Merritt Personal Lines Manual: Usual, Customary and Reasonable Fees
Most of the limits and conditions we've considered so far merely trim at the edges of indemnity health coverage. There are bigger changes that have impacted -- and usually limited -- coverage.
Beginning in the 1970s, some indemnity insurance companies borrowed a few cost-saving tricks from the federal government's Medicare program and started using schedules of usual, customary and reasonable (UCR) fees that they would pay for specific kinds of medical treatments.
Approved providers (a group slightly less rigidly defined than network providers in a managed care plan) would agree to accept these fees as full payment for each service provided -- within the policy's limits, of course.
The UCR amounts are determined by the insurance company. Periodically, the services provided and charges made by doctors and hospitals are reviewed by the insurance company. The review takes into account geographical differences that allow for differences in the charges relative to the provider's overhead expenses, location, etc. The insurance company then establishes UCR charges for specific services in a specific geographical area.
If an indemnity insurance company uses an UCR fee schedule -- and if he or she doesn't use a participating provider -- the insured may be responsible for the difference between the UCR fee and what the provider charges for a service.
Example: Julie has a tonsillectomy performed in a small farm community in central Nebraska. She is charged $1,500 for the procedure. By coincidence, Julie's friend Suzy has the same procedure performed at a New York City hospital and her charge is $2,000. It's possible that Julie's incurred expense of $1,500 for the tonsillectomy would be considered reasonable and customary by her insurance company. It is also conceivable that Suzy's $2,000 charge would be reasonable and customary for the New York City area. If so, their claims would be paid in full by their respective insurance companies.
On the other hand, assume that Julie incurs a $2,000 charge for her tonsillectomy. She hasn't reached the stop-loss point but has satisfied her deductible. Julie's insurance company will pay 80 percent of $1,500 -- the UCR charge -- or $1,200. Julie is responsible for 20 percent ($300) and now she must contend with a $500 excess charge. Her insurance company views the $500 as excess or unreasonable for that part of Nebraska. Julie has to pay $800 out of her own pocket to cover the expense. The excess is an additional out-of-pocket expense for Julie which is not counted by the insurer towards the stop-loss point or any other provision of the policy.
Doctors and hospitals would rather coordinate their fees with an insurance company's UCR schedule than fight it. They don't want to be identified with difficult claims...this sometimes brings scrutiny and slower payments.
In Julie's case, she could tell her doctor that her insurance company considers $1,500 to be a UCR fee for her tonsillectomy and will only reimburse that amount. The doctor may agree to accept the insurance company's reimbursement and Julie will only owe the $300 co-insurance portion.
The problem with UCR disputes is that a doctor may not consider a high fee to be unreasonable; only the insurance company does. And the insured is caught in the middle. Unfortunately, there is no simple answer when the insurance company deems a charge to be unreasonable.
One obvious preventive measure is for the insured to find out the cost of a procedure before it becomes a claim and then check with the insurance company to determine how much of this charge will be paid. This gives the insured the chance to discuss the fee with the insured's doctor before incurring any expense. And the insured's doctor will probably be more inclined to reduce the fee before it becomes a claims matter. Another alternative is to find a doctor or surgeon who will perform the surgery for the UCR charge as determined by the insurance company.
