Health insurance
the broad field of insurance plans that provide
protection against the financial consequences of illness, accidents, injury,and disability.
principle of indemnity
to restore the insured to the same financial
condition as that which existed prior to the loss (also the goal of health insurance)
medical expense insurance, disability income insurance, and accidental death and dismemberment.
three distinct categories of health coverage
Medical Expense Insurance
this insurance provides financial protection against the cost of medical care by reimbursing
the insured, fully or in part, for these costs.
reimbursement plans
plan that provides financial protection against the cost of medical care by reimbursing
the insured, fully or in part, for these costs
Disability Income Insurance
insurance designed to provide a replacement income when wages are lost due to a disability. It does not cover the medical expenses associated with a disability. Rather, it provides the insured with a guaranteed flow of periodic income payments when disabl
Accidental Death and Dismemberment Insurance
the purest form of accident insurance. It provides the insured with a lump-sum benefit amount in the event of accidental death or dismemberment under accidental circumstances.
through individual or group plans and policies- also includes blanket and franchise policies
HOW HEALTH INSURANCE IS PURCHASED
interim coverage
Short term policies in health insurance
can be purchased on an interim basis when in between jobs or waiting for a new policy to start.
how short term (interim coverage) is purchased
issued by commercial insurers and service organizations as contracts between the insured and the company. Though all companies have standard policies for the coverages they offer, most allow individuals to select various options or benefit levels that wil
how Individual health insurance is purchased
provides coverage under a master contract to members of a specified group. plans are available to employers, trade and professional associations, labor unions, credit unions, and other organizations. Insurance is extended to individuals in the group throu
how Group health insurance is purchased
Renewability Provisions
Life insurance (particularly whole life insurance) and annuities are characterized by their permanence. These policies cannot be cancelled by the insurer unless the policyowner fails to make a required premium payment. Even term life policies are guarante
Premium Factors
Like life insurance, health insurance is funded by the regular payment of premiums. Unlike life insurance, there are relatively few payment options available with a health policy. Health insurance premium rates are subject to periodic
increases.Paid annua
Morbidity
is the expected incidence of sickness or
disability within a given age group during a given period of time.
interest, expense, types of benefits, and morbidity
factors that enter into premium calculations for health insurance
Participating Versus Nonparticipating Policies 6
Most individual health insurance is issued on a non-participating basis. Group health insurance is generally participating and provides for dividends or experience rating.
A group policy that is experience-rated may make premium reductions retroactive for
Claims- life insurance
In the case of life insurance, most of these are fairly well defined-the amount of insurance
coverage is readily determined by the policy and benefits are payable if the insured has died
Claims- health insurance
not as clearly defined, Medical expense insurance, for example, is typically based on a contract of reimbursement meaning that the benefit an insured receives is not fixed but instead is dependent on the amount of the loss. Its purpose is to reimburse the
overutilization
If health benefit levels are too high
group plan
plan where participant can take comfort in knowing that even if he should terminate employment, continued coverage is guaranteed through the conversion privilege built into every policy.
Social Security disability income
should only be viewed as a possible source of income to augment a
personal plan. Whether the personal plan is based on a group or individual policy, it should be regarded as the primary source of income if earnings are lost due to disability.
Policyowners can control the premium cost
of a disability income plan by electing a longer elimination period than might otherwise be desired. The length of the benefit period also has a direct impact on the premium.
Group Disability Income Plans
In the case of these income plans, the group member has little choice as to the level of
benefits provided.
If each parent's income is indispensable for the
financial support of the family, then it is safe to assume that the loss of either income would pr
Employee Benefit Plans
Many people rely on these plans as their sole source of health insurance. can encompass a wide variety of benefit offerings (life insurance,
pension or profit-sharing plans, vacation pay, deferred compensation arrangements, funeral leave, sick time) it is
Group Health Insurance
can consist of medical insurance, disability income insurance, accidental death and dismemberment insurance-alone or in any combination. It is not uncommon to
find all of these coverages included in a single group insurance plan
� The plan contributes to employee morale and productivity.
� The plan enables the employer to provide a needed benefit that employees would otherwise
have to pay for with personal after-tax dollars (this helps hold down demands for wage
increases).
