Medical Necessity and the Effect on Insurance

Woman with doctor getting the results of a medically necessary test.
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The concept of medical necessity is key when it comes to understanding your health insurance and coverages. If you have a procedure done, or service provided and it is not covered by your plan, you may find that it was due to the fact that it was not medically necessary. Medicare, for example, has specific criteria on what is considered a medical necessity.

What Is Medical Necessity?

Medical necessity can be defined as a medical procedure, service, or test that is required following diagnosis by a medical doctor.

The definition of Medical Necessity under the Social Security Act is

… no Medicare payment shall be made for items or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

Medicare.org defines Medical Necessity as “health-care services or supplies needed to prevent, diagnose, or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.”

Medical Necessity and Your Insurance

When it comes to getting paid for a health insurance claim you need to make sure whatever services or procedures you have done will be covered. One of the keys to getting reimbursed for a medical expense is understanding what your policy will see as a medical necessity. Even though there are lists of some typically accepted procedures or preventative care that may fall under the category of medical necessity, sometimes whether something meets the criteria is not as clear.

If your health insurance plan does not recognize something as medically necessary it will affect your ability to get paid back for medical expenses or be covered under your plan.

For example, in some cases, plastic surgery may be considered medically necessary and could be covered under a health care plan. However, in most cases, it is not covered because it is seen as an elective procedure.

Identifying If Something Will Be Covered

Before getting a medical procedure or tests, you should do your best to understand if it will be covered by your healthcare plan first. The first step is making sure a doctor has approved or requested the necessary treatment or tests.

Besides having a doctor's assessment, you will also have to meet additional criteria. Even though your doctor ordered a test, it does not mean the health insurance provider will consider it as medically necessary.

How to Check Your Coverage Criteria

Read your health insurance documents, or call your health insurance provider to and ask them what kind of coverage you have for a specific procedure or test. Most providers also have websites with covered procedures listed. Also, understand that there may be exclusions or limitations for the amount the company will reimburse.

Look for limits on how many times you will be covered for a specific service, test, or treatment such as x-rays or other scans. Sometimes a health insurance plan will limit the number of times, or the total amount payable for a procedure, so finding out if it's covered may be misleading.

Some procedures may have only partial coverage while others will reimburse the whole procedure and related aspects. Go over these limitations with your doctor too. There may be alternative tests that fall under your coverage guidelines. Going for the most expensive options may not always be the best course.

Carefully review if you have to go to a specific in-network care center or hospital to be covered. Sometimes going to a lab, doctor, hospital, or clinic outside of your health network will exclude you from being covered—or limit the amount of coverage. For example, if you are in a Medicare Advantage Plan, then you may have more options.

Not Considered Medical Necessity

Your health insurance provider will not allow you to stay in the hospital longer than the health plan or Medicare-approved length of stay. Also, going to a hospital to have treatments provided there or in another location—when there were other, less expensive settings, that could have provided the service will probably not be allowed.

This is the reason why it is important to check with your Medicare or other health plans before you decide where to get services or treatments. You do not want to be out of pocket for going to the wrong place.

Sometimes, even if physical therapy is covered or considered medically necessary, there will be a limit on the number of treatments that falls into the medically necessary category. Be sure to find out because there is usually a limit on these types of services.

Also, certain prescription drugs may not be considered medically necessary. For example, drugs used to treat fertility, weight loss, or weight gain, among many others.

Who Determines Necessity?

There is no difference in the definition of "medical necessity" based on whether you are on Medicare or. Medicaid. However, the list of included services in any other health plan may vary. While the federal government will create the guidelines on some levels, the individual plan provider and local state guidelines will also dictate what will be covered.

You can check the National Coverage Determinations (NCD) list or do an internet search to learn more about Local Coverage Determinations.

Preventative Services Covered

Some preventative services may be covered as medical necessities. For example, the annual wellness visit or certain tests or procedures that prevent health issues or may identify them early.