Hospital Expense Benefits

Hospital expense coverage provides benefits for charges incurred in a hospital by a covered person (that is, the employee or his or her dependents) who is an inpatient or, in some circumstances, an outpatient. Every medical expense contract discussed defines what is meant by a hospital. While the actual wording may vary among insurance companies and in some states, the following definition is typical:

The term hospital means (1) an institution that is accredited as a hospital under the hospital accreditation program of the Joint Commission on Accreditation of Healthcare Organizations or (2) any other institution that is legally operated under the supervision of a staff of physicians and with 24-hour-a-day nursing service. In no event should the term hospital include a convalescent nursing home or include any institution or part thereof that (1) is used principally as a convalescent facility, rest facility, nursing facility, or facility for the aged; or (2) furnishes primarily domiciliary or custodial care, including training in the routines of daily living; or (3) is operated primarily as a school.

Inpatient Benefits
Hospital inpatient benefits fall into two categories: coverage for room-and-board charges and coverage for "other charges."

Room and Board. Coverage for room-and-board charges includes the cost of the hospital room, meals, and the services normally provided to all inpatients, including routine nursing care. Separate charges for such items as telephones and televisions are usually not covered. Benefits are normally provided for a specific number of days for each separate hospital confinement, a time period that may vary from 31 days to 365 days. Some contracts provide coverage for an unlimited number of days. For purposes of this time period, as well as for other benefits, most contracts stipulate that successive periods of hospital confinement are treated as a single hospital confinement unless they (1) arise from entirely unrelated causes or (2) are separated by the employee's return to continuous full-time active employment for some specified period of time, such as two weeks. For dependents, this latter requirement is replaced by one specifying that they must completely recover or remain out of the hospital for a certain period of time, such as 3 months.

The amount of the daily room-and-board benefit may be expressed in one of two ways: either a flat-dollar maximum or the cost of semiprivate accommodations. Under the first approach, benefits are provided for actual room-and-board charges up to a maximum daily amount, such as $500.

The majority of hospital expense contracts cover actual room-and-board charges up to the cost of semiprivate accommodations (that is, two-person rooms). The cost of a private room may be covered in full if it is medically necessary, and a few insurance plans provide additional coverage, usually a fixed daily dollar amount, for elective private room occupancy. Many hospital expense contracts include additional room-and-board benefits for confinement in an intensive care unit.

Other Charges. Coverage for "other charges" (often referred to as miscellaneous charges, ancillary charges, or hospital extras) provides benefits for certain services and supplies ordered by a physician during a covered person's hospital confinement, such as drugs, operating room charges, laboratory services, and X-rays. With a few exceptions, only the hospital portion of these charges is covered; any associated charges for such professional services as physicians' fees are not covered. The exceptions often include charges for ambulance services and anesthesia if anethesia is not covered as part of surgical expense benefits.

The amount of the benefit for other charges is usually expressed in one of the following three ways:

1. Full coverage up to a dollar maximum. This approach is most commonly found in contracts when the daily room-and-board benefit is also subject to a dollar limit. In most cases, this maximum is some multiple (often 20) of the daily room-and-board benefit. For example, a contract with a daily room-and-board benefit of $750 might have a $15,000 maximum for other charges.

2. Full coverage up to a dollar maximum (again, often expressed as a multiple of the room-and-board benefit) and partial coverage for a limited amount of additional expenses.

3. Full payment subject only to the duration for which room-and-board benefits are payable.

When coverage for ambulance services is provided, it is common to limit the benefit to a dollar maximum, such as $50 per hospital confinement. A few plans have a mileage limit in lieu of a dollar limit.

Preadmission Certification. As a method of controlling costs, most medical expense plans have adopted utilization review programs. One aspect of these programs, is preadmission certification. Such a program requires that a covered person or his or her physician obtain prior authorization for any nonemergency hospitalization. Authorization usually must also be obtained within 24 to 48 hours of admissions for emergencies.