� The
By providing its employees with a
plan for health insurance, an employer derives a number of benefits: (group)
Cafeteria Plans
benefit arrangements in which employees can pick and choose from a menu of benefits, thus tailoring their benefits package to their specific needs. Employees can select the benefits they value or need and forgo those of lesser importance to them. The empl
Section 125 plan
often referred to as cafeteria plans, Without a this Plan in place, the contribution would be considered taxable income to the
employee.
medical coverage, accidental death and dismemberment insurance, short-term and long-term disability, life insurance, and
dependent care. Some plans provide for "choices within the choices": an employee may have the option of selecting from various levels
types of flexible benefits under cafeteria plan
Business Continuation Plans
Just as life insurance provides a way to help a business continue in the event an owner or key employee dies, health insurance also serves continuation purposes in the event of a disabling sickness or injury.
Business Overhead Expense Insurance
type of business plan designed to reimburse a business for business expenses and
payroll in the event the business owner becomes disabled. sold on an individual basis to
professionals in private practice, self-employed business owners, partners, and occas
Disability Buy-Sell Plans
type of business plan that operates in much the same way as a life insurance buy-sell agreement. In this case, the plan sets forth the terms for selling and buying a partner's or stock owner's share of a business in the event of disability and is no longe
Disability buy-sell plans (16+17)
business plan that are characterized by lengthy elimination periods, often as long as two years. The reason for this is simple: because the plan involves the sale of a disabled partner's or owner's interest inthe business, it is important to be quite sure
Key Person Disability Insurance 16
business plan
the nature of the contract, the cost of the plan, the form of premium payments, and eligibility
requirements
why group insurance is different than indv.
GROUP HEALTH INSURANCE
a plan of insurance that an employer (or other eligible group sponsors) provides for its employees. The contract for coverage is between the insurance company and the employer. A master policy is issued to the employer. they receive certificates of insura
enrollment period
in group health insurance, The limited period of time during which all members may
sign up for a group plan and must sign an enrollment card
probationary period
the period of time during which a new employee is ineligible for group Health insurance coverage is called the
The characteristics of group health insurance are similar to those of group life. These include eligibility standards for groups and for individuals within the groups, method of premium payments (contributory
versus noncontributory), lower cost, predeterm
Characteristics of Group Health Insurance
the group must be a natural group. This means that it must have been formed for some reason other than to obtain insurance. Qualifying groups include employers, labor unions, trade associations (associations in the same industry), creditor-debtor groups,
Eligible Groups in group insurance
� Minimum of one to three months employment service
� Full-time employment status
� Working people age 65 or over generally must be offered the same health benefits offered to younger employees
Individual Eligibility in group insurance
If the employer pays the entire premium,
the plan is noncontributory. If the employees share a portion of the premium, it is contributory. Most noncontributory group health plans require 100% participation by eligible members, whereas contributory group h
Contributory Versus Noncontributory in group health
Predetermined Benefits
characteristic of group health plans that the benefits provided to individual insureds are
predetermined by the employer in conjunction with the insurer's benefit schedules and coverage limits.For example, group disability benefits are tied to a position
Underwriting Practices 20 and 21
Generally speaking, the approach in underwriting group health plans is the same as underwriting group life plans: the insurer evaluates the group as a whole rather than individuals within the group.
In smaller groups the presence of even one bad risk can
� Reason for the group's existence (purchasing group insurance must be incidental to the
group's formation, not the reason for it)
� Stability of the group (underwriters want to see a group of stable workers without an
excessive amount of "turnover")
� Pe
General groups of underwriting considerations are applicable to all or most types of groups, such as:
Conversion Privilege 22
This allows them to convert their group certificate to an individual medical expense
policy with the same insurer, if and when they leave their employment. Insurers are permitted to evaluate the individual and charge the appropriate premium, be it a stand
Health Insurance Portability and Accountability Act (HIPAA)
this act provides the ability to transfer and continue health insurance coverage for millions of American workers and their families when they change or lose their jobs.
HIPAA Privacy Rule
in HIPAA this rule provides federal protection for an individual's health information and gives patients an array of rights with respect to that information.
