Importance of Health and Life Insurance

1. Chapter 7 Insuring Your Health and Your Life

2. Learning Objectives • Explain why health insurance is important. • Describe different features of health insurance. • Understand the need for life insurance. • Discuss the ways people obtain insurance.

3. Objective 1 – Explain why health insurance is important

4. Insurance - a financial product that provides reimbursement to a person in the event of a certain type of financial loss Health Life An insurance plan that pays a specific person(s) when the policy holder dies • Financial product that provides payment for medical services when people suffer a financial loss as a result of illness or injury • Limits potential liabilities • Medical care is expensive • Without it, net worth can be eliminated

5. Sources of Health Insurance • Private companies = the most expensive way to obtain insurance • Your employer - It’s better to get insurance through the company you work for if possible • The federal government has TWO programs: Medicare and Medicaid

6. Medicare and Medicaid Medicare Medicaid Government sponsored program that provides health insurance for low income individuals Designed for elderly , blind, disabled, and needy families with dependent children • Government sponsored health insurance plan that is funded largely by taxes most working people pay • Must be 65 and qualify for social sec. • Or disabled individuals • Medicare Part A: hospital insurance at no cost • Medicare Part B: doctor visits and other care provided outside of a hospital – recipients pay some premium* Premium* - regular payments paid to an insurance company in return for coverage

7. Health Care Costs • Health care costs have become much more expensive over the years • Many employers are cutting back or dropping health insurance as a benefit for their employees • Reasons health care is increasing: • People live longer • Expensive new technology is being used in the health care field • Fraudulent insurance claims are affecting the cost of healthcare (someone submits false information in order to get a financial benefit)

8. Health Care Facts • Health care spending is expected to rise sharply in the years ahead • American health-care spending in 2010 average more than $8,000/person • Health-care costs are a factor in about 50% of all bankruptcies • More than 15% of Americans have no health insurance **Health care is likely to become a bigger and more complex issue because the cost of healthcare is rising quickly and the population is aging

9. Objective 2: Describe different features of health insurance

10. Indemnity Plans Vs Managed Care Indemnity Managed Care Limits participants to a specific list of providers • Allow participants to seek health care from any qualified medical provider Medical Tourism: When Americans travel overseas for health care treatment that are less expensive in foreign countries PPACA: Patient Protection and Affordable Care Act – passed in 2010 and made a number of changes– allows young adults to remain on parent’s health insurance until 26 regardless of student status

11. Information • Group Plans – insurance plans that cover a large group of individuals such as employees at a company – risk is spread across entire pool of group members – everyone pays same for coverage – cheap and good coverage • Location Restrictions – some US companies only cover medical care delivered inside the US (if traveling abroad, you may want to purchase short-term health insurance for your trip) • Preexisting Conditions – health conditions that existed before one’s insurance policy was granted • Cancellation Options – companies cannot legally cancel your health insurance policy at any time (aka rescission)

12. Information • Deductibles – the amount of money a policy holder pays prior to the insurance company’s payment (example: once you pay your $500 deductible, your insurance company begins paying for some of the covered expenses) • the higher the deductible, the lower your premium and vice versa • Policies with very high DEDUCTIBLES and comparatively low PREMIUMS trade lower insurance costs for higher risk of out-of-pocket expenses • Good candidates for high deductibles are young, healthy people who have a low risk of serious illness or injury

13. Information • Coverage Limits – policies will limit the total amount they will pay for certain procedures, exclude some procedures completely (voluntary surgeries like improving eyesight or plastic surgery), or not cover experimental procedures, or an excessive amount of days in the hospital • Policies differ on Rx drugs • Study the your policy and ask a representative prior to scheduling nonemergency procedures • Co-insurance – (aka Co-pay) share of costs for covered services that the insured person is required to pay out of pocket (usually 80/20 – people will pay a certain percentage of each doctor visit and/or prescription drugs) • Co-pay – amount you pay when you visit the doctor, usually around $20, and the insurance will pay the rest

14. Example John had an accident on his skateboard. His hospital bill is $40,250. Based on his insurance policy information below, how much will John have to pay? Deductible: $250 Coinsurance: 80/20 Cap on coinsurance: $2,000

15. Example Continued • Deductible: $250 • Coinsurance: 80/20 • Cap on coinsurance: $2,000 $40, 250 – 250 (deductible) = $40,000 $40,000 x 20% = $8,000 $8,000 > John’s $2,000 cap $2,000 cap + $250 deductible = $2,250 total

16. Provider Networks HMO (health maintenance organizations) PPO (preferred provider organization) Similar to HMOs but provide a larger network of providers Cost more than HMOs • Based on negotiated agreements with specific doctors to provide health care • People choose PCP (primary care physician) from an approved list and must be referred for any additional specialized care

17. Objective 3: Understand the need for life insurance

18. Life Insurance • Provides payments to a specific person/persons when the policyholder dies • The policyholder pays, the other benefits • Beneficiary – the person who receives the payment • Example: If you have a $100,000 policy and die, your beneficiary will get $100,000 (life insurance payments are not subject to income tax) • Purchased from a company, must pay premiums • Some employers provide full or partial life insurance coverage for their employees as a benefit

19. Role of Life Insurance • It’s a component of your financial plan • Whether you need it and how much to purchase depends on your financial goals • Most common financial goal or reason for buying life insurance is to make sure those who depend on you have financial support in the event of your death • More critical for someone who provides income for the household/the breadwinner

20. Types of LIFE Insurance Term Universal Whole PERMANENT insurance Provides coverage for as long as the policyholder continues to pay the premiums This account builds in cash value (the more premiums you pay, the more money you have) Can serve as a source of liquidity and as a kind of investment Provided over a specific period of time Usually 5-20 years Builds no savings, not an investment Has lower premiums You risk outliving your life insurance policy Coverage for a specified term Builds savings Combination of whole and term Allows more flexibility (you can add units of term coverage, or years, and alter payments)

21. Objective 4: Understand the need for life insurance

22. Getting Insurance • Most Americans rely on THEIR EMPLOYERS to obtain health insurance • Some employer-provided coverage includes: • Disability – provides income in the event illness or injury makes it impossible to work and earn a living • Dental • Life • Term-Life • Vision • Supplemental health insurance

23. HIPAA and COBRA HIPAA COBRA Consolidated Omnibus Budget Reconciliation Act Allows you to continue health insurance coverage for up to 18 months after your employment ends You still must pay premiums that employer was paying for coverage • Health Insurance Portability & Accountability Act • Ensures workers can continue their health insurance coverage if they switch jobs • Prohibits companies from denying new employees access to coverage based on their health or preexisting conditions *The trend in recent years suggest that in comparison to present employees, future employees will be LESS LIKELY to obtain insurance coverage from their employers