), a system that classi­fies patients according to the diagnosis, treatment, and length of hospital stay. The patient is assigned a DRG based on the primary diagnosis, and the payment made by Medi­care to a hospital is determined by the DRG rather than the length of time the patient remains in the hospital.

Since 1992, payments for services under Part B have been based on a resource-based relative value scale (RBRVS) developed by researchers at Harvard University. This system establishes relative value units for each pro­cedure based on the amount of work involved, overhead expenses, and cost of malpractice insurance. The amount Medicare pays for each relative value unit is then adjusted annually; it is also adjusted for different geographic areas (because overhead and malpractice cost may vary). An annual fee schedule is available online for identifying the amount Medicare pays for specific procedures. A similar system is used by most commercial insurance carriers today.

A participating provider in the Medicare program must bill for the patient, accept assignment of benefits, and accept Medicare’s determination of the allowable charge for the service. Under Part B, after paying an annual deductible, the patient is responsible for 20% of the allowable charge. The amount of the deductible is adjusted yearly.

If a physician does not participate in the Medicare program (nonPAR), usually he or she does not accept assignment of benefits but collects the bill from the patient up to a limiting charge (percent limit on fees above the fee-schedule amount) set by legislation.

Many patients purchase additional insurance (known as Medicare supplemental or Medigap insurance) that covers the annual deductible and 20% coinsurance for Part B, as well as the charge for the first day of a hospital stay (the deductible for Part A). Patients in most Medicare Advantage plans do not need supplemental insurance. Some patients may also be covered by employment plans after retirement. In this case, Medicare is the primary insurance and the Medigap or employment retiree plan is secondary. If a person continues to work after 65 and obtains insurance through employment, that insurance is the primary insur­ance for that individual and Medicare is the secondary insurance.


Medicaid, formally Title XIX (Title 19) of the 1965 amend­ments to the Social Security laws, provides for the federal government to give each state a grant to be used toward care of low-income residents. Along with the federal govern­ment’s basic funding comes an obligation for the states to provide basic health care. States may add coverage for other care to their Medicaid laws but must pay for most of those costs, with the federal government paying a portion. The name of the Medicaid program as well as procedures for gaining access to it vary from state to state.

A patient’s Medicaid eligibility must be checked at every office visit. In many states patients have a Medicaid card similar to a credit card with a magnetic stripe. The medical assistant uses a machine similar to a credit card reader to verify the patient’s eligibility, as was discussed in Lecture 37.

Physicians may agree or decline to provide services to Medicaid patients. If they agree to treat Medicaid patients, physicians must agree to accept the state’s payment for services, without billing patients for any difference between the state’s payment and the actual charge.

Adults and children receiving basic welfare grants from a state are automatically eligible for Medicaid. Also, the children in many working households are eligible for Med­icaid benefits if the parents’ pay is low enough to put the family below the poverty line or if employee-provided medical insurance covers only the employed parent.

In addition to paying for medical services, Medicaid also covers the cost of long-term nursing home care for poor elderly and disabled individuals. Because nursing home care is so expensive, 20% of Medicaid beneficiaries—the elderly poor living in nursing homes—account for 70% to 80% of the cost of the Medicaid program.

Children’s Health Insurance Program

The Children’s Health Insurance Program (CHIP), estab­lished in 1997, is overseen by the CMS but managed by the individual states. The plan was expanded when President Obama signed the Children’s Health Insurance Program Reauthorization Act in 2009. This program is administered and partially funded on a statewide basis. In some states eligible children are enrolled in the state’s Medicaid plan. The medical assistant should familiarize himself or herself with the state requirements for this plan.

Insurance Plans for Dependents of Members of the Armed Services and Veterans

CHAMPUS was established by the federal government in 1966 to provide health benefits for the dependent spouses and children of active military personnel when receiving care from civilian physicians and health facilities. The name has been changed to TRICARE with the addition of man­aged care services because there are three plans available to members of the armed services: TRICARE Standard (formerly CHAMPUS), TRICARE Prime, and TRICARE Extra.

TRICARE Standard benefits are available to dependent spouses and children of active-duty military personnel, dependent spouses and children of military personnel who died while on active duty, and military retirees (and their dependents) who are not old enough to be eligible for Medicare. It is a standard fee-for-service plan.

TRICARE Prime is an HMO-type plan with optional participation. In addition to the services covered by TRICARE Standard, it includes preventive and primary care services.

TRICARE Extra allows an individual to seek care from a network provider on a visit-by-visit basis, receiving a dis­count on medical services provided and a lower copayment than when using TRICARE Standard.

In 1973 the federal government created CHAMPVA to provide both inpatient and outpatient medical benefits for the dependent spouses and children of veterans who have suffered total, permanent, service-connected disabilities and for surviving spouses and children of veterans who have died as a result of those service-connected disabilities. The nearest VA Medical Center determines eligibility and issues an identification card, but the CHAMPVA-covered patients are allowed to choose their own physicians and other medical service providers.

