Final answer:
Preauthorization is the method used to determine if a service is covered under a patient's insurance policy. Unlike co-payments or deductibles, which are cost-sharing mechanisms, preauthorization is about gaining insurance company approval for certain treatments to confirm coverage.
Step-by-step explanation:
Preauthorization is the method used for determining whether a particular service or procedure is covered under a patient's policy. This is different from a co-payment, which is a flat fee paid by the policyholder at the time of service, and a deductible, which is the amount that must be paid out-of-pocket before the insurer pays the remaining costs. In the context of health insurance, preauthorization is a requirement that a provider obtain approval from the insurance company before administering certain treatments to ensure the procedure is covered under the terms of the patient's insurance plan.
Preauthorization deals with the approval aspect, whereas copayments and deductibles relate to the sharing of costs between the insured and the insurer. Having these mechanisms in place, such as deductibles, co-payments, and coinsurance, reduces moral hazard by requiring policyholders to bear some of the costs, which in turn helps to prevent overutilization of healthcare services. In the end, reimbursement is how providers are paid by insurers for the services they have rendered, either through a fee-for-service system or within a structure like a Health Maintenance Organization (HMO).