Healthcare Reform: Individual Health Insurance Coverages

Healthcare Reform: Individual Health Insurance Coverages
Chapter 15 Healthcare Reform: Individual Health Insurance Coverages

Agenda Defects in the Healthcare System in the United States
Basic Provisions of the Affordable Care Act Individual Medical Expense Insurance Individual Medical Expense Plans and Managed Care Plans Health Savings Accounts Long-term Care Insurance Disability-Income Insurance Individual Health Insurance Contractual Provisions

Healthcare Problems in the United States
The U.S. Healthcare delivery system has four major problems: Rising healthcare expenditures Large number of uninsured in the population Considerable waste and inefficiency Harmful insurer practices

Healthcare Problems in the United States
Problem 1: Rising Healthcare expenditures Healthcare expenditures in the United States have increased substantially over time and are growing faster than the national economy Estimated national health expenditures will total $3.4 trillion in 2016, or 17.7 percent of the nation’s GDP More than one in six dollars of the nation’s income is spent on healthcare

Exhibit 15.1 How the Healthcare System in the United States Compares Internationally

Healthcare Problems in the United States (Continued)
Reasons for the increase in spending include: Advances in technology Cost insulation because of third-party payers Employer-sponsored health insurance Fee-for-service defects High administrative costs Lack of transparency in cost and quality information Cost shifting by Medicare and Medicaid Rising prices in the healthcare sector Defensive medicine

Problem 2: Many people do not have health insurance coverage 33 million people, or 10.4 percent of the U.S. population had no health insurance coverage in 2015 About 11 million adults became newly insured under the ACA by December 2014 Many people are uninsured because the coverage is not affordable Many uninsured people did not explore new coverage options and available financial assistance under the ACA 37 percent of people who were eligible for coverage were told they were ineligible Many low income people who are eligible for Medicaid are not aware they are eligible

Problem 3: Waste and inefficiency As much as 30 percent of healthcare spending each year is wasted or unnecessary Sources of wasteful spending include: Duplication of tests Medical errors that are largely preventable Unnecessary tests due to fear of lawsuits High administrative costs and excessive and redundant paperwork Readmissions into hospitals because of inadequate or ineffective initial treatment Hospitalizations for preventable conditions Fraud and overbilling by healthcare providers Overuse of expensive medical technology and emergency rooms

Problem 4: Harmful insurer practices Some insurer practices are harmful to both policyholders and applicants for insurance Examples include: Exclusions for preexisting conditions Rescission of insurance contracts to limit benefits Lifetime or annual limits on benefits

Basic Provisions of the Affordable Care Act
Has made health insurance available to millions of uninsured Americans Provides substantial subsidies to uninsured individuals and small businesses to make insurance more affordable Contains provisions to lower health-care costs in the long run

Basic Provisions of the Affordable Care Act (Continued)
The Act promotes more consumer-friendly insurer practices: Lifetime limits and annual limits prohibited Preexisting conditions prohibited Rescission of insurance policies prohibited Retention of coverage until age 26 Guaranteed access to health insurance Grandfathered plans Minimum medical loss ratio Limited waiting periods

Individual mandate Beginning in 2014, most citizens and legal residents must have qualifying health insurance or pay a financial penalty In 2016, the penalty is the higher of $695 or 2.5 percent of income The new law also provides premium tax credits so that eligible individuals can purchase affordable health insurance and comply with the law Certain groups are exempted

The ACA creates a Health Insurance Marketplace in each state The exchange is a new transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health insurance plans Access to a Marketplace exchange is limited to U.S. citizens and legal residents who are not incarcerated State exchanges will enable people to comparison shop for health insurance

The new law provides premium credits to eligible individuals to make coverage more affordable Eligibility is limited to U.S. citizens and legal immigrants who meet the income limits Employees who have access to health insurance through an employer’s plan are not eligible unless the plan does not cover at least 60 percent of costs Premium tax credits and cost-sharing subsidies are available to certain eligible low-income individuals and families Beginning in 2015, firms with more than 100 employees must pay a fine for each employee that obtains subsidized insurance through an exchange

Eligible small employers can receive significant tax credits under the new law A tax credit of up to 50 percent of the employer’s contribution is available if the employer contributes at least 50 percent of total premiums The employer must offer coverage to full-time employees through the Small Business Health Options Program (SHOP)

The ACA expands Medicaid to include adults with incomes up to 138 percent of the federal poverty level Millions of formerly uninsured persons have acquired Medicaid coverage The Supreme Court ruled that a state cannot be coerced into expanding its Medicaid program under the ACA

The new law contains many provisions that will improve the quality of health care and lower costs, including: New incentives to rebuild the primary care workforce A Prevention and Public Health Fund that will invest in programs designed to keep Americans healthy Establishing a patient-centered outcomes research institute

Strengthening community health centers Enhanced screening procedures for health-care providers to eliminate fraud and abuse Incentives for physicians to join together to form “accountable care organizations” Reducing paperwork and administrative expenses Paying physicians based on value and not volume

