Chapter 4 -Lesson 11

Blue Cross and Blue Shield

Blue Cross and Blue Shield together make up the largest prepaid insurance provider system. In a later lesson we will explain the concepts that make Blue Cross and Blue Shield unique and important in our health care system. We will also cover claims procedures, as well as show you the difference between Blue Cross and Blue Shield and private programs.

Blue Cross and Blue Shield do not form a single company. Instead, they comprise a federation of nonprofit health care corporations spread across the United States. Most of these corporations belong to the Blue Cross and Blue Shield Association. These two programs began a decade apart. Blue Cross was founded in 1929, and Blue Shield appeared in 1939. In order to better understand the entire picture, we will talk first about Blue Cross.

Blue Cross

In 1929, a group of teachers at Baylor University set the stage for Blue Cross. They agreed to prepay a premium of $6 per year to cover a period of up to twenty-one days of hospital care. The concept of prepayment is the basis of both Blue Cross and Blue Shield. When premiums are prepaid, advance payment is made for coverage of specified services in the event that those services are needed. In other words, when the teachers paid their $6 premium, it was not a fee-for-service situation. They were paying a small fee in case the need for health care arose. The person who prepays the fee for either Blue Cross or Blue Shield is called a subscriber.

Originally, Blue Cross covered only hospitalization costs for its subscribers, whereas Blue Shield covered only physicians’ fees, tests and other health care costs. Today, Blue Cross programs cover not only hospitalization, but also other health care, including the costs of tests and physicians’ fees.

Blue Shield

The foundation for Blue Shield was laid in 1939 in California. The first Blue Shield plan was designed to cover physicians’ charges for low-income individuals. These subscribers paid a monthly premium of $1.70. Soon, however, the Blue Shield concept took root with more and more employee groups and health care providers. This led to more members and a growing group of individual Blue Shield plans. All of these plans are related because they are all members of the Blue Cross and Blue Shield Association.

The Blue Cross and Blue Shield Association

As you have learned, the Blue Cross and Blue Shield system is not a single company. Instead, it is a group of individual nonprofit corporations joined together in a federation. The members of the Blue Cross and Blue Shield federation belong to the Blue Cross and Blue Shield Association. The Blue Cross and Blue Shield Association represents local plans in national matters, reviews and encourages cost saving measures, develops evaluation procedures for new technology, and provides many other related services.

Perhaps you have guessed that Blue Cross and Blue Shield programs are not typical private insurance carriers. We will discuss the differences between insurance and Blue Cross and Blue Shield in the next few sections.

How Blue Cross and Blue Shield Differ from Private Insurance Carriers

At first glance, Blue Cross and Blue Shield may seem somewhat similar to private insurance carriers. After all, they all require premiums; they all cover health costs. But Blue Cross and Blue Shield programs are very different from private insurance carriers in certain respects.

Facts About Blue Cross and Blue Shield

Blue Cross and Blue Shield programs differ from private insurance companies in the following four areas.

The states' control over rates is unique to Blue Cross and Blue Shield programs. The states hold the control because Blue Cross and Blue Shield are nonprofit organizations. Additionally, Blue Cross and Blue Shield programs provide valuable coverage for people who might otherwise lack health insurance. These people include those with preexisting conditions who have been turned down by private carriers. The differences between private carriers and programs of the Blue Cross and Blue Shield federation are important. There are a few other key items you need to know about Blue Cross and Blue Shield.

First, as you already know, individuals covered by Blue Cross and Blue Shield are called subscribers. Second, the coverage is not called a policy. Instead, subscribers have plans with Blue Cross and Blue Shield. Plans vary from individual to individual and from state to state.

Physicians sign contracts with Blue Cross and Blue Shield. There are two types of contracts: a) service benefit contracts; and b) indemnity benefit contracts. Service benefit contracts are offered by Blue Cross and Blue Shield plans that have participating physicians who have agreed to participate in the programs. This contract covers the services themselves, reimbursing the participating physician rather than the subscriber.

Indemnity benefit contracts cover the actual expenses for providing a service. This type of contract allows the physician to bill the subscriber for any amount not covered by Blue Cross and Blue Shield.

Physicians who enter into contracts with Blue Cross and Blue Shield are called participating physicians. Each participating physician in Blue Cross and Blue Shield is issued a unique provider number. By becoming participating physicians, these doctors agree to accept a level of payment determined by Blue Cross and Blue Shield. The payments made to participating physicians fall into the following categories:

2. Customary maximum -- the fee charged by most physicians in the community; and

3. Fixed fee schedule -- the maximum fee allowed for specific services.

A Blue Cross and Blue Shield program makes payment directly to the participating physician, and the physician accepts the payment as payment in full.

