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Insurance Type:

What's Medically Necessary, and Traditional Vs. Self-Funded Health Insurance Plans

Appendix A: Ten Frequently Asked Questions about Health Insurance Page 3

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Question 5:

My insurer recently rejected a large claim for a hospital stay. Their explanation was that the hospitalization was not medically necessary. My doctor told me that it was essential that I enter the hospital. How can the insurer now say that the hospitalization wasn't medically necessary?

Answer:

Some insurance companies may use the phrase "not medically necessary" to mean that a particular treatment, test, or procedure is not covered under the terms of the policy. However, the phrase is also used to mean that more information is needed before a determination can be made as to whether the treatment, test, or procedure was medically necessary under the terms of the policy. In this case, your insurer appears to be using the phrase in the latter sense. Thus, I think that the insurer simply requires more information -- perhaps including a copy of the itemized hospital bill and a letter from your doctor explaining the medical need for the hospitalization -- before making a determination on whether the hospitalization is covered by the policy.

Question 6:

I've just begun work with a new company. Health insurance is provided through a self-funded plan. My previous employer provided health insurance through a traditional plan. What's the difference between a self-funded plan and a traditional health insurance plan?

Answer:

Self-funded plans may offer benefits that are equal to -- or more comprehensive than -- traditional insurance plans. However, there are important differences between the two. One difference is that self-funded plans are sponsored by a corporation, a union, an association, or a state or municipal government agency, while traditional plans are generally established by insurance companies. In addition, self-funded plans are regulated under a federal law called ERISA, not under state law, in terms of benefit-related issues, and are generally exempt from state laws related to health insurance benefits.

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