HIPAA Security Rule
in HIPAA this rule provides technical safeguards to assure the confidentiality, integrity, and availability of electronic protected health information
� HIPAA requires employers with 20 or more employees to allow former employees to continue benefits under the employer's group health insurance
� HIPAA imposes requirements on health care providers with respect to disclosure of protected health informatio
HIPAA requirements
HIPAA has changed the rules governing preexisting conditions for all group health plans (excluding disability income). HIPAA portability rules allow individuals who change from one group medical plan to another to reduce or eliminate any pre-existing cond
Pre-existing conditions of HIPAA
Creditable coverage
in hipaa this is previous coverage under another group or individual health plan when there has not been a break in coverage of 63 days. The 63-day period begins when the individual's previous coverage ended. It ends when coverage under your plan begins,
Dental Care and Vision Care
plan in group health is designed to cover the costs associated with normal dental maintenance (such as annual checkups, teeth cleanings etc) as well as oral surgery, root canal therapy, and orthodontia. The coverage may be on a "reasonable and customary c
Group Basic Medical Expense 25
plan in group health
The three standard forms of basic medical expense insurance- hospital, surgical, and physicians' expenses- are available for group insurance.
This plan can combine two or more of these coverages or it may consist of only one type of c
Group Major Medical Plans 26
plan in group health
Like individual major medical plans, group major medical plans may be offered as a single, extensive plan or superimposed over a group basic plan.
Benefits provided by group major medical plans are usually more extensive than those of
Coordination of Benefits
found only in group health plans, this goal is to avoid duplication of benefit payments and over insurance when an individual is covered under more than one group health plan. The provision limits the total amount of claims paid from all insurers covering
Coordination of Benefits
plan in group health plans that establishes which plan is the primary plan, or the plan that is responsible for providing the full benefit amounts as it specifies. Once the primary plan has paid its full promised
benefit, the insured may submit the claim
Consolidated Omnibus Budget Reconciliation Act of 1985
Participants in group medical expense plans are protected by a federal law that guarantees a
continuation of their group coverage if their employment is terminated for reasons other than gross misconduct.
COBRA Continuation of Benefits 28 29
The following events would qualify for extended medical expense coverage under COBRA for a
terminated employee:
- Employment is terminated = 18 months of continued coverage
- Employee's hours are reduced = 18 months of continued coverage
- Employee dies =
Group Disability Income Plans 30
group plan that usually specify benefits in terms of a percentage of the individual's earnings. can include short-term plans or long-term plans.
maximum benefit periods of rather short duration, such as 13 or 26 weeks. Benefits
are typically paid weekly and range from 50% to 100% of the individual's income.
Group short-term disability plans
are characterized by
maximum benefit periods of more than two years, occasionally extending to the insured's retirement age. Benefit amounts are usually limited to about 60% of the participant's income.
Group long term disability plans provide
Group AD&D 30 31
Accidental death and dismemberment insurance is a very popular type of group coverage, frequently offered in conjunction with group life insurance plans.
It may also be provided as a separate policy, in
which case it is normally paid for entirely by the e
Blanket Health Plans
type of group plan issued to cover a group who may be exposed to the same risks, but the
composition of the group (the individuals within the group) are constantly changing (airline)
Franchise Health Plans- wholesale plans
type of group plan provide health insurance coverage to members of an association or professional society. Individual policies are issued to individual members
and the association or society simply serves as the sponsor for the plan. Premium rates are usu
Credit Accident and Health Plans
group plan that are designed to help the insured pay off a loan in the event they are disabled due to an accident or sickness. If the insured becomes disabled, the policy provides for monthly benefit payments equal to the monthly loan payments due.
Non-occupational Health Plans
A policy that does not cover injuries sustained while at work, because those injuries are covered by workers compensation.
health care savings accounts (HSAs)
tax-favored vehicle for accumulating funds to cover medical expenses. Individuals under age 65 are eligible to establish and contribute if they have a qualified high- deductible health plan. Annual contributions of up to 100% of an individual's health pla
� Doctors' fees
� Prescription and nonprescription medicines
� Necessary hospital services not paid for by insurance
� Retiree health insurance premiums
� Medicare expenses (but not Medigap)
� Qualified long-term care services
� COBRA coverage
Qualified health care expenses include amounts paid for in HSA
the HSA owner, the spouse, and dependents.
