9 Health and Disability Income Insurance

1. 9 Health and Disability Income Insurance • Eases the financial burden people may experience as a result of illness or injury (pay a premium to transfer risk of loss) • Medical expense insurance- pays actual medical costs • Disability income insurance- provides replacement income • Group and individual health insurance coverage available • COBRA • Requires many employers to offer employees and dependents the option to continue their group coverage for a set period of time following a layoff • The Health Insurance Portability and Accountability Act • Established federal portability standards • If you changejobs, you need not lose your health insurance 9-1

2. Sources of Health Care Plans • Health Care Plan- generic name for any program that pays or provides reimbursement for health care expenses • Group Health Care Plan – health coverage sold collectively to an entire group of persons rather than to individuals • Open Enrollment Period – during this time, you can begin or make changes in coverage or switch among alternative plans • Requirements are generally waived for family changes (e.g., birth of a child, adoption, marriage)

3. Objective 1Recognize the Importance of Health Insurance in Financial Planning • Group Plans: • Covers most individuals • Usually employer sponsored (also unions, trade groups) • Employer pays part or most of cost • Coordination of Benefits: combine benefits from >1 plan • Benefits received from all sources limited to 100% of allowable medical expenses • Married couples/partners need to consider 9-3

4. Objective 2Analyze the Costs and Benefits of Various Types of Health Insurance as well as Major Provisions in Health Insurance Policies Types of Health Insurance Coverage Basic Major medical Both • Basic Health Insurance • Hospital Expense Insurance • Hospital room, board, and other charges (usually with a cap) • Surgical Expense Insurance • Surgeon's fee for an operation (often specify amount per service) • Physician Expense (Medical Expense) Insurance • Pays for physician’s care that does not include surgery, such as office visits, lab tests, X-rays (often specify amount per service) 9-4

5. Types of Health Insurance Coverage • Major Medical Expense Insurance • Covers expenses for serious injury or long-term illness • Goes beyond what basic health insurance pays • May include a deductible (initial amount paid before insurance co. pays), coinsurance (e.g., 20% to 25% of expenses after deductible), and a stop-loss provision • Policy limits of $1 million are common • Stop-loss: policyholder pays coinsurance up to a certain amount, after which insurance company pays 100% (typically $3,000 and $5,000) • Comprehensive Health Insurance- combines basic health insurance and major medical into a single policy 9-5

6. Types of Health Insurance Coverage • Hospital Indemnity • Pays you a fixed amount for each day you are hospitalized • Does not cover medical costs • Supplement to the other plans • Dental Expense Insurance • Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery • Vision Care • Exams, contact lenses, and glasses • Dread Disease Policies • Pays out for very specific conditions (e.g., cancer) • Illegal in many states • Long-Term Care Insurance • Virtually unknown 25 years ago • Covers daily help if seriously ill or disabled • Nursing home or in-home care 9-6

7. Major Provisions in a Health Insurance Policy • Eligibility • Varies with age, marital status, and dependency • Assigned Benefits • Insurance pays your doctor or hospital directly • Internal Limits • Fixed amount per day for a hospital room • Copayment • Cost sharing in the form of a flat dollar amount you pay, such as $15 per office visit or $10 per prescription • NOT the same as co-insurance, which is a percentage of expenses 9-7

8. Major Provisions in a Health Insurance Policy • Service Benefits • Entitlement to specific services • Benefit Limits • Maximum dollar amount or maximum number of days in the hospital • Exclusions and Limitations • Pre-existing conditions • Cosmetic surgery • Guaranteed Renewable (can’t cancel policy unless fail to pay premiums; insurer can’t raise premiums for one person unless raised for an entire group) • Cancellation and Termination • Explains the circumstances under which policy can be canceled and/ or converted 9-8

9. Objective 3Assess the Trade-offs of Different Health Insurance Plans Trade-Offs in Choosing a Policy • Reimbursement versus indemnity • Reimbursement pays actual costs • Indemnity pays specific amounts (regardless of expenses) • Internal (fixed amount per expense) vs. aggregate limits • Deductibles and coinsurance • Out-of-pocket limits (after reach limit, get 100% coverage) • Benefits based on reasonable and customary charges (policy won’t pay more than that amount) 9-9

10. Health Insurance Must-Haves 9-10

11. Objective 4Evaluate the Differences Among Health Care Plans Offered by Private Companies and by the Government Private Health Care Plans • Private Insurance Companies • Individual policy • Group policy sold to an employer • Hospital and Medical Service Plans • Blue Cross = hospital care • Blue Shield = surgical and medical services 9-11

12. Private Health Care Plans • Health Maintenance Organization (HMO) • Managed care • Prepaid health plan • Primary care physician • Contracts with selected care providers • Fixed pre-paid monthly premium • Focus is on prevention and wellness • Usually pay small copayment to see doctor 9-12

