Introduction
Generally, preferred provider insurance policies (“PPO policies”) offered by insurers or
nonprofit health service plans (hereinafter “carriers”) allow insureds to receive covered health
care services from preferred providers or nonpreferred providers.
1
The out-of-pocket costs for
an insured can be quite different for preferred and nonpreferred providers.
Each provider establishes a charge for the health care services the provider renders to patients.
Carriers develop fee schedules establishing the “allowed amount”, the amount the carrier
believes is appropriate for each covered health care service. The difference between the
provider’s charge and the carrier’s allowed amount is known as the balance bill.
Preferred providers are a part of the carrier’s provider network. They have entered into a
contract with the carrier establishing a common determination of the value of the health care
services. The allowed amount contractually agreed to for each health care service is specified in
the preferred provider’s fee schedule, a part of the contract between the insurer and the preferred
provider. If there is a difference between the preferred provider’s charge and the carrier’s
allowed amount, the contractual agreement between the preferred provider and the carrier
prohibits the preferred provider from collecting the balance bill from the carrier’s insured.
By contrast, nonpreferred providers are not a part of the carrier’s provider network. If there is a
difference between the nonpreferred provider’s charge and the carrier’s allowed amount, the
insured typically is responsible for paying the balance bill.
When a patient obtains health care services from a provider, the provider asks the patient to
“assign benefits” to the provider. When the patient gives a preferred provider an assignment of
benefits, the carrier sends payment for the allowed amount for the covered service, less any
applicable copayment, coinsurance or deductible amounts, directly to the preferred provider.
Some carriers will not accept an assignment of benefits provided by the patient/insured to a
nonpreferred provider. In this case, the carrier sends a check for the allowed amount, less any
applicable copayment, coinsurance or deductible amounts, to the insured. The insured is
responsible for paying the nonpreferred provider all amounts due, including the allowed amount
and the balance bill, if any.
The acceptance of assignment of benefits by carriers for nonpreferred providers has been the
subject of great debate. Physicians, particularly hospital-based physicians, maintain that when a
carrier does not accept an assignment of benefits it is difficult to collect the allowed amount from
the patient, thus increasing administrative costs and the charge for the health care services
rendered by the physician. Carriers respond that without the ability to reject an assignment of
benefits for nonpreferred providers, particularly hospital-based physicians, physicians will not
have an incentive to join the carrier’s provider network and costs for all insureds will increase.
Others note that balance billing unfairly increases cost for insureds and maintain nonpreferred
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Carriers may offer a PPO policy that requires insureds to receive most covered health care services only from
preferred providers. See Ins. § 14-205.1
2