Workers’ Compensation

Workers’ compensation insurance covers lost wages and the cost of medical treatment for workers injured on the job or who fall ill as a result of workplace hazards or disease. Each state has its own workers’ compensation program. The cost of workers’ compensation insurance is paid by employ­ers. The premium for a given employer depends on how many previous employees have made claims under workers’ compensation.

Workers are required to make a prompt claim for workers’ compensation coverage after an accident or the onset of an illness. In many states the employer and the insurance company issuing the policy have the right to choose the physician who treats the patient.

If a patient visits his or her regular primary care physician and says the illness or injury is workplace related, the medical assistant should check promptly with the employer to verify that the employee has made a report and that the care will be covered by the company’s workers’ compensa­tion plan.

If a patient of the medical practice is seen for a workers’ compensation case, separate medical and financial records should be established for that patient. Laws require that requests for medical records for compensation cases must contain only information associated with the work-related injury. If a workers’ appeal board needs work-related injury records, it is important that no other medical information about the patient be released.

For a workers’ compensation case, the physician must file a Physician’s First Report of Injury. In most states this must be done within 72 hours of the patient’s initial visit for a workplace injury. Four copies are prepared: one for the employer’s compensation insurance carrier, one for the employer, one for the state compensation board, and one for the patient’s medical record.

In addition to the report, the physician submits a state­ment of services to the insurance carrier. The physician must sign all forms because a stamped signature is not accepted for workers’ compensation cases. As with most government programs, the physician must accept the payment provided as payment in full. The physician submits a report and a statement monthly until care is completed.


Meeting Requirements for Insurance and Managed Care Plans

In order to obtain the maximum third-party reimbursement for services provided to patients, it is very important to be familiar with the requirements of each insurance carrier and HMO that provides insurance for the practice’s patients. In addition, the same carrier may support more than one insurance plan. Each insurance plan works in its own way, and each one has a handbook for providers. This is available in hard copy and can also usually be accessed via the Inter­net and downloaded to the office network. The medical assistant should familiarize himself or herself with the various requirements of each particular insurance plan, including such things as whether a referral to a specialist must be in writing (hard copy or electronic) or can be given over the telephone. Each precertification and most referrals must be authorized by the HMO, and the authorization number should be noted on all of the certification or referral paperwork or electronic forms.

The medical assistant must also know which laboratory can do laboratory work for each plan and where patients can be referred for diagnostic follow-up. Most HMOs, for example, have contracts with a limited number of labora­tories and/or medical facilities and will pay only for services provided by an approved facility (Procedure 46-1).

Because many patients have prescription drug benefits, the medical assistant should also learn the pharmacies that should be used for each plan and be sure that pharmacy information has been entered along with insurance plan information for each patient. The patient may have a sepa­rate pharmacy insurance card with specific information. This card should be copied for the patient file or scanned into the office computer system.

PROCEDURE 46-1 Applying Managed Care Policies and Procedures

Outcome Apply managed care policies and procedures.


Username and password for managed care website

              Managed care handbooks

              Managed care contract


         Procedural Step. Assemble information to review poli­cies and procedures for a specific managed care organi­zation, including hard copies of contracts and/or handbooks as well as information to log onto the orga­nization’s website.

         Procedural Step. Sign into the managed care organiza­tion’s website and/or use the contract and handbooks provided in hard copy to read about requirements for the managed care organization.

         Procedural Step. Become familiar with any different plans offered by one organization, including covered services, covered hospitals, and covered laboratories, so that you can instruct patients and answer questions.

Principle. Sometimes there are different plans whose benefits are different. The medical assistant should be able to answer patient questions.

         Procedural Step. Become familiar with the preferred method to verify eligibility, notify the organization about proposed procedures or treatment, and obtain preauthorization or precertification.

Principle. Each organization has its own require­ments. Failure to meet the requirements of the managed care organization may result in denial of insurance benefits.

         Procedural Step. Review all forms used by the managed care organization. Become familiar with electronic forms if that is the preferred method of submission. Download and print hard copies of any forms that will be submitted by mail, and make copies.

Principle. Most managed care organizations prefer electronic submission of forms. The review process is faster, and authorized services can be viewed by other providers or hospitals.

         Procedural Step. Repeat steps 1 to 5 for all managed care organizations with which the practice is affiliated.

         Procedural Step. Make a note of the process for obtain­ing additional information if questions arise for each organization.

          Procedural Step. Stay up to date and attend any train­ing or information sessions provided by the various managed care organizations.

Principle. Requirements change, so it is important to stay up to date with the latest information.

          Procedural Step. Follow the guidelines for each managed care organization before providing services that require notification or authorization, when sub­mitting insurance claims, and when answering patient questions about insurance.

