Chapter 9 Health and Disability Income Insurance Copyright © 2013 by The McGraw-Hill Companies,...

Chapter 9Health and

Disability Income

Insurance

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

9-9-22

Health and Disability Income Insurance

Chapter Learning ObjectivesLO9.1 Recognize the importance of health insurance in

financial planning.LO9.2 Analyze the costs and benefits of various types of

health insurance coverage as well as major provisions in health insurance policies.

LO9.3 Assess the trade-offs of different health insurance plans.

LO9.4 Evaluate the differences among health care plans offered by private companies and by the

government.LO9.5 Explain the importance of disability income

insurance in financial planning and identify its sources.LO9.6 Explain why the costs of health insurance and

health care have been increasing.

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Learning Objective LO9.1Recognize the Importance of Health

Insurance in Financial Planning

Health Insurance

• Eases the financial burden people may

experience as a result of illness or injury

• Includes:

– Medical expense insurance

– Disability income insurance

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• Group Plans:– Covers most individuals – Usually employer sponsored

– Employer pays part or most of cost

• The Health Insurance Portability andAccountability Act of 1996 (HIPAA): – Federal portability standards– If you change jobs you need not lose your

health insurance.

Health Insurance

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• Group Policy Supplements– Coordination of benefits = benefits

received from all sources limited to 100% of allowable medical expenses

• Individual Health Insurance

• 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

Health Insurance

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Learning Objective LO9.2Analyze the Costs and Benefits of Various

Types of Health Insurance Coverage as well as Major Provisions in Health

Insurance Policies

Types of Health Insurance Coverage

Basic

Major medical

Both

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• Basic Health Insurance– Hospital expense insurance

• Hospital room, board and other charges

– Surgical expense insurance• Surgeon's fee for an operation

– Physician expense insurance• Pays for physician’s care that does not

include surgery, such as office visits, lab tests and X-rays

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• Major medical expense insurance– Covers expenses for a serious injury or long-

term illness.– May include a deductible, coinsurance, and a

stop-loss provision (maximum out of pocket)

• Comprehensive major medical insurance– Low deductible offered without a separate,

basic plan– Covers hospital, surgical, and other bills

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• 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

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• Vision care– Exams, contact lenses, and glasses

• Dread disease policies– Pays out for very specific conditions– Illegal in many states– AFLAC Cancer Coverage

• Long term care insurance– Makes sense for those with net worth of

$100,000 to $2 million– Covers daily help if seriously ill or disabled– Nursing home or in-home care

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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

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• Copayment– Cost sharing in the form of a flat dollar

amount you pay, such as $15.00 per office visit or $10 per prescription

• Service benefits

– Entitlement to specific services

• Benefit limits

– Maximum dollar amount or maximum number of days in the hospital

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• Exclusions and limitations– Pre-existing conditions (Ended

2014)– Cosmetic surgery

• Guaranteed renewable

• Cancellation and termination – Explains the circumstances

under which policy can be canceled

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Learning Objective LO9.3Assess 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

• Internal limits versus aggregate limits

• Deductibles and coinsurance

• Out-of-pocket limit

• Benefits based on reasonable and customary charges

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Health Insurance Must-Haves

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Learning Objective LO9.4 Evaluate 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

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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– Basic and supplemental services

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• 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

• Point-of-Service (POS)– Combines features of HMOs and PPOs

– HMO-PPO

– Hybrid or Open-ended HMO

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• 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

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New Health Care Accounts

• Health Spending Accounts (HSA)– Money contributed to tax-free account

• Health Reimbursement Accounts (HRA)– Tied to high-deductible policies– Funded solely by employer– Unused funds carried over to next year

• Flexible Spending Accounts (FSA)– Pre-tax dollars – Funds managed by employer– Unused funds forfeited at year end

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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 difference– 4 Parts

• Part A = Hospital insurance• Part B = Medical insurance• Part C = Medicare Advantage Plan• Part D = Prescription Drug Coverage

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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

• Part B: – Medical insurance helps pay for doctors’

services and many other medical services and supplies not covered by hospital insurance

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MEDICARE

• 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

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MEDICARE

• Medicare Choice – Created by Balanced Budget Act of 1997– Allows choice of a managed care plan in

addition to Medicare coverage

• Medigap (MedSup)– Medicare Supplement Insurance Policy– Private coverage fills gaps in Medicare Parts

A and B

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MEDICAID

• Medical assistance offered to certain low-income individuals and families

• Administered by states• Typical benefits:

– Physicians’ services– Inpatient and outpatient hospital services– Lab services– Skilled nursing and home health services– Prescription drugs– Eyeglasses– Preventative care for those under 21

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Health Insurance and the Patient Affordable Care Act of 2010

“Obamacare”

• A Few of the key plan provisions:– Tax credits to small business to offer

coverage– Prohibits denying coverage to children with

pre-existing conditions– Temporary high-risk pool for uninsurable– Eliminates co-pays for preventative care– Allows young people to remain on parents’

coverage to 26th birthday

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Learning Objective LO9.5 Explain the Importance of Disability Income

Insurance in Financial Planning and Identify its Sources

Disability Income Insurance• Originally designed to protect against loss of

income• 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

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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• Private Income Insurance Programs

– Supplement other income sources

– Normally provide 40-60% of the income

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Disability Income Insurance Trade-Offs

• Policy’s definition of disability

• Waiting or elimination Period

• Duration of benefits

• Amount of benefits

• Accident and sickness coverage

• Guaranteed renewability

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• 2012 Health care costs ≈ $2.83 trillion

• U.S. has highest per capita health care cost of any country in the world

• Rapid increase in medical expenditures– 17.7% of GDP in 2011

• High administrative costs– Admin ≈ 26% of health care costs

Learning Objective LO9.6 High Medical Costs

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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, malpractice

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What is Being Done About the High Costs of Health Care?

• Carefully review health care fees

• Incentives to encourage preventive care

• Community health planning

• Pre-paid group practices

• Community health education programs

• Paying cash

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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

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Chapter SummaryLearning Objective LO9.1

• Health insurance is protection that provides payments of benefits for a covered sickness or injury

• Health insurance should be a part of your overall insurance program to safeguard your family’s economic security

• Health insurance plans can be purchased through group health insurance, individual health insurance, and COBRA

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• Four basic types of health insurance available: – Hospital expense insurance– Surgical expense insurance– Physician’s expense insurance– Major medical expense insurance.

• Major provisions of a health insurance policy include: – Eligibility requirements– Assigned benefits– Internal limits– Copayment– Service benefits– Benefit limits– Exclusions and limitations– Guaranteed renewability– Cancellation and termination

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Health insurance policy tradeoffs include:– Reimbursement versus indemnity– Internal limits versus aggregate limits– Deductibles and coinsurance– Out-of-pocket limits– Benefits based on reasonable and

customary charges

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Health insurance and health care are available from:

– Private insurance companies– Hospital and medical service plans such as Blue

Cross/Blue Shield– Health maintenance organizations (HMOs)– Preferred provider organizations (PPOs)– Point-of-service plans (POSs)– Home health care agencies– Employer self-funded health plans

Chapter 9 Health and Disability Income Insurance Copyright © 2013 by The McGraw-Hill Companies,...

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Transcript of Chapter 9 Health and Disability Income Insurance Copyright © 2013 by The McGraw-Hill Companies,...