Indemnity Health Plans: Key Features of Consumer Complaint and Appeal
Systems (Letter Report, 06/30/98, GAO/HEHS-98-189).

Pursuant to a congressional request, GAO reviewed the key features that
are important to indemnity plans' complaint and appeal systems, focusing
on: (1) the elements that are considered important to a system for
processing indemnity plan member complaints and appeals; (2) the extent
to which indemnity plan complaint and appeal systems contain these
elements; and (3) how indemnity plans compare with health maintenance
organizations (HMO) in the extent to which their complaint and appeal
systems incorporate recommended elements.

GAO noted that: (1) guidelines issued by the regulatory and consumer
advocacy groups in GAO's study identified nine elements as important to
indemnity plan complaint and appeal systems, falling into three general
categories: (a) timeliness; (b) integrity of the decisionmaking process;
and (c) communication with members; (2) nearly all the recommended
elements were present in the policies of at least half of the plans in
GAO's study; (3) five elements--explicit time periods for resolving
member appeals, appeal decisions made by medical professionals with
appropriate expertise, provision of information on how to register a
complaint or appeal, plan acceptance of oral complaints, and inclusion
of appeal rights in notice of denial of coverage or payment--were
included in the policies of a large majority of indemnity plans in GAO's
study; (4) however, the remaining four elements--expedited review of
appeals in urgent situations, appeal decisions made by individuals not
involved in the initial decision, plan acceptance of oral appeals, and
written notice of appeal denials including further appeal rights were
present in the policies of only two-thirds or fewer of the plans
reporting; (5) taken together, a smaller proportion of indemnity plans
in GAO's study incorporated recommended elements in their complaint and
appeal systems than did HMOs in GAO's previous study; and (6) when
compared with HMOs operated by the same carrier, indemnity plans
generally incorporated about the same proportion of recommended elements
as did HMOs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-189
     TITLE:  Indemnity Health Plans: Key Features of Consumer Complaint 
             and Appeal Systems
      DATE:  06/30/98
   SUBJECT:  Health maintenance organizations
             Health care planning
             Health care programs
             Written communication
             Consumer protection
             Information disclosure
             Health insurance
             Comparative analysis

             
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Cover
================================================================ COVER


Report to Congressional Requesters

June 1998

INDEMNITY HEALTH PLANS - KEY
FEATURES OF CONSUMER COMPLAINT AND
APPEAL SYSTEMS

GAO/HEHS-98-189

Indemnity Plan Complaints and Appeals

(108362)


Abbreviations
=============================================================== ABBREV

  FUSA - Families USA
  HIAA - Health Insurance Association of America
  HMO - health maintenance organization
  NAIC - National Association of Insurance Commissioners

Letter
=============================================================== LETTER


B-280264

June 30, 1998

The Honorable Paul Coverdell
The Honorable Larry Craig
United States Senate

About one in every five Americans who obtain health coverage from
their employers is enrolled in a traditional indemnity health plan.\1
In an indemnity plan, members choose their physicians, physicians
provide care, and the insurer pays all or some portion of the
resulting bills.  Indemnity plans commonly require that elective
hospitalizations and procedures be authorized before they occur.  A
plan could refuse to pay, or reduce payment, for a service on the
grounds that it was not covered in the insurance contract, was not
medically necessary, or was not properly authorized.  It is in these
areas, denial of payment or coverage of services, that disputes
between the member and indemnity plan commonly arise.  Under
traditional indemnity plans, however, adverse determinations may have
implications different from those under managed care plans, because
claims are generally paid or denied after the service has been
provided.  In managed care plans, most coverage decisions are made
prospectively through the utilization review process, which may lead
some to believe that a denial of coverage by a plan is a denial of
care. 

In our recently issued report on health maintenance organization
(HMO) complaint and appeal systems, we found that HMOs in our study
incorporated most elements considered important for such systems but
that consumer advocates thought that these systems might not be
adequately meeting consumer needs.\2 In light of these findings, you
asked us to perform a similar review of complaint and appeal systems
in indemnity plans.  On the basis of discussions with your offices,
we examined (1) the elements that are considered important to a
system for processing indemnity plan member complaints and appeals,
(2) the extent to which indemnity plan complaint and appeal systems
contain these elements, and (3) how indemnity plans compare with HMOs
in the extent to which their complaint and appeal systems incorporate
recommended elements. 