Obtaining Preauthorization (Precertification)

Most insurance companies have a process for reviewing services such as surgery, treatment by a specialist, physical therapy, certain diagnostic tests, and so on. The services and specific requirements vary greatly and tend to be stricter for managed care plans. The first element of the process is often to verify eligibility status—that is, deter­mine if the patient has health insurance coverage and will be able to receive health insurance benefits during the proposed time period. The patient’s insurance card identifies telephone numbers, fax numbers, and usually a website where eligibility status can be verified (Figure 46-2). The second element is to verify insurance benefits— that is, determine if the patient’s insurance covers the proposed service. The third element is to fulfill the insur­ance company’s requirements for notifying the insurance company and obtaining authorization to provide the service.

Preauthorization (or prior authorization) and precerti­fication are two terms used to indicate that the patient’s health insurance company has verified that the service is covered by the patient’s insurance policy and/or that the insurance company has reviewed the medical necessity for a service and agreed that a procedure is medically appropri­ate (utilization review). Different companies may use these terms in slightly different ways. In addition, some compa­nies require formal notification of the intent to provide or receive service, either by the provider or the patient. The requirement may be for a telephone call or submission of an electronic or written form depending on the insurance company.

Preauthorization (precertification) is usually required for certain medical procedures, therapy (e.g., physical therapy, occupational therapy, speech therapy), certain diagnostic procedures, and consultations by a specialist physician, surgery, and hospitalization. Most insurance carriers prefer that requests for preauthorization (precertification) be sub­mitted electronically using the insurance company’s own website or an affiliate. The response is usually also provided electronically, usually with a form that can be printed and filed in a paper medical record or downloaded to an electronic medical record.


The most commonly used insurance form in the medical office is the CMS-1500. This form began as the Health Insurance Claim Form, which was approved for use by the American Medical Association in 1975. It was gradually accepted by various insurance plans for payment of claims by those plans. In 1990 this form was revised and printed in red. It became the required form for Medicare claims in 1992. It is discussed in greater detail in the next section.

Another commonly used form is the UB-04 form, which is used by hospitals and other institutions to submit paper insurance claims.

The CMS-1500 Claim Form

Since the 1950s the Health Insurance Association ofAmerica has sought to have all medical insurance claims filed on a common form. After considerable work to develop a univer­sal claim form, most insurance companies will accept the CMS-1500 form, either alone or as an attachment to the company’s own form. This form was updated in 2005 to accept the NPI, a 10-digit identifier required for all health care providers that replaces all previous identification (ID) numbers (Figure 46-3). A claim form with minor revisions to accept ICD-10-CM diagnosis codes will be added.

Guidelines for Processing Insurance Claims

Because payment of a significant part of the bill for most patients is made by a third-party payor, it is important for the office to prepare and track insurance claims so that claims are processed in a timely manner without mistakes that will prevent or delay payment. This improves the cash flow for the office and avoids the need for the medical assis­tant to take extra time to correct errors. There are several general guidelines to facilitate the claim submission process.

         Enter all patient and insurance information correctly into the computer, and be sure that insurance infor­mation is updated at each visit with an updated pho­tocopy of the patient’s insurance card.

          Be sure there is a signature on file for each patient for whom an insurance claim is submitted.

          Be aware of and follow requirements for all insurance companies related to verifying patient coverage, noti­fying before procedures, obtaining prior authoriza­tion, and using facilities such as laboratories, hospitals, and surgery centers as required by the insurance carrier.

          Follow the correct procedure to transmit electronic information (which will be discussed later) or com­plete paper claims (when they are accepted) so that they can be read by automated equipment.

          Proofread all claims for accuracy before submitting them. Numbers that are incorrect by one digit, missing information, and/or incorrect information can result in an automatic claim rejection. Be sure to submit additional information with a claim if it is required.

          Submit claims or claim information promptly, and follow up to make sure that claims have been proc­essed by the insurance carrier.

          Follow up to correct and resubmit claims rejected for errors in a timely manner.


In the medical office, the medical assistant usually pre­pares insurance claims using a computer billing program or submits claim information to an insurance billing clearinghouse. Since 2004, federal programs such as Medi­care require electronic claim submission unless the office has been granted a waiver that allows submission of paper claims. Nevertheless, the medical assistant must know what information should be included so that each claim form can be reviewed before submission (Procedure 46-3).

Carrier Information

The name and address of the insurance company to which the claim will be sent is printed in the top section of the insurance claim form. For paper claims this address should be entered in uppercase letters without punctuation (except for the hyphen in the ZIP+4 code.)

Patient and Insured Information

Patient Information

The patient section contains the patient’s basic demo­graphic information. This includes the patient’s name, address, date of birth, and sex. It also identifies whether the physician accepts assignment of benefits, which is authorized by the patient’s signature. Instead of asking patients to sign every insurance claim, the phrase signa­ture on file or the abbreviation SOF is often used to indi­cate that the office maintains a copy of the patient’s signature authorizing submission of the claim and assign­ment of benefits.

