How Insurer Reimbursements for Out-of-Network Claims are Determined

How Out-of-Network Claims are paid for small group health plans in NJ is not an arbitrary process. The NJ Department of Banking and Insurance (NJ DOBI) has “SEH” (Small Employer Health) regulations that mandate ALL carriers in NJ cover to out-of-network claims at the 80th percentile of the “Prevailing Healthcare Charges Schedule” (PHCS) as explained here and pasted below:

Health care providers that are not in a carrier’s network may charge fees as they see fit for the services they provide.  However, carriers may only pay what they consider to be a “reasonable and customary” charge for the services.  Currently, the SEH Program requires carriers to use the 80th percentile of the Prevailing Healthcare Charges Schedule (PHCS) owned by a private company, Ingenix, for charges billed using the Current Procedural Terminology (CPT) codes developed and owned by the American Medical Association.

In New Jersey, under the terms of the contract between the carrier and in-network health care providers, health care providers may not try to collect from a carrier’s covered person charges that are more than the fees agreed to between the carrier and the health care provider.  However, a non-network health care provider may bill charges in excess of the 80th percentile of the PHCS.  The carrier will determine its payment using the 80th percentile of the PHCS, and the covered person is responsible for any amounts that exceed the 80th percentile of the PHCS.

Currently the NJ DOBI is considering allowing this to instead be based on Medicare reimbursements to allow carriers to lower premiums in NJ.