In 2015, the CBO projected the Affordable Care Act will cost more than $1.7 trillion over the period The amount will be partly offset by penalties and tax increases related to coverage Funding for the new law comes from: Savings in the Medicare and Medicaid programs Reduced payments to Medicare Advantage plans New fees on pharmaceutical firms and health insurers Other taxes and penalties

Individual Health Insurance Coverages
Individual medical expense insurance protects an individual or family for covered medical expenses because of sickness or injury Plans are purchased by people who are not employed, retired workers, and students Insurers selling policies in the Health Insurance Marketplace must cover a package of essential benefits and . . . Cannot impose an annual limit on benefits Cannot impose a lifetime dollar limit

Basic Provisions of the Affordable Care Act
The Act requires insurers to cover essential health benefits: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Rehabilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care

Applicants have a choice of four benefit categories: The bronze plan covers 60 percent of the benefit costs The silver plan covers 70 percent of the benefit costs The gold plan covers 80 percent of the benefit costs The platinum plan covers 90 percent of the benefit costs Each plan has annual out-of-pocket limits that limit the amount insureds must pay in the form of deductibles, coinsurance, copayments, etc. Catastrophic plans cover, on average, less than 60 percent of the total average cost of care and are available only to certain people

Individual Health Insurance Coverages
Transparency Master 1.2 Individual Health Insurance Coverages Individual expense plans provide a broad range of benefits, including Inpatient hospital benefits Outpatient benefits Physician benefits Preventive services Outpatient prescription drugs

Individual Health Insurance Coverages (Continued)
Marketplace policies contain a calendar-year deductible that has to be satisfied only once during the calendar year All covered medical expenses can be applied toward the deductible The purpose of the deductible is to eliminate small claims and the high administrative cost of processing them

A coinsurance provision states a percentage of the bill in excess of the deductible, which the insured must pay out-of-pocket up to some maximum annual dollar limit The purpose of coinsurance is to reduce premiums and prevent overutilization of plan benefits A copayment is a flat amount the insured must pay for certain benefits, such as an office visit or generic drug

The insured’s total out-of-pocket spending is limited by an annual out-of-pocket limit (also called a stop-loss limit), after which the insurer pays 100 percent of eligible expenses Common exclusions to Marketplace policies include cosmetic surgery, long-term care, hearing aids, and weight loss programs Insurers must provide consumers with uniform information so that an accurate comparison of plans can be easily made

Individual Medical Expense Plans and Managed Care
Most individual medical expense plans sold today are managed care plans A managed care plan provides covered medical services to the members in a cost effective manner, with heavy emphasis on cost control The most popular plan today is a preferred provider organization (PPO) A PPO contracts with physicians, hospitals, and other health-care providers to provide covered medical services to policyholders at discounted fees

Health Savings Accounts
A health savings account (HSA) is a tax exempt account established exclusively for the purpose of paying qualified medical expenses The beneficiary must be covered under a high-deductible health plan to cover catastrophic medical bills Contributions can be made by individuals, their employers, and family members Contributions and annual out-of-pocket expenses are subject to maximum limits

Health Savings Accounts (Continued)
The account holder can withdraw money from the HSA tax-free for medical costs An HSA investment account in a qualified plan receives favorable tax treatment Proponents argue that HSAs can help keep health care costs down because consumers will be more sensitive to costs, will avoid unnecessary services, and will shop around Critics argue that HSAs will encourage insureds to forego preventative care

Long-Term Care Insurance
Long-term care insurance pays a daily or monthly benefit for medical or custodial care received in a nursing facility, in a hospital, or at home 44 percent of men over age 65 and 58 percent of women will need nursing home care sometime during their lifetime Most LTC insurance policies sold today are tax-qualified

Long-Term Care Insurance (Continued)
Expense-incurred (or reimbursement) policies are the most common type of LTC insurance policies These policies reimburse for actual charges up to a daily limit Consumers have a choice of daily benefits, which range from $50 to $350 or more Policies may cover a different amount depending on the type of facility Policies may have limits on the total amount paid over the lifetime of the policy Indemnity policies (or per diem policies) pay a flat dollar amount per day regardless of actual expenses

Some life insurance and deferred annuity policies (also known as hybrid policies) include coverage for certain LTC expenses LTC coverage is added to these policies in several different ways, including: Adding a long-term care rider Through an accelerated death benefits provision Allowing the policyholder to withdraw part of the current cash value to cover LTC expenses Providing a fixed amount of coverage after the annuity value is spent on LTC expenses Through an alternative plan of care provision

Depending on the policy, LTC insurance policies cover a wide range of services including, Nursing home care Home healthcare Respite care for a caregiver Hospice care Personal care in the home Services in assisted living facilities, adult daycare centers, and other community services