To determine the elements that are important to indemnity plan
complaint and appeal systems, we identified organizations that have
issued guidelines applicable to indemnity plans.  Families USA (FUSA)
and the National Association of Insurance Commissioners (NAIC) were
the only groups we identified with criteria explicitly addressing
indemnity plan systems.\3 An official at the Health Insurance
Association of America (HIAA), which represents indemnity plans,
stated that HIAA has not promulgated its own set of recommended
elements but generally supports the NAIC Health Carrier Grievance
Model Act and its provisions regarding grievance procedures. 

Because we wanted to compare indemnity plans' complaint and appeal
systems with those of HMOs, we contacted the 38 insurance carriers in
five states (Colorado, Florida, Massachusetts, Oregon, and Tennessee)
that participated in our HMO study to determine whether these
companies also offer indemnity plans.\4 Thirteen of the 38 carriers
reported that they offer indemnity plans.  Of this number, 10 plans,
including at least one from each of the five states, provided us with
specific information.  We interviewed these plans' officials and
reviewed plan policy statements, member handbooks, letters sent to
members, and other documentation.  In our report, we discuss systems
applicable to members of insured plans and, for some carriers,
self-funded plans as well.\5

We did not evaluate the extent to which plans follow their policies
or the extent to which they meet consumers' needs; instead, we
assessed whether the systems in place contain features considered
important.  Because of the small number of plans examined in this
study, and the way in which these plans were selected, the results
cannot be generalized to the universe of indemnity plans; however,
they do indicate the extent to which plans incorporate elements
considered important to complaint and appeal systems.  We conducted
our review between March and June 1998 in accordance with generally
accepted government auditing standards. 


--------------------
\1 According to a recent survey of firms of more than 200 employees,
about 18 percent of American workers in such firms are enrolled in
indemnity plans, down from 71 percent in 1988.  In 1997, conventional
plans had highest enrollments in the Southern region (25 percent) and
lowest in the Western region (8 percent).  Across economic sectors,
these plans were most popular among state and local governments,
where they accounted for more than one-third of enrollments.  See
KPMG Peat Marwick, Health Benefits in 1997 (June 1997). 

\2 The results of our HMO study are reported in HMO Complaints and
Appeals:  Most Key Procedures in Place, but Others Valued by
Consumers Largely Absent (GAO/HEHS-98-119, May 12, 1998). 

\3 FUSA is a national nonprofit consumer organization, working at
national, state, and grassroots levels to advocate on health care
issues.  NAIC is a voluntary organization of insurance regulatory
officials created to assist state insurance regulators in protecting
consumers and helping maintain the financial stability of the
insurance industry.  Elements described in our report were taken from
a December 1997 FUSA document entitled "Evaluation Tool," containing
FUSA criteria for evaluating 12 consumer protection issues, and from
two 1996 NAIC model acts:  the Health Carrier Grievance Procedure
Model Act and the Utilization Review Model Act. 

\4 We asked the companies whether they offered an indemnity product,
distinct from HMO, point of service (POS), and preferred provider
organization (PPO) products.  We consider such products to be forms
of managed care because they use a network of physicians contracted
with by the plan and because they offer incentives to plan members to
use physicians in the network. 

\5 Employment-based health coverage, whether fee-for-service or
managed care, may be financed in one of two ways.  Many employers
choose to purchase health care coverage from an insurance company or
other entity, paying a per-employee or per-beneficiary premium in
exchange for this coverage.  The insurance company or other entity
then bears the cost of any health care services that the beneficiary
incurs.  Many other employers, however, choose to pay their
employees' health care costs themselves, often hiring an insurance
company to process claims and perform other administrative functions. 
Such firms are referred to as self-insured or, more accurately,
self-funded, because no insurance element is actually present (the
term insurance implying a transfer of risk). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Guidelines issued by the regulatory and consumer advocacy groups in
our study identified nine elements as important to indemnity plan
complaint and appeal systems, falling into three general categories: 
timeliness, integrity of the decision-making process, and
communication with members.  Nearly all the recommended elements were
present in the policies of at least half the plans in our study. 
Five elements--explicit time periods for resolving member appeals,
appeal decisions made by medical professionals with appropriate
expertise, provision of information on how to register a complaint or
appeal, plan acceptance of oral complaints, and inclusion of appeal
rights in notice of denial of coverage or payment--were included in
the policies of a large majority of indemnity plans in our study. 
However, the remaining four elements--expedited review of appeals in
urgent situations, appeal decisions made by individuals not involved
in the initial decision, plan acceptance of oral appeals, and written
notice of appeal denials including further appeal rights--were
present in the policies of only two-thirds or fewer of the plans
reporting.  Taken together, a smaller proportion of indemnity plans
in our study incorporated recommended elements in their complaint and
appeal systems than did HMOs in our previous study.  When compared
with HMOs operated by the same carrier, indemnity plans generally
incorporated about the same proportion of recommended elements as did
HMOs. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Under traditional indemnity plans, the physician has no legal
relationship to the patient's health plan.  The contractual
relationships are between the patient and the physician--under which
the patient is obligated to pay the physician a fee for service
rendered--and between the patient and the plan--under which the plan
is obligated to indemnify the patient for medical expenditures
incurred according to the terms of the insurance contract.  Although
disputes between the patient and plan may arise over denial of
payment, claims regarding the quality of services that result in
medical injury are resolved in state common law tort systems under
principles of medical malpractice law.\6

