1. Insuring Your Health and Your Life
Chapter 7
Insuring Your Health and Your Life
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2. Learning Objectives Explain why health insurance is important
Describe different features of health insurance
Explain the need for life insurance
Describe the ways people obtain insurance
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3. The Importance of Health Insurance
People covered by health insurance limit their potential liabilities
It ensures that they receive adequate medical care
Medical care can be very expensive
Adequate health insurance is an important component of your financial plan
Health insurance provides payments to people who suffer a financial loss as a result of illness or injury
Discuss the cost of health care and how it is rising faster than people can afford.
Explain why health insurance is needed.
Just because we don’t need medical attention everyday or on a regular basis doesn’t mean we don’t need health insurance.
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4. Sources of Health Insurance
Health insurance is available in many forms
Some people get their coverage from private companies
Many people get coverage as a company benefit
See Figure 7.1 for an example of Employer-Provided Health Care Coverage
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5. Figure 7.1
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6. Sources of Health Insurance
Medicare is a government-sponsored health insurance plan that is funded largely by taxes that most working people pay.
Medicaid is a government-sponsored program that provides health insurance for low-income individuals
The federal government has two health care plans that are available to some individuals:
Medicare
Medicaid
Explain that these are options for those who qualify but they have fewer benefits and options than other plans.
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7. Sources of Health Insurance
Medicare provides benefits to senior citizens or to individuals who are disabled
Medicare consists of two components: Part A and Part B
Part A is hospital insurance, which recipients receive at no cost to them
Part B covers doctor visits and other care provided outside a hospital
Part B recipients must pay some premium for this coverage
A premium is a regular payment in return for insurance coverage
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8. Sources of Health Insurance
Medicaid is administered on a state-by-state basis
The coverage is designed for the elderly, blind, disabled, and needy families with dependent children
Many people have no health care coverage
These people can face very expensive health charges
Discuss why it is important to have health insurance. A simple x-ray can cost $2,000.
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9. Health Care Costs Health care can be very expensive (see Figure 7.2)
Health insurance is a critical risk-reduction tool of your financial plan
In 2010, health care spending by Americans averaged nearly $8,233 for each man, woman, and child
Your decision is not whether to purchase health insurance
Instead, decide what type of plan to get and how much coverage to obtain
Tell students that it is important for them to do their research on insurance. Costs can be managed by choosing coverage wisely.
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10. Figure 7-2
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11. Check Your Financial IQ
Why is health insurance a critical part of your financial plan?
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12. Check Your Financial IQ
People without health insurance could find all of their net worth quickly eliminated with one major health problem
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13. Health Insurance Features and Terms
Insurance plans come in many forms and provide a range of coverage and services
Know about the features and terms commonly used when deciding what health care plan is right for you
Stress the importance of knowing insurance features and terms.
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14. Indemnity Plans versus Managed Care
Health care plans are classified as indemnity plans or managed care plans
Indemnity plans allow participants to seek health care from any qualified medical provider
Managed care plans limit participants to a specific list of providers
Remind students that it is important to research this!
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15. Family Coverage
A policyholder is a person who buys a health insurance policy or subscribes to it through an employer.
Many health insurance plans provide coverage for immediate family members
Children may become ineligible for coverage once they reach a certain age or status
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16. Group Plans
An individual’s high risk or loss is spread across the entire pool of group members
Each group member has the same access to health care
Each member also pays the same coverage even if some have more health problems than others
Groups plans are insurance plans that cover a large group of individuals
Discuss groups plans and how they works. Group plans are typically lower costing because more people are paying in and only a certain percentage need costly services.
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17. Math for Personal Finance
Michael needs laser eye surgery to correct his vision. After a visit to the ophthalmologist, he learns that the surgery will cost about $4,500 but that the procedure is not covered.
How much will Michael be required to pay for the surgery?
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18. Math for Personal Finance
Solution: Michael will be responsible for the entire cost of the surgery ($4,500) because it is not a covered procedure
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19. Location Restrictions
Location Restrictions can apply to some health insurance coverage
Some United States insurance companies will cover medical care delivered inside the US only.
Others will provide coverage in foreign countries
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20. Preexisting Conditions and Cancellation Options
Preexisting conditions are health conditions that existed before your policy was granted
Insurance policies may exclude coverage for preexisting conditions
Some health insurance plans allow the insurance company to cancel the policy at any time
Others guarantee coverage as long as you pay your insurance premiums on time
Give examples of conditions – asthma.