Outcome Complete or review a CMS-1500 insuranceclaim form.
• Patient information• Insurance claim form
• Patient account or ledger• Computer with medical billing program
• Copy of the patient’s insurance card or computer patient information screen• Printer

         Procedural Step. Assemble information needed to prepare an insurance claim, including a claim form, information about the patient, the patient account or ledger, and a copy of the patient’s insurance card or insurance information. Review the claim form guide­lines for the specific insurance carrier.

         Procedural Step. Enter (or review) information as required on the CMS-1500 form according to the fol­lowing information. If paper claims will be submitted to be scanned by intelligent character recognition (ICR), use only capital letters and do not use commas, dollar signs, or other punctuation.

Principle. Most insurance companies use ICR scan­ning to digitize information on paper claims, and the equipment works best when the guidelines outlined earlier have been followed.

         Procedural Step. In the carrier section, enter or validate the name and address of the insurance company to which the claim will be sent using the following format: Line 1: Name of carrier

Line 2: First line of address

Line 3: Second line of address (if needed)

Line 4: City [space] State [space] ZIP


                  line address:


                   line address:



14. Procedural Step. Complete or review the patient and insured information on the claim form.

Box 1—The type of insurance is indicated with an X. Only one box can be marked. Insurance obtained through employment is a Group Health Plan.

Box 1a—The ID number of the individual who is insured as shown on the insurance card.

Box 2—The patient’s last name, first name, and middle initial (separated by spaces).

Box 3—The patient’s date of birth in the format MM DD YYYY and the patient’s sex (M or F) marked with an X.

Box 4—The name of the insured using the format last name, first name, middle initial (separated by spaces). If the patient and the insured are the same, this box does not have to be completed.

Box 5—The patient’s mailing address beginning with the street. Use the two-letter state code. Do not use commas, periods, or other punctuation in the address with the exception of the hyphen in a nine­digit ZIP code. Do not use a hyphen or space as a separator in the telephone number.

Box 6—An X in the box that defines the patient’s rela­tionship to the insured (i.e., person whose name is on the insurance policy). The choices include self, spouse, child, and other.

Box 7—The insured’s mailing address beginning with the street. Use the two-letter state code. Do not use commas, periods, or other punctuation in the address with the exception of the hyphen in a nine­digit ZIP code. Do not use a hyphen or space as a separator in the telephone number. Complete this box if Box 4 is completed.

Box 8—The boxes that best describe the patient’s marital status and employment status are checked. If the patient has insurance through the employer, assume that he or she is employed. If the patient is a college student (older than 18), it may be impor­tant to determine if he or she is a full-time student. The choices include single, married, and other, and employed, full-time student, and part-time student.

Box 9—If there is secondary insurance, the insured’s name using the format described for Box 4.

Box 9a-d—If there is secondary insurance, the sub­scriber policy (ID) or group number and subscriber date of birth, sex, employer, and insurance plan name.

Box 10a-c—Information related to the cause of the patient’s condition(s). The correct boxes are checked (yes or no) to answer the questions. If the patient’s condition was caused by an automobile accident, the state where the accident occurred is identified using the correct two-letter code.

Box 11—The insured’s policy group or FECA number.

Box 11a-d—If the patient is the insured, only box 11d must be completed. The insured’s date of birth in the format MM DD YYYY and the insured’s sex (M or F) marked with an X. The insured’s employer and insurance plan name. An X is used in the correct box to indicate if there is additional insurance (yes or no). If “yes” is selected, Boxes 9a-d are filled out.

Box 12—If the office has on file the patient’s signature on a similar permission form, the initials “SOF” or the words “Signature on File” are placed in this box. Otherwise, the patient must sign and date the form.




Patient and insurance information section.

Box 13—If the office has on file the patient’s signature on a similar permission form, the initials “SOF” or the words “Signature on File” are placed in this box. Otherwise, the patient must sign and date the form.

5. Procedural Step. Complete the physician or supplier information using information from the patient charge slip.

Principle. If incomplete or incorrect information about primary and secondary insurance plans is given, the claim will be denied.

Boxes 14-16—Not usually required for Medicare, Medicaid, TRICARE, CHAMPVA, and most private insurance. If these boxes must be filled in, the dates are obtained from the patient’s medical record and/or the physician.

Box 17—Name of the physician who referred the patient.

Box 17a—Blank.

Box 17b—The 10-digit NPI number of the referring physician.

Box 18—If the patient’s claim is for a hospitalization, either a visit or surgery performed when the patient was hospitalized, and the dates of hospitalization. Otherwise, the box is left blank.

Box 19—Left blank unless instructed by a specific insurance carrier to use this box for information specific to that carrier.

Box 20—“No” is usually checked. If the office paid for outside laboratory services that are not itemized on one of the lines in Box 24, “yes” is checked. If “yes” is checked, enter the charges with a space between the dollars and cents. Only one outside service can be billed per claim form.

Box 21—The ICD code for up to four diagnoses. Use the most specific code possible according to the current diagnostic coding system (ICD-9-CM or ICD-10-CM). Leave a space for the period on the form.