Nonqualified withdrawals are subject to income taxes and a 20% penalty. HSAs are fully portable, and assets can accumulate over the years. Upon death, HSA ownership may be transferred to a spouse tax free.
Qualified medical expenses are expenses incurred by
taxation of Group Health Premiums
employers are entitled to take a tax deduction for premium contributions they make to a group
health plan, as long as the contributions represent an "ordinary and necessary business expense. As a general rule, individual premium contributions to a group h
Any benefits an individual receives under a medical expense plan are not considered taxable income because they are provided to cover losses the individual incurred. It is a somewhat different story with disability income plans. Disability benefit payment
Taxation of Group Health Benefits
Accidental Death and Dismemberment Insurance 35
The third major type of health insurance coverage is accidental death and dismemberment (AD&D)
insurance. It pays benefits in the event of a fatal accident or if dismemberment results from an
accidental injury. Although the circumstances under which benef
AD&D BENEFITS 36
Because an AD&D policy pays a specified benefit to the insured in the event of accidental death or
dismemberment due to accidental injury, it is necessary for the policy to make distinctions between
these two contingencies and to define the benefits accor
Accidental Means versus Accidental Results 37
As we learned in the last chapter, an insurance policy that provides benefits in the event of an injury due
to an accident must define "accident." In all cases, an accident is "external and violent," but accidental
death and dismemberment policies (like d
OTHER FORMS OF AD&D 38
as noted in the discussion of disability income policies, most states require that policies that provide
any form of accident benefit, as do AD&D policies, base the definition of "accident" on the results
definition, not the means definition.
?OTHER FORMS
Limited Risk Policies in ad&d
Ad&d policy that set forth a specific risk and provide benefits to cover death or dismemberment due to that risk. For example, an aviation policy provides benefits for accidental death or dismemberment if death or injury results from an aviation accident
Special Risk Policies
ad&d policy covers unusual hazards normally not covered under ordinary accident and health insurance.
There are few restrictions on who may be named a beneficiary of a life insurance policy. The owner of the policy is the ultimate decision maker and may change the beneficiary at any time, unless designated as irrevocable. However, in the underwriting proc
Qualifications for AD&D
the person or entity designated in the policy to receive the death proceeds.
the beneficiary of an Accidental Death and Dismemberment (AD&D) insurance policy is
?Individuals
? Businesses
? Trust (Provides management of the proceeds; Policy proceeds may be reduced by trust administration fees)
? Estates (Creditors have rights to life insurance policy proceeds when the beneficiary is the insured's estate)
? Chariti
Who can be beneficiaries of AD&D?
A beneficiary can be either specific (a person identified by name and relationship), or a class designation (a group of individuals such as the "children of the insured"). If no one named or if all beneficiaries die before the insured dies,
death benefit
Types of Beneficiaries AD&D
? Primary: First in line to receive death benefit proceeds
? Secondary (contingent): Second in line to receive death benefit proceeds
? Tertiary: Third in line to receive death benefit proceeds. If no one named, death benefit will go to insured's estate
Oder of those who receive Beneficiaries AD&D
Per Stirpes: (meaning by the bloodline
In the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary's heirs. AD&D
Per Capita: (meaning by the head)
Evenly distributes benefits among all named living beneficiaries. AD&D
Revocable Beneficiary
The policy owner may change the beneficiary at any time without notifying or getting
permission from the beneficiary AD&D
Irrevocable Beneficiary
has a vested interest in the policy, therefore the policyowner may not exercise certain rights without the consent of the beneficiary. may not be changed without the written consent of the
beneficiary AD&D
Simultaneous Death
If the insured and the primary beneficiary die at approximately the same time for a common
accident with no clear evidence as to who died first, the Uniform Simultaneous Death Act law will assume that the primary died first, this allows the death benefit
Common Disaster Provision
a policyowner can be sure that if both the
insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specifi
Spendthrift Clause
Prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in
fixed amounts or installments over a certain period of time. would have no effect if the beneficiary receives the proceeds as one lump sum payment. AD&D. this
Facility of Payment
Typically found in industrial policies, it allows the insurance company to pay all or part of
proceeds to someone not named in the policy that has a valid right. This is usually done on behalf of a minor.