Complaint and appeal procedures are regulated by a patchwork of
federal and state laws.  No federal standards, however, prescribe how
complaint and appeal systems are to be structured and administered. 
For example, the Employee Retirement Income Security Act of 1974
(ERISA), a federal law governing most employer-sponsored health
plans, requires that all health plans provide a mechanism to permit
participants and beneficiaries to appeal a plan's denial of a claim. 
Regulations promulgated pursuant to ERISA generally require that
plans approve or deny appeals within 60 days.  Some states may have
statutes or regulations governing indemnity plan complaint and appeal
procedures; however, under ERISA the states are prevented from
regulating self-funded health plans, which enroll approximately 87
percent of indemnity plan members.\7


--------------------
\6 Eleanor D.  Kinney, "Symposium:  On Physician Decision-Making and
Managed Care:  Resolving Consumer Grievances in a Managed Care
Environment," Health Matrix:  Journal of Law-Medicine, winter 1996. 

\7 KPMG Peat Marwick, Health Benefits in 1997. 


   NINE ELEMENTS WERE CONSIDERED
   IMPORTANT FOR INDEMNITY PLANS
------------------------------------------------------------ Letter :3

The groups we contacted identified 9 of the 11 elements recommended
for HMO complaint and appeal systems as applicable to indemnity
plans.  The two HMO-related elements not considered applicable to
indemnity plans were a two-level appeal process and the member's
right to appear at one appeal hearing.\8 The elements considered
important to a sound complaint and appeal process for indemnity plans
fell into three general categories--timeliness, integrity of the
decision-making process, and effective communication--and included
the following: 

  -- explicit time periods, set out in plan policies, within which
     plans resolve complaints or appeals.  Appeals, according to the
     criteria, were to be resolved within 30 days;

  -- expedited review of appeals in situations in which, were a plan
     to follow its usual time period for processing an appeal, the
     patient's health might be jeopardized.  Such situations might
     include, for example, admission to, or discharge from, an
     acute-care hospital.  Criteria called for expedited review to be
     completed within 72 hours or 2 business days of the appeal;

  -- appeal decisions made by medical professionals with appropriate
     expertise;

  -- appeal decisions made by individuals not involved in the initial
     decision;

  -- information provided about how to register a complaint or
     appeal;

  -- oral complaints accepted by the plan;

  -- oral appeals accepted by the plan;

  -- appeal rights included in notice of denial of coverage or
     payment of service; and

  -- written notice of appeal denials, including further appeal
     rights where applicable.  This standard would not apply in cases
     where members have no further appeal rights--for example, in
     plans that offered only one level of review. 


--------------------
\8 In addition, we modified two guidelines slightly to facilitate
comparison with the results of our HMO report.  While FUSA and NAIC
called for appeals to be resolved within 30 days, we used unspecified
"time periods," in order to facilitate comparison with the results of
our HMO study.  Similarly, while guidelines used by FUSA and NAIC
called for expedited appeals to be resolved within 72 hours, or up to
2 business days, we simply determined whether plans had procedures in
place for expedited review, without specifying the time period in
which such review must be completed, again in order to facilitate
comparison with the results of our HMO study. 


   KEY ELEMENTS WERE PRESENT IN AT
   LEAST HALF THE PLANS
------------------------------------------------------------ Letter :4

Nearly all the recommended elements were present in the policies of
at least half the plans in our study.  As shown in table 1, five
elements--explicit time periods for resolving member appeals, appeal
decisions made by medical professionals with appropriate expertise,
provision of information on how to register a complaint or appeal,
plan acceptance of oral complaints, and inclusion of appeal rights in
notice of denial of coverage or payment--were included in the
policies of a large majority of the indemnity plans in our study. 
However, the remaining four elements--expedited review of appeals in
urgent situations, appeal decisions made by individuals not involved
in the initial decision, plan acceptance of oral appeals, and written
notice of appeal denials including further appeal rights--were
present in the policies of only two-thirds or fewer of the plans
reporting. 



