Health and Disability Income Insurance Chapter 9 Health and Disability Income Insurance McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Health and Disability Income Insurance Chapter Learning Objectives LO9.1 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.

Learning Objective LO9.1 Recognize the Importance of Health Insurance in Financial Planning Eases the financial burden people may experience as a result of illness or injury Includes: Medical expense insurance Disability income insurance

Health Insurance Group Plans: The Health Insurance Portability and Covers most individuals Usually employer sponsored Employer pays part or most of cost The Health Insurance Portability and Accountability Act of 1996 (HIPAA): Federal portability standards If you change jobs you need not lose your health insurance.

Health Insurance Group Policy Supplements Individual Health Insurance 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

Types of Health Insurance Coverage Learning Objective LO9.2 Analyze 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

Types of Health Insurance Coverage 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

Types of Health Insurance Coverage 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

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

Types of Health Insurance Coverage 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

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

Major Provisions in a Health Insurance Policy 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

Major Provisions in a Health Insurance Policy Exclusions and limitations Pre-existing conditions (Ended 2014) Cosmetic surgery Guaranteed renewable Cancellation and termination Explains the circumstances under which policy can be canceled

Trade-Offs in Choosing a Policy Learning Objective LO9.3 Assess 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

Health Insurance Must-Haves

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

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

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 Point-of-Service (POS) Combines features of HMOs and PPOs HMO-PPO Hybrid or Open-ended HMO

Private Health Care Plans 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

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

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

MEDICARE Part A: Part B: 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

MEDICARE Part C: Part D: 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

MEDICARE Medicare Choice Medigap (MedSup) 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

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

A Few of the key plan provisions: 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

Disability Income Insurance 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

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

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

Learning Objective LO9.6 High Medical Costs 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

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

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

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

Chapter Summary Learning 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

Chapter Summary Learning Objective LO9.2 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

Chapter Summary Learning Objective LO9.3 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

Chapter Summary Learning Objective LO9.4 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