Assignment of claim for hospital charges

TN | January 22, 2009

Q: I was advised that the claim for hospital charges must be filed by me and the check would be issued to me. is this correct?

A: This is a simple question with a long response to explain why some insurance allows payment to a hospital and other policies only pay the policyholder. The issue was selected for publication because an increasing number of Americans are caught unaware of the type of health insurance they carry. In order to take a closer look at the issue it is important to understand that the basic legal structure of any health insurance policy (other than an HMO or similar managed care plan) is a contract made directly between you and the insurance company. A hospital has no inherent right to make a claim on the policy or receive payment from the insurance company under the provisions of the insurance.

The practice of having a hospital submit the bill and receive payment directly springs from a separate agreement that a patient signs at the admission process. This is called an "assignment of claim" and is actually a separate contract from the insurance. An assignment of claim is a win/win for both the patient and the hospital but does not affect the insurance company. From the insurance company's perspective, the benefit amounts are the same regardless of who submits the bill or received payment. The patient avoids the tasks of submitting the claim and the insurance company gets increased financial assurance of through direct payment. Also, since the hospital billing staff is well-experienced with the insurance claim process moves more efficiently than if individual policyholders handled their own claims. Insurance companies accommodate assignment of claim notices primarily because it improves their claims processing efficiency and lowers insurance costs.

While assignment of claim is voluntary and not required for any insurance claim, the practice is so popular and widespread that we are not aware of any situation where a major U.S. hospital declined to take assignment of claim when it was available. In fact, in today's health care environment, failure to take assignment of claim equates to voluntarily giving up income, increasing billing and collection costs. Hospitals are not likely to take this route.

We suspect that your issue may be revolve around a type of insurance that does not allow assignment of claim. In the past, most major medical insurance policies contained a provision known as "co-ordination of benefits". (A few examples of major medical policies are Blue Cross PPO, Celticare and United Healthcare Golden Rule Insurance ). As a practical matter for patients, a downside of these major medical policies was that the coordination of benefits provision prevented effectively prevented them from providing 100% coverage. Now an increasing number of policies are defined benefit rather than major medical type. Fewer people can afford major medical insurance today and those who do have major medical insurance need supplemental insurance to cover the deductibles and out of pocket expenses that are often in excess of $5,000 on a typical hospital claim. The result was the rice in limited benefit plans that pay benefits directly to the insured rather than in the co-ordination process. Examples are AFLAC, Basic Health Insurance and Value Hospitalization.

Limited benefit insurance is more popular because t is more affordable but the obvious down side is lower benefits. One of the valuable features however, is that limited benefits insurance allows payment directly to the policyholder without a complicated claim process. For example, if your policy pays $1,000 per day for hospitalization, then this claim is paid directly to the policyholder regardless of the outstanding bill any other co-ordination of claim issues with any other insurance (like worker's compensation or auto insurance). This money may be used to cover deductibles and co-payments, provide for lost income, or any other purpose chosen by the policyholder. For this reason, many policyholders prefer insurance that does not allow assignment of claim and this is used as a "selling point" by AFLAC agents and other similar types of insurance agents. Not surprisingly, most of the lower cost insurance policies fall into this category.

At least one type of "new generation" low cost insurance called Core Health Insurance combines the two types of coverage by defining and limiting benefits but still allowing assignment of claim. This hybrid type of insurance that defines and limits the benefits, simplifies the claim process but allows assignment of claim at the option of the policyholder and this approach is likely to become more important in the future under national health care reform. We believe that it is great for Americans to have a choice of health insurance policies, but it is important to understand the distinctions between the choices and of course this is our role as enrollment advisers.  


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