                                Table 1
                
                   Number of Indemnity Plans With and
                Without Elements Identified as Important
                    to a Complaint and Appeal System

                                                         Plans
                                                 Plans  withou   Plans
                                                  with       t     not
                                                elemen  elemen  report
Element                                              t       t     ing
----------------------------------------------  ------  ------  ------
Timeliness
----------------------------------------------------------------------
Explicit time periods\a                             10       0       0
Expedited review\b                                   6       3       0

Integrity of the decision-making process
----------------------------------------------------------------------
Appeal decisions made by medical professionals       9       1       0
 with appropriate expertise\c
Appeal decisions made by individuals not             5       5       0
 involved in the initial decision

Effective communication
----------------------------------------------------------------------
Plan provides information about how to              10       0       0
 register a complaint or appeal
Oral complaints accepted                             9       1       0
Oral appeals accepted                                2       8       0
Appeal rights included in notice of denial of        7       2       1
 coverage or payment
Written notice of appeal denials, including          6       3       1
 further appeal rights
----------------------------------------------------------------------
\a Guidelines called for appeals to be resolved within 30 days. 
However, we used unspecified "time periods" to facilitate comparison
with the results of our HMO study. 

\b Guidelines called for expedited appeals to be resolved within 72
hours, or up to 2 business days.  However, we simply determined
whether plans had procedures in place for expedited review, without
specifying the time period in which such review must be completed, to
facilitate comparison with the results of our HMO study.  Further,
one plan is omitted from the analysis of this element.  An official
from the plan stated that the plan does not require preauthorization
of any procedures, and an expedited review process is unnecessary
because all decisions regarding coverage are made after the care is
received. 

\c We considered plans as having this element if medical personnel
were included in the decision-making process.  However, we were not
able to determine whether individuals with clinical expertise were
appropriately assigned to specific cases. 

We asked plans to indicate whether the complaint and appeal policies
they described applied to both insured and self-funded business. 
Four plans provided no information on this issue, while one stated
that its indemnity plan had no self-funded members.  Of the five
remaining plans, three stated that the complaint and appeal policies
they reported to us applied to all members, insured as well as
self-funded, and two stated that most self-funded purchasers follow
the plans' policies.  Three plans stated that self-funded purchasers
may become involved in the appeal process, generally after the member
has exhausted the plan's standard appeal process.  According to an
official at one plan, because such purchasers are actually
responsible for the cost of care, they have the discretion to
overturn denials made by the plan. 

All 10 plans in our study had established time periods within which
complaints and appeals were to be resolved.  Two plans reported that
their time period for resolving an appeal was 21 days; several
allowed 30 days, and several others allowed 60 days. 

Six plans (of nine included in this analysis) reported that their
policies contained expedited appeal processes for use in
circumstances in which delay in care might jeopardize the patient's
health.\9 One plan's policies called for appeals involving admission
to, or services from, an acute-care hospital in a life-threatening or
other serious injury situation to be resolved within 3 hours, while
other types were to be resolved within 2 business days.  Another
plan's policies called for expedited appeals to be resolved within 72
hours.  Two plans allowed up to 3 business days, while another
allowed up to 7 days.  The remaining three plans stated that they did
not have such expedited review policies.  The final plan is excluded
from our analysis of this element; an official from this plan stated
that the plan does not require preauthorization of any procedures and
that an expedited review process is unnecessary because all decisions
regarding coverage are made after the care is received. 

Nine plans reported that they included doctors or nurses on their
appeal committees.  We did not, however, analyze individual appeal
cases and so were unable to determine whether doctors and nurses with
appropriate expertise made appeal decisions in cases of denials
resulting from medical necessity decisions.  Five plans, out of 10
reporting, required that persons reviewing appeals not be the same
individuals involved in the case earlier. 

All 10 plans in our study reported that they provide written
information to members describing the complaint and appeal process. 
We reviewed the materials provided to members--including member
handbooks, member contracts, newsletters, and other forms of
communication--and judged them to be clear and understandable. 

Nine plans accepted oral complaints from members, while one plan
required members to put complaints in writing.  Only two plans,
however, accepted oral appeals from members; the remaining eight
required members to file appeals in writing.  One plan that accepted
oral appeals, however, noted in its policy that oral appeals must be
filed in person.  In our prior study of HMOs, some plan officials
told us that they prefer members to submit appeals in writing in
order to ensure that members' concerns are accurately characterized. 