An elimination period is a waiting period during which time benefits are not paid In a qualified LTC plan, a benefit trigger must be met to receive benefits. Either, The insured is unable to perform a certain number of activities of daily living (ADLs), or The insured needs substantial supervision to be protected against threats to health and safety because of a severe cognitive impairment Nontax-qualified policies often have more liberal eligibility requirements and make benefits available if a medical necessity trigger is met

Some plans offer automatic benefit increases to keep up with inflation Policies are guaranteed renewable Coverage is expensive Exclusions typically include: Certain mental and nervous disorders Alcoholism and drug addiction Illnesses caused by an act of war Treatment paid by the government Attempted suicide or self-inflicted injury

Most insurers offer optional nonforfeiture benefits, which provides benefits if the insured lapses the policy Examples of common nonforteiture benefits include: A return of premium benefit A shortened benefit period Long-term care insurance that meets certain requirements receives favorable income tax treatment

Some states have long-term care partnership programs designed to reduce Medicaid expenditures by eliminating or reducing incentives of some people to rely on Medicaid to pay for long-term care To encourage people to purchase private partnership policies, part or all of their assets are protected from the Medicaid spend-down requirements

Disability-Income Insurance
The financial impact of total disability on present savings, assets, and ability to earn an income can be devastating Disability-income insurance provides income payments when the insured is unable to work because of sickness or injury Income payments are typically limited to percent of gross earnings

Disability-Income Insurance (Continued)
The most common definitions of total disability are: Inability to perform the material and substantial duties of your regular occupation Inability to perform the material and substantial duties of your occupation, and are not engaged in any other occupation Inability to perform the duties of any occupation for which you are reasonably fitted by education, training, and experience Inability to perform the duties of any gainful occupation Loss-of-income test, i.e., your income is reduced as a result of sickness or accident

Partial disability means that you can perform some but not all of the duties of your occupation Some policies offer partial disability benefits Usually, partial disability benefits must follow total disability The partial disability benefits are paid at a reduced rate for a shorter period

Residual disability applies when you are gainfully employed and not totally disabled but, solely because of sickness or injury, your loss of income is at least 15 percent of your prior income A pro rata disability benefit is paid to an insured whose earned income is reduced because of an accident or sickness

The benefit period is the length of time that disability payments are payable after the elimination period is met Individual policies normally contain an elimination period (waiting period), during which time benefits are not paid Most policies automatically include a waiver-of-premium provision If the insured is totally disabled for 90 days, future premiums will be waived as long as the insured remains disabled Policies typically include a rehabilitation provision

Some policies pay accidental death, dismemberment, and loss-of-sight benefits Optional benefits include: Under a cost-of-living rider, the insurer periodically adjusts benefits for increases in the cost of living Some insurers provide an option to purchase additional insurance in the future A Social Security rider pays an additional amount if the policyholder is turned down for SS disability benefits A return of premiums rider refunds part or all of the premiums if the policyholder’s claim experience is favorable

Individual Health Insurance Contractual Provisions
A guaranteed renewable policy is one in which the insurer guarantees to renew the policy at each anniversary date Premiums can be increased for the underwriting class Under a noncancellable policy, the insurer cannot change, cancel, or refuse to renew the policy as long as premiums are paid on time The insurer cannot change the premiums or the rate structure specified in the policy

Individual Health Insurance Contractual Provisions (Continued)
Under a conditionally renewable policy, the policyholder can renew the policy until a specified age The insurer has the right to decline renewal under conditions specified in the contract Some policies are nonrenewable and expire at the end of the protection period The policyholder does not have the contractual right to renew the policy Beginning in 2014, applicants for medical expense insurance have guaranteed issue of coverage and renewal

The Uniform Individual Accident and Sickness Policy Provisions Act by the NAIC requires certain provisions for all individual health insurance policies: The entire contract consists of the policy, the application, and any riders The time limit on certain defenses states that after the policy has been in force for two years, the insurer cannot void the policy or deny a claim on the basis of misstatements in the application, except for fraudulent misstatements The grace period is a 31-day period after the premium due date to pay an overdue premium

Some contractual provisions address claims: Notice of claim provision: the insured must give written notice to the insurer within 20 days after a covered loss occurs Claim forms provision: the insurer is required to send the insured a claim form within 15 days after notice is received Proof-of-loss provision: the insured must send written proof of loss to the insurer within 90 days after a covered loss occurs Time of payment of claims provision: the insurer must pay all claims immediately after receiving proof of loss.

Payment of claims: death benefits are paid to the beneficiary Physical exam and autopsy provision: gives the insurer the right to examine the insured at its own expense when a claim is pending Legal action provision: requires the insured to wait at least 60 days after proof of loss is submitted before legal action can be brought against the insurer Change of beneficiary: consent of the beneficiary is not required unless the beneficiary designation is irrevocable

Healthcare Reform: Individual Health Insurance Coverages

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Healthcare Reform: Individual Health Insurance Coverages

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