The initial reviewer, typically a registered nurse, determines whether hospitalization or some type of alternative care is most appropriate and what the appropriate length of stay for the medical condition should be. If the preapproved length of stay is insufficient, the patient's physician must obtain prior approval for any extension.

Most plans reduce benefits if the preadmission certification procedure is not followed. Probably the most common reduction is to pay only 50 percent of the benefit that would otherwise be paid. If a patient enters the hospital after a preadmission certification has been denied, many plans do not pay for any hospital expenses, whereas other plans provide a reduced level of benefits.

Outpatient Benefits
Although hospital expense contracts did not originally cover outpatient expenses, today it is common to find coverage for such expenses arising from the following:

Surgery. The purpose of this benefit is to provide comparable coverage and thus lower hospital utilization when surgical procedures can be performed on an outpatient basis. It should be noted that this benefit covers only hospital charges or charges of outpatient surgical centers (such as the use of operating room facilities), not the surgeon's fee.

Preadmission testing. The first day or two of hospital confinement, particularly for surgical procedures, were historically devoted to necessary diagnostic tests and X-rays. This benefit requires the performance of these procedures on an outpatient basis prior to hospitalization and covers the costs as if the person were an inpatient. For benefits to be paid, these procedures must generally be (1) performed after a hospital confinement for surgery has been scheduled, (2) ordered by the same physician who ordered the hospital confinement, (3) performed in the hospital where the confinement will take place, and (4) accepted by the hospital in lieu of the same tests that would normally be performed during confinement. Benefits are paid even if the preadmission testing leads to a cancellation of the scheduled confinement.

Emergency room treatment. Hospital expense contracts commonly provide coverage for emergency room treatment of accidental injuries within some specified time period (varying from 24 to 72 hours) after an accident. In a few cases, similar benefits are also provided for sudden and serious illnesses. It should be noted that any emergency room charges incurred immediately prior to hospitalization are considered inpatient expenses.

Exclusions
While variations exist among the providers of hospital coverage (some of which result from state legislation), most hospital expense contracts do not usually cover expenses resulting from the following:

- Occupational injury or disease to the extent that benefits are provided by workers' compensation laws or similar legislation.

- Cosmetic surgery, unless such surgery is to correct a condition resulting from an accidental injury incurred while the covered person is insured under the contract or coverage of such surgery is mandated by the Women's Health and Cancer Rights Act.

- Most physical examinations (including diagnostic tests and X-rays), unless such examinations are necessary for the treatment of an injury or illness.

- Convalescent, custodial or rest care.

- Private-duty nursing.

- Services furnished by or on behalf of government agencies, unless there is a requirement for either the patient or the patient's medical expense plan to pay for the services. Under federal law, medical expense plans must generally pay benefits to the government for care in Department of Veterans Affairs (VA) or military hospitals on the same basis as they pay for care received elsewhere. However, if a plan does not pay charges in full because of deductibles, coinsurance, or plan limitations, the patient is not responsible for the balance. The exceptions to the law—meaning that the plan is not responsible for payment—include treatment in VA hospitals for service-connected disabilities and treatment of active-duty members of the armed services in military hospitals.

Mental Illness, Alcoholism, and Drug Addiction. In the absence of state mandates to the contrary, some hospital expense contracts either exclude (or provide limited benefits for) expenses arising from mental illness, alcoholism, and/or drug addiction. Benefit plans that cover more than 50 employees and that have benefit limitations pertaining to mental illness must be in compliance with the Mental Health Parity Act, on major medical coverage.

Maternity. Until the passage of the Pregnancy Discrimination Act, it was not unusual to exclude maternity-related expenses from hospital expense contracts. However, the act requires that benefit plans of employers with 15 or more employees treat pregnancy, childbirth, and related conditions the same as any other illness.