Explain that it is important to know if certain conditions are covered.
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21. Deductibles
Some insurance policies pay claims after the policyholder has paid a certain amount of money (deductible)
After you pay a deductible, your insurance company will begin to pay for some of the covered expenses
The higher the deductible, the lower your cost for insurance
A deductible is the amount the policyholder has to pay before insurance policies begin paying claims.
Discuss how a deductible is an important factor in choosing a policy or level of coverage.
Discuss how a deductible should fit into your budget.
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22. Math for Personal Finance
Jontell needs surgery on her foot. Assume that she has insurance and the surgery cost $5,000 and she has a $500 deductible. She also has 20 percent co-pay.
How much will Jontell have to pay for the surgery?
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23. Math for Personal Finance
Solution: Jontell will have to pay the $500 deductible and then 20 percent of the remaining amount. Therefore, she will pay $ ($5,000 - $500)= $1,400
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24. Coverage Limits
Many policies limit the total amount they will pay for certain procedures
Some policies may exclude some procedures completely
Many policies limit the number of days of hospital care they will pay for or the frequency of certain treatments
Policies also differ on coverage for prescription drugs
Give an example of a total amount policies will pay. Say up to $2,000, etc.
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25. Coinsurance Coinsurance is often called a co-pay
Coinsurance is the term used for the share of costs for covered services that the insured person is required to pay out of his or her pocket
Coinsurance is often called a co-pay
Co-pay amounts usually apply to most medical services
For example, most policies have a $20 co-pay for a doctor’s visit
Explain that it is important to plan and save for co pays even after the deductible is met.
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26. Provider Networks
Managed health care plans limit your choice of health care provider to a specific list of medical professionals.
The two most common types of provider networks are:
Health Maintenance Organizations (HMOs)
Preferred Provider Organizations (PPOs).
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27. Provider Networks
HMOs are based on negotiated agreements with specific doctors to provide health care.
Individuals choose a primary care physician from an approved list
Individuals must be referred for any additional specialized care.
Explain how HMOs work. Doctors must be on an approved list. If you need to see a doctor that isn’t on the list, you need to be referred. It is important to research this before deciding which insurance coverage to get.
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28. Provider Networks
PPOs are similar to HMOs, but provide a larger network of providers
PPOs typically cost more than HMOs
Refer to Figure 7.3 for a comparison of the different types of private health insurance plans
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29. Figure 7.3
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30. Auto Policies
Your automobile insurance will contain limited accident coverage
This insurance may also pay a portion of your medical costs associated with a vehicle accident
Tell students it is important to budget/plan for this. It is an important part of your financial plan.
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31. Check Your Financial IQ
Why is it important to understand the different features and terms used in health care plans?
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32. Check Your Financial IQ
Different features can greatly affect your costs and the level of service you receive
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33. Life Insurance People buy life insurance from a company
Life insurance provides a payment to a specific person or persons when the policy holder dies
A beneficiary is the person who receives the payment
People buy life insurance from a company
These policyholders pay periodic premiums
Many employers provide fully or partially paid life insurance coverage for their employees as a benefit
Explain that life insurance is the only way to assure any plans you have not reached are fulfilled after your death if that is important to you.
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34. Role of Life Insurance
Life insurance is a component of your financial plan
Life insurance helps to ensure that those who depend on you have financial support in the event of your death
Some people carry life insurance to cover the costs incurred when they die
Some people get life insurance when they are young because it can be costly or difficult to obtain it as you get older
Explain that it is important to plan for this now.
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35. Types of Life Insurance
Life insurance comes in several different forms:
Term insurance
Whole life insurance
Universal life insurance
These forms differ in the following ways:
how long they provide coverage
how much they cost
whether or not they provide any sort of benefit besides a payment at death.
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36. Types of Life Insurance: Whole Life Insurance
Whole life insurance provides coverage for as long as the policyholder continues to pay the premium
Whole life insurance is sometimes referred to as permanent insurance
These types of policies build up savings for the policyholder over time
Part of what you pay in premiums goes into an account over time
Remind students to do their research when they are deciding what type of insurance to get.
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37. Types of Life Insurance: Whole Life Insurance
As the account builds a “cash value, you may be able to borrow against it or even take cash out.
At some point, the cash value of the policy may be used to pay your premiums until your death
Whole life insurance policies can serve as a source of liquidity and as an investment in your financial plan
Explain that the policy will pay for your death if you build up enough money.