Box 22—Left blank unless the claim is a Medicaid resubmission, when the code and original reference number are entered.

Box 23—Left blank unless a referral, preauthorization, or precertification number was assigned by the insurance company.

6. Procedural Step. Enter information in Box 24 on lines

1-6 for each procedure that is being billed to the insur­ance company. For more than six procedures, complete

an additional CMS-1500 form.

Box 24A—The date service began under the “From” section in the format MM DD YYYY in the unshaded area. If the service occurred on 1 day only, the “To” section is left blank; otherwise, the date service ended.

Box 24B—The code for the place of service from Table 46-1.

Box 24C—This box is usually left blank. For some carriers, a “Y” is placed in this box if the service is an emergency service.

Box 24D—The CPT or HCPCS code and modifier(s) (if any) in the unshaded area.

Box 24E—The number(s) (from 1 to 4) that point to ICD-10-CM code(s) in Box 21 that justify the pro­cedure. Only one digit can be used in this box for Medicare claims.

Box 24F—The charges in the unshaded area, leaving a space between the number of dollars and the number of cents instead of using a decimal point.

Box 24G—If charging for more than one of the same procedure (e.g., visits to a hospitalized patient on 3 consecutive days), the number of units of the pro­cedure charged in the unshaded area. Otherwise, the number 1.

Box 24H—Left blank unless the patient is enrolled in the Medicaid program for early, periodic, screening, diagnosis, and service (EPSDT).

Box 24I—Blank.

Box 24 J—The 10-digit NPI number of the individual who provided service in the lower portion.

17. Procedural Step. Complete the remaining boxes on the

CMS-1500 form.

Box 25—The tax ID number. If the Social Security number of an individual physician is used, box “SSN” is checked. If the employer ID number of a group practice is used, box “EIN” is checked.

Box 26—The patient account number. The box is left blank if there is no patient account number. Hyphens should not be used in this box.

Box 27—If the physician accepts assignment of bene­fits, an X is placed in the “yes” box. If assignment of benefits is not accepted, an X is placed in the “no” box.

Box 28—The total charges with a space between the number of dollars and the number of cents.

Box 29—The amount paid toward the covered charges, including any copayment. If the amount is zero, the box is left blank.

Box 30—The balance due, with a space between the number of dollars and the number of cents.

Box 31—SOF, Signature on File, or the physician’s legal signature including credentials and the date.

Box 32—The name, address, city, state, and ZIP code of the facility where the services were provided without punctuation. If services were provided at the same address as the billing address, this box, as well as 32a and 32b, can be left blank.

Box 32a—The 10-digit NPI number of the service facility location.

Box 32b—For purchased diagnostic services (box 20) insert the supplier’s PIN.

Box 33—The name, address, and telephone number of the physician group or supplier of services without punctuation. The telephone number is entered to the right of the title of the field without a hyphen. A hyphen is used in a nine-digit ZIP code after the fifth digit.

Box 33a—The 10-digit NPI number of the physician group or supplier of services.

Box 33b—Blank.

8. Procedural Step. Submit claim according to office policy. Copy a paper form before mailing, and keep the copy in an insurance claims file.


Provider and supplier section.

What Would You Do? What Would You Not Do?

Case Study 2

Daniel Litton is a 14-year-old new patient who has an appoint­ment with one of the dermatologists in the office. He is brought to the office by his mother, who helps him fill out the new patient information form. In the section for insurance information, his mother indicates that he is covered by family insurance plans through both his father and his mother. His mother says, “I hope you will bill my insurance for him because I have better coverage for things like this.” ■

Table 46-1Place of Service Codes Used for Billing in the Medical Office
CodePlace of Service
21Inpatient hospitalization
22Outpatient hospitalization
23Emergency room—hospital
24Ambulatory surgical center
25Birthing center
26Military hospital or clinic
31Skilled nursing facility
32Nursing facility
33Custodial care facility

From Hunt SA: Saunders fundamentals of medical assisting, St Louis, 2007, Saunders.

Subscriber and Insurance Information

The insurance information part of the insurance claim form includes the following information about the insured (sometimes called the subscriber or the guarantor): the name of the insured, address, and relationship to the patient. (It is important to create a computer record for the guarantor, the individual with financial responsibility and/or insur­ance, if he or she is not a patient. In addition, for employer- sponsored plans, the employer’s name is listed. The insured has an ID number. In a family plan, other family members may use the same number as the insured, or each may be assigned a different number. For a group plan there is also a group number that is common to all members who obtain insurance from that employer or through that group.

If there is insurance in the name of a second party, this is also included on the claim form with the appropriate information about the insurance policy and ID (policy) and group numbers. On every claim form, information must be included to identify whether the claim relates to a work injury, auto accident, or other accident. This helps the insurance company identify which insurance is responsible for covering the claim.

