Healthcare insurance principles

Actuarial Study

Health insurance insures against the risk of incurring medical expenses. For the health insurance company to be able to afford these expenses they have to know how much money they will be expected to pay out, and have the financial resources to do so. An actuarial study is a statistical analysis of a population based on its utilization of healthcare services and demographic trends of the population. The results of this study are used to estimate healthcare plan premiums or costs. An actuary is a trained professional who specialize in determining policy rates, calculating premiums, and conducting statistical studies


An appeal is a formal process or request to reconsider a decision made not to approve an admission or healthcare services, reimbursement for services rendered, or a patient’s request for postponing the discharge date and extending the length of stay. Different insurance policies have different appeal rights and processes; the following is a general overview: 

  •  1st level appeal- a request for an additional review of the decision to deny service. To meet 2005 URAC standards the appeal must be done by a physician who was not involved in the original denial.
  • Peer-to-Peer Review- A request by the physician treating the patient, for a telephone review with the reviewer who denied the request.
  • External Review- A review done by an independent review organization. External reviews are typically done after the insurance companies internal review process has been exhausted.

Denials are often due to lack of information to support approving the request. Better communication and documentation provided to the insurance company at the time of request, would decrease the number of denials and therefore the number of appeal. This in turn saves the case manager the time of going through the appeals process. It also saves the patient the stress believing their needed services will not be covered.

Extra-Contractual Benefits

Extra-contractual benefits are benefits that are given to the insured, which are not covered under the health plan. This is almost always done as a cost savings to the insurance plan. One example would be a patient that is in a Skilled Nursing Facility for complex dressing changes, that has exhausted their home care benefit. It would save the insurance company money to give a homecare benefit beyond the contract limit in lieu of the Skilled Nursing Facility stay. 

Medical Necessity

Insurance will only cover healthcare that is medically necessary. The specifics of what are deemed medically necessary will vary by insurance plan. In general medically necessary services are those which are reasonable, necessary, appropriate and based on evidence based standards of care. 


Precertification or preauthorization is the process of obtaining and documenting advanced approval from the health plan before the medical services occur. When planning the patients care, it is important for the Case Manager to know if precertification is required and if so which benefits require it. 

Coordination of Benefits (COB)

 To prevent double payment for services when a subscriber has coverage from two or more sources the National Association of Insurance Commissioners has created COB guidelines. Although following these guidelines is not mandatory, most states and commercial insurances choose to utilize these COB provisions to determine which insurer is primary and secondary.

The primary plan is initially responsible for payment of benefits for covered services as if there was no other plan. After the primary has paid, the balance is passed to the secondary company which will pay according to their contract.

The following lists the order to determine which plan is primary:

  • If an insurance plan does not have a COB provision that plan must pay primary.
  • If none of the below apply the coverage that has been in force the longest is primary.


  • The Insurance plan covering the client as employee pays primary, over the plan covering as a dependent which pays secondary.
  • The insurance plan that covers an active employee is primary over the plan that covers a laid-off employee or retiree.
  • The insurance plan that covers and active employee is primary over a COBRA plan which is secondary.

Dependents of Married Parents
The birthday rule states- if the parents are married, the parent whose birthday comes first in the year is primary for the children.

  • If both plans cover the client as a dependent, and both plans have adopted the birthday rule, the birthday rule applies.
  • If both plans cover the client as a dependent, neither plan has adopted the birthday rule, and the parents are married, the fathers plan pays first.

Dependents of Non-married Parents

  • If both plans cover the client as a dependent and the parents are not married, primary coverage is determined by the court.
  • If no court determination has been made, the parent with custody is primary, followed by the spouse of the parent with custody, and finally the plan of the parent without custody.

Medicare is very complicated and I recommend taking a look at the chart on pages 6 and 7 at for better understanding. Below is a brief overview of the most common instances a Case Manager will encounter:

  • Age 65 or older and retired, Medicare is primary
  • Age 65 or older and covered due to patient or spouse working for employee with 20 or more employees, employer plan is primary.
  • Age 65 or older and covered due to patient or spouse working for employee with less than 20 employees, Medicare is primary.