Insured "Out-of-Network" Beneficiaries Will Pay Less for Prescription Drugs

(11/10/09)- Andrew M. Cuomo, the New York attorney general announced the details of a new national database that would show how much insurance companies should reimburse patients who go out-of-network. What has been happening is that insurance companies were understating what was the "reasonable and customary' cost of the medical service was in the patient's area.

Under the reimbursement system for patients who go "out-of-network" the low estimation meant that it would result in greater out-of-pocket cost to the insured individual. To see more on this topic please see our items dated 6/30/09 and 4/12/09 below.

Usually a patient under most plans is reimbursed only 70% of the cost if he/she went out of the network. Thus if a doctor billed the patient $100 for the service rendered out-of-network, and the insurance company determined that the "reasonable and customary" fee should have only been $60, the insurer would only reimburse 70% of the $60 amount or $42, while the insured individual then pays the remaining $58 of the bill.

With the new database the consumer will be able to see what an insurer was likely to pay before they went to an out-of-network doctor.

As part of the settlement that Mr. Cuomo reached with United Health last January, the insurer agreed to stop operating the database as soon as a new one could be used

The insurance industry agreed to provide about $100 million in financing to help start a new nonprofit company, whose name FAIR Health is derived from Fair and Independent Research. Syracuse University will work with a research network composed of SUNY at Buffalo, Cornell University, the University of Rochester and SUNY Upstate Medical University along with United Health to establish the new database.

(6/30/09)- As a follow-up to our item dated 4/12/09, Congressional investigators in a report to the Senate Commerce Committee said insurance companies nationwide have failed to provide consumers with accurate or understandable information about how they calculate "reasonable" or "customary" charges for out-of-network amounts on their bills.

Ingenix Inc., a subsidiary of UnitedHealth Group Inc, owns the flawed databases. The company recently settled charges brought against it by New York State Attorney General Andrew Cuomo, as we discussed in that item. Senate Commerce Committee Chairman John Rockefeller (Dem.-W.Va) launched the committee investigation in the wake of that settlement.

Committee oversight staffers sought data from 18 large insurers that did not participate in the New York settlement. Among those 18 insurers were American International Group Inc., Humana Group Inc., the Kaiser Family Foundation, several Blue Cross Blue Shield units and UnumProvident Corp.

As a result of this practice the insurance companies were paying less for out-of-network care, and the insured individual was paying more than he/she should have been paying.

(4/12/09)- Have those of you who have a company health care plan, noticed that when you go out-of-network, that your insurance carrier sets a very low fee for the doctors charge, so that you bear more of the cost than you think you should?

This practice aroused the suspicion of New York attorney general Andrew M. Cuomo, and it resulted in a settlement with UnitedHealthGroup, one of the nation's biggest insurers agreeing to stop operating the databases, run by the company's Ingenix unit, and replace it with a new independent source of rate information.

Senator John D. Rockefeller IV, the West Virginia Democrat who is chairman of the committee on commerce is holding a series of hearings on this practice by the health-insurance companies. "This is about outright fraud, " Senator Rockefeller said in an interview.

Insurers usually reimburse patients for only 70% to 80% of the "reasonable and customary" cost of similar medical services in the area if an insured individual goes outside-the-network. Mr. Cuomo estimated that the industry's database had underestimated those rates by as much as 28%.

Earlier this year, UnitedHealth announced that it had reached a $350 million deal to settle class action lawsuits over the issue. That settlement is still subject to approval of he federal judge in New York who is overseeing the cases. Several of the lawyers for member of the class are not agreeing to the settlement.

(1/12/09)- Even though the cost for prescription drugs has risen exponentially in the last few years for both insured and uninsured, there recently was an interesting decision form the California high court that restricted the recovery by an emergency room facility for care to an insured patient.

The court struck down the practice of "balance billing" in which medical professionals, labs and hospitals seek to recover from their patients any amounts that their managed-care plans refuse to pay. The ruling means that the provider must either recover more from the insurance or managed-care company, or absorb the difference themselves.

The California Supreme Court overturned a lower-court ruling, and found that billing disputes over emergency medical care must be resolved solely between providers and health plans.

Connecticut, Pennsylvania and Alabama have banned balance billing, according to the California Department of Managed Health Care.

(8/13/00)-According to Scott-Levin, a Newtown, Pa., market research firm about 80% of the HMOs and pharmacy-benefit managers will now be offering a three-tier co-payment plan for prescription drugs. This is up from the 52% figure for 1998. For the first tier of co-pays, which will be for the generic drugs the amount will be about $15. For the second-tier, which will be for brand name drugs, the co-pay will be about $25. For the third-tier which would be for drugs that ordinarily would not have been covered the co-pays will be about $50. The good news therefore is that drugs that had not been previously covered will now be covered. The bad news is that for most of the beneficiaries of such plans they will be paying more of the cost for their prescription drugs.

With costs for prescription drugs rising sharply health insurance companies are devising revised systems to determine how much you will pay for these drugs under your health plan coverage. This is especially important for those of us over 65 years of age since on average we will use about 18.5 prescription drugs in a year. As a group this is the most profitable age category for the prescription drug industry.

The tremendous shift that has occurred in medical costs was highlighted in some recently announced numbers from Empire Blue Cross and Blue Shield. For the first time since these figures have been compiled the cost to the premium dollar of drugs (15.5%) will exceed the cost to the premium dollar of hospital care (14.9%).

In order to be able to meet the cost of this rise the health insurance companies are revising the methodology of payment from the beneficiaries. They are also devising new systems of payment to the hospitals to lower the cost structure for drugs in the hospitals. In this article we will examine some of these new systems so that you can anticipate what may be in store for you in the future.

To help contain the cost of the premium to its employees some employers are requiring higher co-payments from the employees for prescription drugs. In many cases the co-payment is a fixed percentage instead of the $5 to $15 figure. 20% is the figure most commonly being used in this system. Under this methodology deductible amounts are being established similar to the system used for medical insurance deductible coverage.

Another new system being utilized is a so-called 3-tier structure. Under these plans the beneficiary will co-pay the lowest amount if they use a generic drug. The cost under the next tier is a favored drug rate determined through prior negotiations between the insurance carrier and the various drug companies. The highest cost for a prescription drug will be paid for a drug that is not in one of the two prior categories. This type of plan is available only to smaller employees in New York State, but is pending approval for larger ones right now.

Hospitals are also being affected by the new cost containment systems being devised by the health insurance companies. Drug costs accounted for about 6% of a hospital's budget in 1995, and it is estimated that the cost will rise to about 10% of the budget in 1999. Much of this rise has been due to the increased cost of today's new drugs, but many claim that doctors are over-prescribing prescription drugs. The latest figures available from the HCFA show that while overall health care costs rose 5% in 1997, the cost of prescription drugs rose 14% in that year. To try and contain the costs for drugs for patients in hospitals, limits are being placed on the amount of money being spent per patient. Many hospitals are resisting the effort by the insurance carriers to place caps on the cost of prescription drugs for their patients. This system had been tried in California in the early 1990s but it caused tremendous hardships both for the patients and the hospitals.

"How to Select a Nursing Home" 

By Allan Rubin
updated November 10, 2009

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