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38. Types of Life Insurance: Term Insurance
Term insurance is life insurance provided over a specific period of time
Term insurance policy builds no savings and does not serve as an investment
It usually ranges between 5 and 20 years
For these reasons, it generally has lower premiums
Ask students if they think this would work for them?
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39. Types of Life Insurance: Universal Life Insurance
Universal life insurance provides coverage for a specified term and builds savings for the policyholder
Universal life insurance is a combination of term insurance and whole life insurance
Universal life allows more flexibility than other types of life insurance
For example, you can add units of term coverage for periods of time
You can also alter your payments during your life
Discuss how most plans will call for this type of insurance (a combination of term and whole life insurance)
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40. Math for Personal Finance
The premiums to Janice’s $200,000 whole life policy total $1,300 a year. A term insurance policy for $200,000 might cost Janice $400 in premiums. Janice bought the term policy and invested the difference, earning a rate of 8 percent.
How much money could she “make” in a year?
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41. Math for Personal Finance
Solution: Janice would have $900 to invest. $900 x .08 = $72
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42. Check Your Financial IQ
What is the main purpose for buying life insurance?
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43. Check Your Financial IQ
People buy life insurance to make sure that when they die their dependents have financial support
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44. Getting Insurance
Most Americans rely on their employers for access to health insurance
Employers usually pay some or even all the premiums for health or life insurance
Employer-provided coverage can represent a large portion of the employee’s overall compensation
Explain why employer-provided coverage can represent a portion of the employee’s compensation - because it’s so costly
Also employer-provided plans generally provide coverage to employees and their families that they may have trouble getting on their own
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45. Getting Insurance
There are laws that help ensure that a person who leaves a job can continue to get access to health coverage
This is true even if he or she has developed a serious health problem
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46. Getting Insurance
HIPAA prohibits insurance companies from denying new employees access to coverage based on their health or preexisting conditions
With COBRA you are required to pay the premiums that your previous employer was paying for your coverage
The Health Insurance Portability and Accounting Act (HIPAA) ensures that workers can continue their health insurance coverage even if they switch jobs
Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to continue health insurance coverage for up to 18 months after your employment ends
Explain how these programs protect your coverage.
Give examples.
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47. Getting Insurance
COBRA and HIPAA make sure people switching jobs can maintain health insurance coverage during and after the switch
Some companies offer employees a chance to get health coverage after retirement
Discuss how health coverage is vital and researching these things are important to your financial plan.
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48. Getting Insurance
Employers often provide other insurance-related benefits, such as:
Disability insurance
Dental insurance
Vision insurance
If your employer does not offer it or if you are self-employed, you may want to buy disability insurance
Disability insurance provides regular payments to replace lost income in the event injury or illness makes it impossible to work
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49. Getting Insurance Insurance has different kinds of coverage and prices
The Internet can inform you about the different types of products and services
Insurance agents are also available to discuss these options
Choosing insurance coverage is a major financial decision and should be made with as much information as possible about your options
Remind students that as with any financial decision, research and knowledge are vital.
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50. Check Your Financial IQ
What has been the most common means of obtaining health insurance in recent years?
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51. Check Your Financial IQ
An employer-offered plan is the most common
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52. Summary
Insurance is the promise of payment to be made in the event of some kind of loss
Health insurance provides payment to policyholders who suffer a loss as a result of illness or injury
Health insurance is available in different forms such as: Medicare or Medicaid, private companies, or through employers
Insurance plans come in many forms and provide a range of coverage and services
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53. Summary
Some issues to be aware of when considering insurance programs include:
family coverage
location
preexisting conditions
cancellation options
Deductibles
coverage limits
Coinsurance
provider networks
referral limits
prescription coverage
student policies
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54. Summary
Life insurance is an important component of your financial plan
Life insurance ensures your dependents have financial support in the event of your death
Several options are available
term insurance
whole life insurance
universal life insurance
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55. Summary Employers are a main source of insurance
An individual may purchase health or life insurance
It is important to investigate all your options before you purchase insurance
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56. Key Terms and Vocabulary
Beneficiary
COBRA
Coinsurance
Deductible
Disability insurance
Fraud
Group plan
Heath insurance
HIPAA
Insurance
Liability
Life insurance
Medicaid
Medicare
Policyholder
Preexisting condition
Premium
Term insurance
Universal life insurance
Whole life insurance
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57. URLs www.medicare.gov www.insurancefraud.com
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