Doing Business with Private Health Insurance

The Economics of Private Health Insurance
by
Michael J. Mandell, LMP

With all the changes in requirements of Private Health Insurance and the decrease in our contracted rates, one has to figure out if it’s still economical to continue taking Private Health Insurance.  How do you do this?  Why is it important to calculate this?

Because, your time is money.  The more time you spend on paperwork, the less time you are working with clients (missed opportunities).  A full time therapist is considered to work 20 – 25 hours hands on.  The remainder of the time is spent on your paperwork and marketing making a 40 hour work week.  You have the make the decision to focus on what you like doing most by outsourcing your paperwork.  Why spend your valuable time doing things you don’t like to do?

For this article, we’ll do the comparison with a contracted rate of $59.00.  The copays can be anything from $10 – $25.  For our example, we will use a $20.00 copay with an insurance check of $39.00.  We have two labor cost in this example.  One visit (shown in Table 1) followed by 7 recurring visits (shown in Table 2) based on a prescription for 8 visits.  We are also going to use paper bills while using the phone to call the private health insurance.  Your cash rate is $60.00 per hour so your unit price is $15.00.  Remember insurance companies use units as 15 minutes of your time.  (HINT: Remember the more you do electronically, will reduce your cost of doing business and speed up the time you receive your checks.)

Table 1

Income
Copay Date of Service

$20.00

Insurance Check $39.00 30 days later
Total Income Received      

$20.00

Expenses One time Cost
Labor Time Cost
Verifying Benefits

.25

$15.00

Billing

.25

$15.00

Postage  

$0.42

Envelope  

$0.05

Bookkeeping/Filing

.25

$15.00

Doctor Treatment Summary*

.50

$30.00

*added at the end
1.25 hours
Sub Total One Time Costs  

$45.47

Total Expenses        
Net Loss / Profit      

-$25.47

It’s clear from Table 1 if they don’t return or the insurance rate doesn’t pay, you’ve lost money.


Verifying Insurance Benefits

When you receive a new Private Health Insurance client, you have to check benefits with the private health insurance company.  Based on today’s technology, interactive voice response (IVR) systems, you need to enter information into the phone to get to the area of the company you need.  So for most systems, you have to enter 2 for claims and benefits, your tax id, member’s id, and birth date, then you have to wait on hold to speak to a customer representative.  I’ve timed this numerous times and it’s averages out to around 14 – 25 minutes including hold times.  This is a one-time cost to you.  (HINT:  When you call have multiple clients to verify benefits to save on time)

Value:  1 unit = $15.00

Billing

Whatever system you use to fill out the HCFA 1500 form, you have to enter the data into the system or hand write on the form itself.  Then you need to print, stuff an envelope, and stamp it to post. The cost of doing billing is a recurring cost for each visit.  (HINT: to cut cost, try to send all your same insurance HCFA’s in one envelope and postage).

 Value:   1 Unit = $15.00

Bookkeeping / Filing

When you receive a check from an insurance company you have to post it into your bookkeeping system and reconcile whether or not you need to collect for a copay, co-insurance or deductible.  Therefore, possibly creating more work in billing the client or contacting the insurance company for a “no pay”.  This leads you to more bookkeeping activities which add up in time and the cost of doing business.  Getting on the phone to fix a bill or collecting from clients can be cost prohibitive.  What you do with the explanation of benefits and where you file this adds up quickly as well. This cost is recurring for each insurance massage you do. This can easily add up to two units of your time. (HINT:  Outsourcing insurance bookkeeping should be a percentage of income collected. Never pay a set fee or minimum fees.)

Value: 1 unit = $15.00

Doctor Treatment Summary

When you get a prescription from a doctor, you should send the doctor a treatment summary to show that Massage really works.  We all know this but the more doctors that see your results and the client raves about you, the more referrals and the easier it is to get more prescriptions.  This is a valuable marketing tool as well as credibility to our profession.  The parts of the doctor treatment summary should include the initial assessment, goals, treatment summary and finally the client status and request for more treatments if needed. This cost is added in at the end of the prescription. (HINT:  Make it as easy as possible for the doctor to send you a new prescription.  Some therapists have their own prescription form for the doctor to sign.)

Value:  2 units = $30.00

 

Table 2

# of Visits Total
Total Income Received     8 hours @ $59.00  

$472.00

Expenses Recurring Costs per Visit
Labor Time Cost
Verifying Benefits    
Billing

.25

$15.00

Postage  

$0.42

Envelope  

$0.05

Bookkeeping/Filing

.25

$15.00

Doctor Treatment Summary    
Sub Total 7 Visits  

$30.47

X 7 Visits =

$213.29

.50 hours X 7 Visits = 3.5 hours
Sub Total One Time Costs     1.25 hours

$75.47

Total Expenses        

$288.76

Net Loss / Profit     11.75 hours  

$183.24

 

Putting it all Together

As you have suspected thus far, you have earned $20.00 at the time of service and now are waiting for an insurance check after spending $45.47 of your time.  The $45.47 is your expense outside the massage room. This is your cost of doing business for that one insurance client.  Your net loss at this point is $25.47 (see Table 1).  Putting your HCFA 1500’s to paper, most insurance companies expect you to receive a check within 30 days of receipt.  So if you do the billing once a week, then you could have a delay of 35 – 40 days depending on when the billing is done.

Your billing, bookkeeping and postage vary as you work through the 8 visits.  When you finish the 8 visits, you sit down to write the doctor treatment summary which averages 30 minutes of writing and delivering it to the doctor.   Eight visits at $59.00 per session is $472 and your total expenses of $288.76 which leaves you with a profit of $183.24 (see Table 2).

Now for the bad news!  How much time have you invested in this one client?  Adding all the hours spent (massage time plus other labor) equals 11.5 hours for an average of $15.66 profit on each 1 hour massage.  Now remember that you only got paid $59.00 per hour and only profit $15.66 per massage.


Doing Business with Private Health Insurance

Now that you know this number what do you do with it?  We know that for this example, we used $60.00 as our cash rate.  You want to be making $60.00 per hour, because at some point in planning your business you have calculated that this is the rate you need to make in order to pay your bills and make a living.  So for you to make money doing insurance work, you have to have a calculated “Billable Rate” that will value your time and effort in doing insurance work.  Based on this example, your billable rate should be $75.66 based on profit and what you want to make per hour ($60.00 cash rate plus your calculated profit $15.66. Round up to $80.00 per hour).  Can your massage practice handle an increase to this dollar amount?  What are your massage neighbors charging? Should you just take the co-pay and call it even?  One could make the argument that your average cost of doing business can equal up to $150 per hour.

Of course you have to average all your contracted rates together and expenses based on each type of insurance.  I recommend keeping track of your time for a month and see what you average.  This will give you a very good idea what you are spending on your insurance clients.  Look for ways to reduce your cost. The total number of massages you do with a low cost of doing business is of the utmost importance.   Hopefully you will be working 40 hours a week averaging $60.00 an hour. ($2400 per week)