Seven plans, out of nine responding, described member appeal rights
when informing members of a denial of payment or authorization. 
Regarding denials of members' appeals, six plans (of nine providing
data) reported that they included further appeal rights, where
applicable, in written notices of denial.  Further appeal rights
might include additional levels of appeal within the plan or the
right to appeal to a state organization or the member's employer. 
Two of the remaining three plans provided written notice of appeal
denials but did not include further appeal rights despite offering
additional internal levels of appeal, while one plan responded to
members only if the appeal was resolved in the member's favor. 


--------------------
\9 We did not obtain information from plans about who decides whether
the patient's health is at risk--the plan, the physician, or the
patient. 


   INDEMNITY PLANS WERE LESS
   CLOSELY ALIGNED WITH CERTAIN
   KEY ELEMENTS THAN WERE HMOS
------------------------------------------------------------ Letter :5

Compared with the 38 HMOs in our previous report, a smaller
proportion of the 10 indemnity plans' policies and procedures
included the recommended elements.  However, the disparity in the
number of HMOs and indemnity plans participating in our studies might
account for some of the noted differences.  At the individual carrier
level, in most cases, the prevalence of recommended elements was
nearly the same in the indemnity plan and HMO operated by the same
carrier, but several carriers had less conformance in their indemnity
plan. 

As shown in table 2, on the whole, a smaller percentage of indemnity
plans than HMOs had the nine recommended elements applicable to both
indemnity and HMO plans.  Four elements were incorporated by a
similar, and relatively high, proportion of plans of each type. 
Large differences were evident in two elements--expedited review and
written notice of appeal denials, including further appeal
rights--where a substantially lower proportion of indemnity plans
included the elements than did HMOs.  We found smaller differences in
three elements:  a slightly higher percentage of indemnity plans than
HMOs specify that appeal decisions must be made by individuals not
involved in the initial decision, and a slightly higher percentage of
HMOs than indemnity plans accept oral appeals and explain appeal
rights in denial notices.  Regarding the remaining four elements, we
noted only slight differences. 



                                Table 2
                
                 Percentage of HMOs and Indemnity Plans
                With Elements Identified as Important to
                     a Complaint and Appeal System

                                                                Percen
                                                                  tage
                                                                    of
                                                                indemn
                                                      Percenta     ity
                                                         ge of   plans
                                                          HMOs    with
                                                          with  elemen
Element                                                element       t
----------------------------------------------------  --------  ------
Timeliness
----------------------------------------------------------------------
Explicit time periods                                       97     100
Expedited review                                            94      67

Integrity of the decision-making process
----------------------------------------------------------------------
Appeal decisions made by medical professionals with         89      90
 appropriate expertise\
Appeal decisions made by individuals not involved in        41      50
 the initial decision

Effective communication
----------------------------------------------------------------------
Plan provides information about how to voice a              94     100
 complaint or appeal
Oral complaints accepted                                    95      90
Oral appeals accepted                                       32      20
Appeal rights included in notice of denial of               91      78
 coverage or payment
Written notice of appeal denials, including further         97      67
 appeal rights
----------------------------------------------------------------------
Note:  Percentages are based on the number of plans providing data on
each element (up to 38 HMO and 10 indemnity plans). 

We also examined the extent to which individual insurance carriers
offering both indemnity and HMO plans included recommended elements
in the complaint and appeal systems for each type of plan.  Figure 1
compares the prevalence of recommended elements in indemnity plans
with those in place in the HMO offered by the same carrier.  For 7 of
the 10 carriers in our study, the indemnity plan and HMO had nearly
the same proportion of recommended elements.  At the remaining 3
carriers, the HMO included the greater proportion of elements, with 1
carrier showing substantial differences across plans. 

   Figure 1:  Percentage of
   Recommended Elements in
   Individual Carriers' HMOs and
   Indemnity Plans

   (See figure in printed
   edition.)

Note:  HMO data indicate the proportion of 11 key elements present in
plan policies; indemnity plan data indicate the proportion of 9 key
elements present. 


   COMMENTS AND OUR EVALUATION
------------------------------------------------------------ Letter :6

In commenting on a draft of our report, NAIC officials stated that we
had accurately characterized their criteria governing consumer
complaint and appeal systems for indemnity health plans. 


---------------------------------------------------------- Letter :6.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after its issue date.  We will then send copies to
those who are interested and make copies available to others on
request.  Please call me on (202) 512-7119 if you or your staff have
any questions.  Major contributors to this report include Rosamond
Katz and Steve Gaty. 

Bernice Steinhardt
Director, Health Services Quality
 and Public Health Issues


*** End of document. ***