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The fuzzy math of health insurance
When an insurer's idea of usual, reasonable and customary comes up short, you're stuck paying.
August 30, 2005: 2:26 PM EDT
By Sarah Max, CNN/Money senior writer

SALEM, Ore. (CNN/Money) – Consumer advocate Linda Sherry is an expert when it comes to reading fine print and getting through to customer service.

But when her health insurance company denied many of the charges related to a detailed physical, Sherry felt like the poster girl for aggrieved consumers.

"I came face to face with 'usual and customary,'" said Sherry, an employee of Consumer Action, a non-profit consumer group based in San Francisco. As a member of an indemnity plan, Sherry can see any provider she chooses and is then reimbursed for a percentage of the charge.

Patients often assume that the insurer will pay a set percentage – typically 80 percent – of the actual charge if they are in an indemnity plan or go out of network with a managed-care plan.

The reality is that insurers pay only a percent of what they determine "usual, customary and reasonable." If that amount is lower than the actual charge, the provider takes a loss or the patient is stuck paying the difference.

One of Sherry's tests cost $442, but her insurance company said it would pay only 80 percent of $121, which was the amount it considered usual, customary and reasonable.

"What is usual and customary? I went through every page of my inch-and-a-half thick manual and found one mention of it – in the glossary," said Sherry.

According to Lawrence Gelb, CEO of CareCounsel, a firm hired by companies to help employees resolve insurance claims, there is no regulation for determining what is usual and customary. And insurance companies don't disclose their rates before a procedure is billed.

"This is the great black box of the healthcare industry," said Gelb.

What's the big secret?

Insurance companies use various methods for determining the "UCR" for any given procedure in any given market, said Mohit Ghose, a spokesman for America's Health Insurance Plans, a trade group representing health insurers.

"One company's UCR may be different from another's UCR," he said.

The point is to make sure that insurance companies, and ultimately their customers, aren't responsible for charges that are unreasonably high. "The idea is to cut out the outliers," Ghose added.

Ideally, patients could find out what their insurer considers usual and customary before they go out of network to have a hip replaced or get a detailed physical. Yet, such information is not widely available.

"Physicians and patients have no understanding how insurers come up with these usual and customary fees," said Donald Palmisano, the former president of the American Medical Association. "Insurance companies have so much power, they can tell physicians to take [their fee] or leave it."

The association has sent letters to state insurance commissioners asking that they require insurance companies to make their fee schedules available to the public.

It is also a plaintiff in a class action lawsuit against United Healthcare. The suit contends that true reasonable and customary charges for certain procedures are substantially higher than the insurance company allows.

A United Healthcare spokesman would not comment on the lawsuit but said that the company lets members estimate the cost of a procedure in their areas using its "treatment cost estimator" tool.

To be fair, healthcare providers aren't always forthcoming about what they charge for their services. "Asking a doctor what they'll charge ahead of time is like pulling teeth," said CareCounsel's Gelb.

That's exactly what patients need to do, said Ron Pollack, executive director of Families USA, a national health advocacy organization.

"The culture of billing in healthcare is different from any other product," he said. "People don't ask about the cost of services and physicians don't volunteer it. Patients are clueless."

His advice? "Find out from the physician what they'll charge and ask the insurance company what they're going to pay," he said. "They may not tell you but you need to keep asking."

After the fact, patients should question both insurers and providers if there is a significant discrepancy between the cost of the service and the amount that is covered. Sherry recommends taking the diagnostic code for the procedure and calling other providers to get a sense of what the customary charge is for your area.

If you think you have a case, appeal first to the insurer, then to the state department of insurance.

"Even if you lose, the message will start to be heard," said Sherry, who also recommends writing letters to elected officials and key executives at your insurance company.

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