1. Health, Disability, and Long-Term Care Insurance
Chapter 11
Health, Disability, and
Long-Term Care Insurance

2. Chapter 11 Learning Objectives
LO11-1 Explain why the costs of health insurance and health care have been increasing. LO11-2 Define health insurance and disability income insurance and explain their importance in financial planning. LO11-3 Analyze the benefits and limitations of the various types of health care coverage. LO11-4 Evaluate private sources of health insurance and health care. LO11-5 Appraise the sources of government health care programs. LO11-6 Recognize the need for disability income insurance.
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3. Health Care Costs
LO11-1:
Explain why the costs of health insurance and health care have been increasing.
The United States has the highest per capita medical expenditures of any country in the world
$10,527 health care costs per person in 2016
This amount is twice as much spent on health care as the average for the 24 industrialized countries in Europe and North America
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4. High Medical Costs
Annual health care spending is expected to grow to almost 20% of GDP by 2024
Yet about 33 million people have no health insurance
High administrative costs
11% of health care dollar versus 1% in Canada
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5. Why Does Health Care Cost So Much?
Use of sophisticated, expensive technologies
Duplication of tests and technologies
Increases in the variety and frequency of treatments
Increasing number and longevity of elderly people
Regulations that result in cost shifting rather than cost reduction
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6. Why Does Health Care Cost So Much? (continued)
Increasing number of accidents and crimes that require emergency medical services
Limited competition and restrictive work rules in the health care delivery system
Labor intensiveness and rapid average earnings growth for health care professionals
Using more expensive medical care than necessary
Malpractice insurance and fraud
Built-in inflation in health care delivery system
Aging baby boomers
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7. What is Being Done About the High Costs of Health Care?
Careful review of fees and charges
Establish incentives for preventive care and services provided out of the hospital where medically acceptable
Involve community in balancing health care needs and health care resources
Encourage prepaid group practices
Support community health education programs so people take better care of themselves
Physicians encourage patients to pay cash for routine care
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8. What Can You Do to Reduce Personal Health Care Costs?
Consider participating in a flexible spending account
Consider a high-deductible health plan
Ask for less expensive generic drugs
Use a mail-order or online pharmacy for long term drugs
Review free or low-cost coverage for uninsured children through state
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9. What Can You Do to Reduce Personal Health Care Costs? (continued)
Review state plans for prescription drug assistance
Follow up with doctor by phone if allowed
Investigate non-urgent procedures recommended by doctor
Review billing statements for errors
Appeal unfair decisions by your health plan
Practice preventive care
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10. What Can You Do to Reduce Personal Health Care Costs? (concluded)
Stay well:
Eat a balanced diet and keep your weight under control
Avoid smoking and don’t drink to excess
Get sufficient rest, relaxation, and exercise
Drive carefully and watch out for accident and fire hazards in the home
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11. Health Insurance and Financial Planning
LO11-2:
Define health insurance and disability income insurance and explain their importance in financial planning.
HEALTH INSURANCE reduces the financial burdens people suffer due to illness or injury
It’s part of your overall insurance program to safeguard your family’s economic security
Includes both medical expense insurance and disability income insurance
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12. Group Health Insurance
Group plans comprise about 90% of all health insurance
Most group plans are employer sponsored; employer pays part or most of the cost
Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides federal portability standards, nondiscrimination in health insurance, and guaranteed renewability; if you change jobs, you need not lose your health insurance
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13. Individual Health Insurance and Supplementing Your Group Insurance
A policy tailored to your particular needs from the company of your choice
SUPPLEMENTING YOUR GROUP INSURANCE
The coordination of benefits provision in a policy says that benefits received from all sources are limited to 100% of allowable medical expenses
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14. Medical Coverage and Divorce
Coverage under a former spouse’s medical plan can be continued for 36 months and premiums are paid entirely by the individual
COBRA requires many employers to offer employees and dependents the option to continue their group coverage for a set period of time following a divorce; does not cover federal government and religious institution employees
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15. Types of Health Insurance Coverage
LO11-3:
Analyze the benefits and limitations of the various types of health care coverage.
A Good Health Insurance Plan should
Offer basic coverage for hospital and doctor bills
Provide at least 120 days’ hospital room/board
Provide at least $1 million lifetime maximum for each family member
Pay at least 80% out-of-hospital expenses after annual deductible of $1,000 per person or $2,000 per family
Impose no unreasonable exclusions
Limit out-of-pocket expenses to $4,000-$6,000
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16. Types of Medical Coverage
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 such as office visits, lab tests, and x-rays
It does not include surgery
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17. Types of Medical Coverage (continued)
Major Medical Expense Insurance
Covers expenses for a serious injury or long-term illness; adds to basic plan
Has a deductible, coinsurance, and a stop-loss provision
Comprehensive Major Medical Insurance
Low deductible offered without a separate, basic plan
Covers hospital, surgical, medical and other bills
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18. Types of Medical Coverage (concluded)
Hospital Indemnity Policies
Pays cash benefit when hospitalized
Dental Expense Insurance
Covers exams, cleaning, x-rays, fillings, root canals, oral surgery, etc.
Vision Care Insurance
Exams, contact lenses, and glasses
Other Insurance Policies
Dread disease, trip accident, and cancer policies; focus on unrealistic fears; poor value
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19. Deductibles and Coinsurance
Example
Ariana’s policy includes an $800 deductible and a coinsurance provision requiring her to pay 20 percent of all bills. If her total is $3,800, for instance, the company will first exclude $800 from coverage, which is Ariana’s deductible. It will then pay 80 percent of the remaining $3,000, or $2,400. Therefore, Ariana’s total costs are $1,400 ($800 for the deductible and $600 for the coinsurance).