Physician Information

The information about the medical service provided is entered in the lower half of the insurance claim form. In addition to information about the medical problem, the International Classification of Diseases, (ICD ) code for each diagnosis (up to four) is listed. Each procedure must be linked to a primary diagnosis code to justify the procedure. On the lower lines, information about each procedure is given, including the date of service, place of service, pointer to the procedure code, charge for the service, number of units being billed, and NPI number for the provider of each service. See Table 46-1 for a list of codes commonly used for place of service when billing from the medical office. A revised claim form with minor changes to accommodate ICD-10 diagnosis codes will be used after June 2013.


Electronic Claims

Electronic submission speeds things up enormously. Sub­mission is instantaneous, instead of taking a few days to move through the mail. The office may submit insurance claims directly to the insurance company or submit them to a clearinghouse that processes the data and submits the claim to the appropriate carrier. The procedure for submis­sion depends on the computer software used by the office or clearinghouse. Insurance company personnel cannot make errors inputting the information into the company’s computer system because the transmission is computer to computer.

Faster delivery and faster and more accurate processing means faster reimbursement. If electronic claim submission is coupled with electronic payment from the company to the practice’s operating account, the entire turnaround time from submission to money in the bank can be days instead of weeks.

All parts of the Health Insurance Portability and Account­ability Act of 1996 (HIPAA) affect insurance billing, but an important provision is the Transactions and Code Set Rule. This rule requires all health care providers to use American National Standards Institute (ANSI) technical content and format specifications for electronic transmis­sions. The electronic data interchange (EDI) Health Care Claim Transaction set 837P defines the format that must be used to submit health care claim billing information electronically by medical offices or to transmit this informa­tion between and within agencies involved in the reim­bursement process. Because of the change from ICD-9 to ICD-10 diagnosis codes, the version of 837P has changed from ANSI version 4010A1 to ANSI version 5010 effective January 2012. This change as well as the change to ICD-10 codes affects the computer systems of almost all medical offices. Usually a new version of the office’s electronic billing software incorporates the required changes.

Paper Claims

The CMS-1500 form is printed in red to facilitate optical scanning when paper forms are submitted. Although rarely used, paper claim forms can be from medical office supply companies. For efficient processing, it is rec­ommended to use all capital letters and no punctuation, to be sure that all information is within the required box, and to proofread for typographical errors that might cause the claim to be rejected. The medical assistant must be sure that the insurance company accepts paper claims. (Although there are some exceptions, in general, Medicare and Medicaid now require that all claims be submitted electronically.)

If the office submits claims by mail, the frequency of submission depends on the size of the office, the number of personnel devoted to processing claims, and the number of patients seen who are covered by any particular insurance plan. Submission is usually done daily or weekly.


Reimbursement is the payment received by the medical practice from the insurance company for the services performed.

Using a Claims Register

A record of every insurance claim filed should be kept using an insurance claims register. An insurance claims register can be kept either manually or on the computer (Figure 46-4).

What Would You Do? What Would You Not Do?

Case Study 3

Maria Santos, a 33-year-old woman, has been seen in the office for a physical examination. When reviewing insurance claims in the computer before submission, Sandra notices that the name of the insured on the claim for Maria Santos is Jose Santos, and his date of birth is the same as her date of birth. Sandra also notices that in box 8 there is an X beside the word “Employed.” ■


Sandra O’Keefe: My externship was done in the office of a single gynecologist in a medium- size city. Although the office had a computer billing program, we submitted most of the insur­ance claims on paper. After I had been at the office for several weeks, the office manager started having me fill out some insurance claim forms by hand. Then she would have me print the forms on the computer and compare my form with the computer-generated form. She said I needed to understand how to fill out the form myself, even if I didn’t usually do it, so that I would know what kind of information should be in each box. At first I found it very confusing, but after a while I began to know what to look for. For example, an insur­ance company will deny a claim for a Pap test if the sex of the patient is given as male. I was always glad that I had some experience with insurance, although I don’t think I realized how complex it really is until I actually began to work as a medical assistant. ■

The claims register includes the claim number (the number given to the claim as part of the office’s tracking system); the patient’s name and insurance group or policy number; the insurance company’s name; the date and amount of the claim; a column for any follow-up actions taken (by mail or telephone); the date and amount of the paid claim; and any difference between the amount submit­ted and the amount paid.

The medical assistant should review the claims register on a regular basis to be sure that all claims have been paid and that the insurance company has not denied services that should be covered or paid less than it should for those ser­vices. If a pattern of rejected claims is seen, the medical


Figure 46-4 Insurance claims register.

Figure 46-5 Sample explanation of benefits (EOB) form.

assistant should work together with other office staff to improve systems so that claims are not denied.

Explanation of Benefits Forms

After payment has been made by the insurance company to the physician, or if a claim is being denied, both the physi­cian and the patient receive an explanation of benefits (EOB) form. Although each insurance carrier has its own form, the type of information contained on any EOB is similar, as shown in Figure 46-5. If the insurance company is denying the claim, the physician may also receive a remit­tance advice form, showing why the claim was disallowed.