13. Private Health Care Plans • Preferred Provider Organization (PPO) • Several providers to choose from • Costs more than an HMO • More choices, fewer restrictions than an HMO • If you go to a non-PPO provider, you pay more • Example: NJ Direct for state of NJ employees • Point-of-Service (POS) • Combines features of HMOs and PPOs • Home Health Care Agencies • Medical care in a home setting for a fraction of the cost of hospitals • Employer Self-Funded Health Plans • Company runs self-insured insurance program • Collects premiums from employees • Pays medical benefits as needed 9-13

14. New Health Care Accounts • Health Spending Accounts (HSA) • Money contributed to pre-tax dollar account • Must have a high-deductible policy • Health Reimbursement Accounts (HRA) • Also tied to high-deductible policies • Funded solely by employer • Unused funds carried over to next year • Flexible Spending Accounts (FSA) • Workers contribute pre-tax dollars • Funds managed by employer • Unused funds forfeited at year end 9-14

15. Government Health Care Programs • Medicare • Federally funded health insurance program • Covers those age 65+ and certain disabled persons • Does not cover everything • Patient liable for the difference in costs • Program in financial trouble; needs changes • 4 parts: A, B, C, D • Medicaid- health care program for the poor that is jointly administered and funded by the federal and state governments 9-15

16. MEDICARE • Part A: • Hospital insurance helps pay for inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care, and hospice care (paid for by workers’ payroll deductions) • Part B: • Medical insurance helps pay for doctors’ services and many other medical services and supplies not covered by hospital insurance • Beneficiaries pay a monthly premium (varies according to income) • Part C: • Medicare Advantage plans available in many areas • Those with Parts A and B can choose to receive all of their health care services through one of these provider organizations under Part C • Part D: • Prescription drug coverage helps pay for medications doctors prescribe for treatment 9-16

17. Government Consumer Health Information Websites • Healthfinder: www.hhs.gov • Medline Plus: www.nlm.nih.gov/medlineplus • NIH Health Information Page: www.nih.gov • FDA: www.fda.gov • Medicare: www.medicare.gov 9-17

18. Objective 5Explain the Importance of Disability Income Insurance in Financial Planning and Identify its Sources Disability Income Insurance • Designed to protect against loss of income; protects your “earning power” • Most overlooked type of insurance • Young, healthy people don’t consider the risks related to their future earning potential • Provides regular cash income lost by employees as the result of an accident or illness 9-18

19. Sources of Disability Income • Workman’s Compensation • Disability from on-the-job accident or illness • Employer Plans • Short or long-term group disability policy • Social Security • Covers total disability lasting > 12 months • Starts in the 6th month • Strict definition of disability to qualify • Private Income Insurance Programs • Supplements other disability income sources • Normally provides 40-60% of income (up to 75%) 9-19

20. Disability Income Insurance Trade-Offs • Policy’s definition of disability • Own Occupation- can no longer perform previous job • Any Occupation- can’t work at any job • Waiting or elimination Period • Duration of benefits • Amount of benefits • Accident and sickness coverage (want payment for both; accidents are not the only cause of disability!) • Guaranteed renewable(guarantees coverage as long as you pay your premium, but premiums can change for you within a class of insureds) • Noncancellable- Better but more expensive; no future change in premium • Cost-of-Living Adjustments (adjusts benefit for inflation) • Partial benefits (pays benefit if person can only work part-time) 9-20

21. Objective 6Explain Why the Costs of Health Insurance and Health Care have been Increasing • 2009 Health care costs ≈ $2.56 trillion • U.S. has highest per capita health care cost of any country in the world. • Rapid increase in medical expenditures • 16.9% of GDP in 2009 • High administrative costs • Administration = 26% of costs 9-21

22. Reasons for High Health Care Costs • Sophisticated technologies • Duplicate tests • Variety and frequency of treatments • Increasing number and longevity of elderly • Regulations • Increase in emergency treatments • Limited competition • Rapid earnings growth for health care professionals • Using more unnecessary medical care • Built-in inflation in the health care system • Aging baby boomers • Other major factors: fraud, waste 9-22

23. What Can You Do to Reduce Personal Health Care Costs ? • Eat a balanced diet • Keep weight under control • Avoid smoking • Don’t drink excessively • Get sufficient rest, relaxation, and exercise • Drive carefully • Protect yourself from medical ID theft • Carefully review health care fees • Community health education programs 9-23

24. Wrap Up • Chapter Quiz • Concept Check 9-1- True or False? • Concept Check 9-2- Health Insurance Terminology • Concept Check 9-3- What Trade-offs Would You Consider? • Concept Check 9-5- Disability Insurance Terminology