When a subscriber sees a non-participating physician, Blue Cross and Blue Shield will pay some benefits. However, the benefits are paid directly to the subscriber. Therefore, as a medical claims and billing specialist, you need to know which of your doctors are participating physicians. If a doctor is not a participating physician, the patient must pay the bill.

There are a few things about Blue Cross and Blue Shield claims which must be remembered. The first item is that every person subscribing to Blue Cross and Blue Shield will have an identification card. This card lists vital information, such as the person's name, the name of the Blue Cross and Blue Shield plan, as well as the certificate number, group name and group number, and the phone numbers used for any pre-authorization. When you begin to fill out a claim for a Blue Cross and Blue Shield subscriber, you must photocopy both sides of the patient's identification card.

The next thing you must do is determine the fee for service that the doctor will charge the subscriber. This fee is based upon your state's Blue Cross and Blue Shield fee schedule for participating physicians. This fee schedule can be based upon usual and customary maximums or a fixed fee schedule set by Blue Cross and Blue Shield. To determine your area's fee schedule, you must contact Blue Cross and Blue Shield.

Finally, after you have completed the claim (by using the HCFA-1500 form), you must file it before the deadline established by Blue Cross and Blue Shield. This deadline varies from state to state. For most states, you must file the claim within a thirty-day deadline. Whatever the time limit is for your particular state, the deadline for filing a claim with Blue Cross and Blue Shield is called the timely filing guideline. Each plan has its own timely filing guideline.

Filing a claim within the timely filing guideline is essential. If you do not file the claim according to the time guideline, and the claim is late, the plan will not pay anything on the claim. Neither can the physician bill the patient for the services. It is easy to see that a missed deadline usually results in the claim being denied altogether, resulting in no payment for the physician and no pay for you on that claim. There can be some exceptions to this rule, but the circumstances must be extremely unusual for Blue Cross and Blue Shield to consider waiving the timely filing guideline.

Another factor to consider is whether or not the Blue Cross and Blue Shield program is the primary carrier in a particular situation. For example, when presented with a claim for a patient with both Blue Cross and Blue Shield and Medicare coverage, you must bill Medicare first; Blue Cross and Blue Shield then pays the deductible and /or co-payment.

The membership identification card will also provide you with reciprocity coverage information. On the front of the card, there is a double-ended red arrow. When the subscriber's plan covers reciprocity payments, there will a letter N, followed by three numerical digits inside the red arrow. (See above.)

Finally, the provider numbers issued to participating physicians are similar in purpose to Medicare's unique provider numbers. Blue Cross and Blue Shield participating physician provider numbers must appear on all claim forms.

The claim form itself is usually the HCFA-1500 form, but in some cases, individual programs might have their own forms which may be similar to HCFA-1500.

Reciprocity

You are familiar with the term reciprocity because of our coverage of Medicaid. Blue Cross and Blue Shield programs also have a process known as reciprocity. However, Blue Cross and Blue Shield's version of reciprocity differs from Medicaid's. With Blue Cross and Blue Shield, reciprocity refers to the payment amount and procedure followed when a subscriber from one state receives treatment in another state. The state in which a subscriber's program is based is called a home state. The subscriber's plan is called the home plan.

Reciprocity takes place when an individual is away from the home state and is treated in another state. The host plan -- the Blue Cross and Blue Shield program in the state where the person was treated -- pays for the service. The payment is applied according to that providing state's fee schedule. As you know, fees vary from program to program. In one state, an appendectomy might be reimbursed at a rate of $1650. In another state, the rate for that same procedure might be $2000, and in a third state, it might be $1200.

Reciprocity requires a subscriber to have covered procedures listed specifically in his contract. If a procedure is not listed, then it cannot be paid for through reciprocity.

Another way to process claims is called central certification, an agreement between plans to process claims on an instructional basis. Verification (usually by telephone or fax) from the home plan for eligibility, deductibles and any specific payment information is given to the host plan. The physician who performs the services will be paid according to the home plan coverage, plus an additional administration fee.

Future of Blue Cross and Blue Shield

As the twenty-first century rolls closer, health care companies are changing. Blue Cross and Blue Shield companies are no exception. Cost management, health maintenance plans and other innovations are all being considered. In fact, in at least one state, the Blue Cross and Blue Shield program has decided to try to become a for-profit organization. Of course, to do this would require state approval, but it would allow Blue Cross and Blue Shield to use some of the federation's more than $100 million surplus for profit rather than putting that money back into insurance pools.

As a medical claims and billing specialist, you will need to keep up-to-date with all of the developments in the insurance world, including Blue Cross and Blue Shield.

Home / Lessons / Chapter 1 / Chapter 2 / Chapter 3 / Chapter 4 / Chapter 5 / Practice Tests / Answer Keys
How to use ElectroniClaim

Send mail to sales@electroniclaim.com with questions or comments about this web site.
(Last modified: July 5, 1999)
Copyright © 2000 Electroniclaim