Claims are usually denied for one of the following reasons: transposed names or numbers, incomplete infor­mation, incorrect or incomplete codes, or information that does not match codes or other information (Table 46-2). Claims may also be denied for late submission or late resub­mission of a denied claim.

Follow-up and Resubmission of Claims

If a claim is denied, it should be resubmitted immediately, following any advice given by the company on the remit­tance advice form. Any questions about a denial should be discussed with a provider relations representative at the company.

If claims are not being paid or denied in a timely fashion, follow-up is in order. Follow-up can be made via letter or over the telephone. The claims log can be used to find all claims to any company that are becoming delinquent and to follow up with a call or letter.

Table 46-2 Common Errors on Insurance Claim Forms
Type of ErrorExample
Transposing names or numbersReversing the name of the patient with the subscriber (guarantor) Reversing the primary insurance with the secondary insurance Transposing numbers in one of the identification numbers
Missing informationMissing signatures or signature stamps Missing or inaccurate physician national provider identifier number for each service, or not a physician registered with plan Required attachments missing (e.g., pathology report) Incomplete boxes No preapproval or preauthorization number
Inaccurate or incomplete codesInaccurate procedure or service codes (CPT or HCPCS) Missing modifier
Information does not match codes or other informationDiagnosis inconsistent with patient gender Diagnosis does not justify procedures performed Total amount of billing does not agree with services provided Place of service inconsistent with procedure code

From Hunt SA: Saunders fundamentals of medical assisting, St Louis, 2007, Saunders.


Submitting claims for procedures that were not performed, coding for a higher level of care than can be justified by the medical record, and knowingly billing an insurance company for services to an uninsured individual are examples of insurance fraud. The medical assistant should be aware that fraud is a crime and can result in legal action against any individual involved. Individuals who have committed Medicare fraud may be excluded from participation in Medicare, Medicaid, or any other government health program. For the Medicare program alone, fraud and abuse cost taxpayers bil­lions of dollars every year, even though the CMS encourages individuals to report any suspected Medicare fraud. The Red Flags Rule of 2009 (discussed in Chapter 37) describes the medical office’s responsibility to make every attempt to detect identity theft so that insurance companies are not billed for services to uninsured individuals. ■

What Would You Do? What Would You Not Do? responses

Case Study 1

What Did Sandra Do?

          Explained to the patient that the original referral authorized treatment of only the lesion on the patient’s neck, and the insurance company would not pay for other treatment without authorizing it.

          Explained that she would contact the insurance company and primary care physician and take care of any required paperwork.

          Promised to minimize delay as much as possible.

          Told the patient that she would be responsible for the cost of removal if proper authorization was not obtained from her insur­ance company.

What Did Sandra Not Do?

          Did not assume that the referral covered additional lesions not specifically mentioned on the referral form.

          Did not assure the patient that her insurance would automati­cally cover the cost of removing the additional lesions.

          Did not schedule the removal of the additional lesions until she had received insurance authorization or the patient promised to pay for the procedure.

What Would You Do/What Would You Not Do?

Review Sandra’s response and place a checkmark next to the

information you included in your response. List the additional infor­mation you included in your response.

Case Study 2

What Did Sandra Do?

          Explained to Daniel’s mother that there are rules governing coverage of children when both parents have insurance plans that cover their children.

          Asked Daniel’s mother for her birth date and her husband’s birth date.

          Explained to Daniel and his mother that usually children are covered by the insurance of the parent whose birth date comes first in the year.

          Asked Daniel’s mother which insurance plan covered her chil­dren for their ordinary medical care.

What Did Sandra Not Do?

          Did not promise to send the insurance claim to the carrier the mother preferred unless it was the primary insurance carrier.

          Did not tell the mother not to worry because she would take care of it.

          Did not tell Daniel’s mother that it was her responsibility to find out which insurance was the primary insurance.

What Would You Do/What Would You Not Do?

Review Sandra’s response and place a checkmark next to the

information you included in your response. List the additional infor­mation you included in your response.


What Would You Not Do? RESPONSES—contd

Case Study 3

Page 1101

What Did Sandra Do?

          Checked the new patient information form to be sure that the information about the insured’s name and date of birth had been entered correctly because incorrect information could lead to denial of the insurance claim.

          Checked the new patient information form to be sure that the patient had listed an employer.

What Did Sandra Not Do?

          Did not assume that it was just a coincidence that the husband and wife had the same date of birth.

         Did not assume that a few errors on the insurance claim form would not matter.

         Did not assume that the information in the computer would always be correct.

What Would You Do/What Would You Not Do?

Review Sandra’s response and place a checkmark next to the information you included in your response. List the additional infor­mation you included in your response.


Medical Term Word Parts Definition





Coordination of benefits Copayment Deductible

Diagnosis-related group (DRG) Eligibility Explanation of benefits (EOB) Fee-for-service insurance Fiscal intermediary

Formulary Group plan Guarantor Indemnity

Assignment of benefits Beneficiary Benefit Birthday rule

Authorization for insurance reimbursement to be made to the provider of health service rather than the insured individual.