20. Long-Term Care Insurance
Virtually unknown 50 years ago
Growing faster than any other form of insurance
More than half of U.S. population will need long- term care during their lives
Can be very expensive
National Average of 1 year in nursing home can cost over $88,000
Annual Premiums from under $2,000 to $16,000
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21. 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 paid per day for a hospital room
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22. Major Provisions in a Health Insurance Policy (continued)
Copayment
Cost sharing in the form of a flat dollar amount you pay, such as $20 to $30 per doctor visit
Service Benefits
Entitlement to specific care rather than a fixed dollar amount per procedure
Benefit Limits
Maximum dollar amount or maximum number of days in the hospital
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23. Major Provisions in a Health Insurance Policy (concluded)
Exclusions and Limitations
Coordination of Benefits
Coverage under more than one policy
Guaranteed Renewable
Cancellation and Termination
Explains the circumstances
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24. Health Insurance Trade-Offs
Reimbursement Versus Indemnity
Internal Limits Versus Aggregate Limits
Deductibles And Coinsurance
Out-of-Pocket Limit
Benefits Based On Reasonable And Customary Charges
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25. Private Sources of Health Insurance and Health Care
LO11-4:
Evaluate private sources of health insurance and health care.
Private Insurance Companies
Individual policy
Group policy sold to an employer
Hospital And Medical Service Plans
Blue Cross: hospital care benefits
Blue Shield: surgical and medical services benefits
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26. Health Maintenance Organizations (HMO)
Managed Care
Prepaid health plan for comprehensive health care to members
Best known are HMOs and PPOs
Primary care physician
Health Maintenance Organization
Contracts with selected care providers
Fixed pre-paid monthly premium
Focus is on preventive care
Basic and supplemental services
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27. Preferred Provider Organizations (PPO)
Several providers to choose from
Costs more than a HMO
Specified services at predetermined fees to PPO members
If you go to a non PPO provider, you pay more
Includes EPO and POS plans
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28. Other Options Home Health Care Agencies
Home health care aide and hospices
Employer Self-funded Health Plans
Company collects premiums and pays medical benefits; may not have the assets to cover medical costs that exceed premiums
New Health Care Accounts
Health Savings Accounts
Health Reimbursement Accounts
Flex Spending Accounts
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29. Government Health Care Programs
LO11-5:
Appraise the sources of government health care programs.
Medicare is a federal program for those age 65 or older, and certain disabled persons
Part A: Hospital Insurance
Inpatient hospital care, inpatient skilled nursing facility care, home health care, hospice care
Part B: Medical insurance
Voluntary
Doctor’s services not covered by Part A
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30. Medicare, Medigap, and Medicaid
Medicare (continued)
Part C: Medicare Advantage Plan
Part D: Medicare Prescription Drug benefit
Medigap or MedSup insurance
May pay what Medicare doesn’t
Medicaid
Low-income individuals and families
State administered with federal guidelines
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31. The Patient Protection and Affordable Care Act of 2010
Offers tax credits for small businesses to make coverage more affordable
Prohibits denying coverage to children with pre-existing conditions
Bans insurance companies from dropping sick people
Eliminates copayment for preventive services
Allows children up to age 26 to remain on parent’s plan
Prohibits lifetime caps on coverage; restricts use of annual limits
Provides consumers with access to appeal process
Increases funds for Community Health Centers
Provides path to increase number of heath care providers
Premium increases must be justified
Requires most Americans to purchase health care
Creates insurance exchanges to purchase coverage
Expands Medicaid program
Employers with 20 or more employees must provide insurance
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32. Individual Shared Responsibility Provision
Requires you and each member of your family to
Have minimum essential health coverage every month, or
Have an exemption from the responsibility to have minimum essential coverage, or
Make a shared responsibility payment when you file your federal income tax return
The Health Insurance Marketplace
Compare plans and enroll in a health plan

33. Medicare/Medicaid Fraud and Abuse
In 1997 President Clinton introduced the Medicare/Medicaid Anti-Waste, Fraud and Abuse Act
Established tough new requirements for health care providers that wish to participate in the Medicare/Medicaid program
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34. Government and Private Consumer Health Information Websites
Healthfinder
MedlinePlus
NIH Health Information Page
Food and Drug Administration
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35. Disability Income Insurance
LO11-6:
Recognize the need for disability income insurance.
Disability income insurance protects your most valuable asset: your ability to earn income
Disability is more likely than death at any age
Provides regular cash income lost as the result of an accident or illness
If you become disabled, your income drops but your medical expenses go up
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36. Definition of Disability
Some policies define it simply as the inability to do your regular work
Good disability plans pay when you are unable to work at your regular job
Poor disability plans pay only when you are unable to work at any job
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37. Disability Insurance Trade-Offs
Waiting or Elimination Period
Duration of Benefits
Amount of Benefits
Accident and Sickness Coverage
Guaranteed Renewability
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38. Sources of Disability Income
Employer
Group disability plan may be short or long term
Most insurers limit benefits from all sources to no more than 70 to 80% of your take-home pay
Social Security
Covers total disability that lasts more than twelve months and you must be unable to do any work
Worker’s Compensation
Applies if your accident or illness occurred at your place of work or resulted from your type of employment
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