In the absence of state laws to the contrary, pregnancy may be and is sometimes excluded under group insurance contracts written for employers with fewer than 15 employees. If these employers wish to provide such coverage, it can usually be added as an optional benefit. In some cases, pregnancy is treated like any other illness covered under the contract. In other cases, benefits are determined in accordance with a schedule that most commonly provides an all-inclusive benefit for hospital, surgical, and certain other expenses associated with delivery. Regular physician visits and diagnostic tests may or may not be covered. Table below is an example of a maternity schedule.



A variation of this schedule that is often used by Blue Cross—Blue Shield plans provides a surgical benefit (possibly including visits prior to delivery) but covers hospital expenses on a semiprivate room basis.

An expense associated with maternity is the nursery charge for a newborn infant, which in most cases is equal to at least 50 percent of a hospital's normal room-and-board charge. This expense is not part of a maternity benefit, and a few hospital expense contracts do not cover the expense if the infant is healthy (since the contract covers only expenses associated with accidents and illnesses). However, many contracts do cover nursery charges, and a number of states require that they be covered.

Since 1998, group health plans have been subject to the provisions of the Newborns' and Mothers' Health Protection Act. This federal act is very broad and, with one exception, applies to all employers regardless of size and to self-funded plans as well as those written by health insurers and managed care plans. The exception is for plans subject to similar state legislation, which exist in more than half the states. The impetus for such legislation at both the state and federal levels arose over consumer backlash from the practice of an increasing number of HMOs and insurance companies limiting maternity benefits to 24 hours after a normal vaginal birth and 48 hours after a cesarean section. The act affects maternity benefits if they are provided. It does not mandate that such benefits be included in benefit plans. Of course, many employers are subject to other state and federal laws that do mandate maternity benefits.

The act prohibits a group health plan or insurer from restricting hospital benefits to less than 48 hours for both the mother and the newborn following a normal vaginal delivery and 96 hours following a cesarean section. In addition, a plan cannot require that a provider obtain authorization from the plan or insurer for a stay that is within these minimums. While a new mother, in consultation with her physician, might agree to a shorter stay, a plan or insurer cannot offer a monetary or nonmonetary incentive to the mother for this purpose. For example, follow-up visits from a home health nurse cannot be provided to mothers and children who are discharged early unless these visits are also provided to mothers and children who stayed in the hospital for the full period specified in the act. In addition, the plan or insurer cannot limit provider reimbursement because care was provided within the minimum limits or make incentives available to providers to render care inconsistent with the minimum requirements.

If a plan has deductibles or other benefit restrictions, these cannot be greater during the 48- or 96-hour period than those imposed on any preceding portion of the hospital stay prior to the birth.

Effect of Women's Health and Cancer Rights Act. The Women's Health and Cancer Rights Act amended ERISA and applies to group health plans as well as to individual medical expense insurance. Under the provisions of the federal act, any benefit plan or policy that provides medical and surgical benefits for mastectomy must also provide coverage for the following:

- Reconstruction of the breast on which the mastectomy has been performed

- Surgery and reconstruction of the other breast to produce a symmetrical appearance

- Prostheses and physical complications of all stages of mastectomy, including lymphedema

Prior to the act's taking effect, such coverage often was not available because of exclusions, particularly exclusions that applied to cosmetic surgery. Such coverage can be subject to deductibles and coinsurance provisions as long as it is consistent with those provided for other procedures under the plan or policy. Plan participants must be notified of the existence of these benefits on an annual basis.

Deductibles and Coinsurance
It is common for deductibles and coinsurance to apply to major medical expense coverage. In contrast, hospital expenses under basic hospital expense coverage (and benefits under other basic medical expense coverages as well) usually are not subject to deductibles or coinsurance. Rather, any limitations that exist are most likely to be in the form of maximum amounts that will be paid. It should be noted, however, that deductibles and coinsurance are more likely to be used for basic coverages than was once the case.