A person who can receive benefits under an insurance plan.

Payment for a covered service under a health insurance plan.

If both parents of a child have a family health plan, the insurance plan of the parent whose birthday comes earlier in the year is defined as the primary insurance plan covering the child. The insurance of the other parent becomes secondary insurance.

A method of paying for insurance in which a fixed amount is paid to the provider per member for a specific time period regardless of the amount of care provided.

An insurance company.

A government health insurance program that covers dependents of military veterans with service-connected disabilities.

A percentage of the allowed charge for health services, which the patient is responsible for paying.

Rules followed by insurance companies so that no claim is reimbursed at more than 100% of the charges.

A fixed amount of money that the patient must pay for any health care service.

An amount of money that an insured person must pay annually before health services are covered by the insurance plan.

A system to determine Medicare reimbursement for a hospital stay on the basis of the patient’s diagnosis.

Enrollment status related to a health insurance plan.

A statement issued by the insurance company explaining reimbursement for specific procedures.

Insurance reimbursement that is directly related to the services provided and the amount charged by the provider.

An insurance company that contracts to review Medicare claims for the Centers for Medicare and Medicaid Services.

An insurance carrier’s official list of covered medications to be used by network providers.

One insurance policy that covers a group of people.

A person with financial responsibility for a bill who may or may not also be a patient.

An obligation to provide compensation for loss or damage.

Medical TermWord Parts Definition
Insured Managed careThe individual who has a specific insurance plan. A movement in health care based on reducing health care costs while providing high-quality care. The term may be used for the techniques used to reduce costs or for the companies that pay for the care provided.
MedicaidThe government insurance program for low-income individuals and families that is funded both by the federal government and by each individual state.
MedicareThe federal health insurance program that provides insurance coverage for the elderly, permanently disabled, and individuals with end-stage kidney disease.
Nonparticipating provider (nonPAR) Participating provider (PAR) PreauthorizationA physician who does not have any contract with a third-party payor. A physician who has a contractual agreement with a third-party payor. Verification from a patient’s insurance company that a procedure is covered by the patient’s insurance and/or agreement, after review, that the test or procedure is medically appropriate.
PrecertificationVerification from a patient’s insurance company that a procedure is covered by the patient’s insurance and/or agreement, after review, that the test or procedure is medically appropriate.
Premium Primary care provider Primary insurance ReferralAn amount of money paid in a given period to purchase health insurance. The physician chosen by a patient to provide general medical care and also to determine and authorize additional medical services the patient may require. The insurance company that must be billed first for any individual. The directing of a patient to a specialist physician by the primary care physician. Most managed care plans and some other insurance plans require the primary care physician to obtain prior authorization.
Reimbursement Resource-based relative value scale (RBRVS) Secondary insurance Self-referralThe amount paid for a procedure by insurance. A system to establish the Medicare fee schedule for Medicare Part B based on the service provided and the geographic location of the provider. Insurance that an individual has in addition to primary insurance. The process by which a patient makes an appointment with a specialist physician without requesting prior authorization from his or her primary care physician, usually because the patient’s insurance plan does not require it.
Signature on file (SOF) Third-party payor TRICAREAn indication on the insurance claim form that the signature of the patient is maintained by the medical office to authorize submission of insurance claims. Insurance carrier or managed care organization that pays health insurance claims. A government insurance plan that provides medical care to spouses and dependents of individuals on active duty in the military. Formerly this program was called CHAMPUS.
Usual, customary, and reasonable (UCR)A system for establishing the amount an insurance company will pay for a procedure. The reasonable charge is set by the insurance company on the basis of a physician’s usual (most frequent) charge for the procedure and the customary charge of other physicians in the same geographic area.
Utilization review Workers’ compensationReviewing proposed or current care to determine medical necessity. An insurance program that covers lost wages and health care costs of workers injured on the job or having work-related illnesses.


For information on the Centers for Medicare and Medicaid Services (Medicare, Medicaid, and CHIP):

Centers for Medicare and Medicaid Services: www.cms.gov

Medicare Coverage: www.cms.gov/center/PeopleWithMedicareCenter.asp

CMS-1500 Claim Form Fact Sheet: www.cms.gov/MLNProducts/downloads/form_cms-1500_fact_sheet.pdf For information on CHAMPVA

U.S. Department of Veterans Affairs: www.va.gov/hac/forbeneficiaries/champva/champva.asp For information on CMS-1500 form—National Uniform Claim Committee:

National Uniform Claim Committee: www.nucc.org

For information on health care options and health care law:

U.S. Department of Health and Human Services: www.healthcare.gov For information on TRICARE:

TRICARE Management Activity: www.tricare.mil

For information on U.S. Department of Labor—Office of Workers’ Compensation Progams:

Office of Worker’s Compensation Programs: www.dol.gov/owcp/owcpcomp.htm