Accident and Health Insurance Concepts

Sickness
- Defined as a physical illness that first manifests while the policy is in force.
- Excludes mental illness, which is typically defined separately in policies.
Accidental Injury
- Defined as an unforeseen and unintended bodily injury resulting from an accident, not a sickness.

Medical Expense Insurance
- Covers doctor bills and office visits; the most common type of health insurance.
Disability Income Insurance
- Replaces lost income when the insured cannot work due to a disability.
Dental Expense Insurance
- Covers treatment, care, and prevention of dental diseases or injuries, including diagnostic and preventive care.
Long-Term Care Expense Policies
- Provides benefits for medically necessary services received in nursing homes or home health care.

Aleatory Contract
- Nature of insurance contracts; an uncertain event determines the parties' rights and obligations, implying an unequal exchange of values (small premiums for potential large claims).
Contract of Adhesion
- Prepared by one party (insurer) and accepted or rejected by the insured; no negotiations occur.
Unilateral Contract
- One-sided contracts; the insurer is contractually obligated to pay covered losses, while the insured makes no legally binding promises.
Conditional Contract
- Requires that specific conditions must be met for the contract to be executed (e.g., insured must pay their deductible before coverage applies).

Individual Policies
- Covers only the insured, though it may extend to a spouse and dependent children.
- Stricter underwriting and risk classifications; typically more expensive.
- Factors affecting underwriting include age, tobacco and alcohol use, geography.
Group Health Insurance
- Covers eligible employees, providing predictable loss experiences due to varying ages, genders, and health conditions within the group.
- Helps insurance companies mitigate adverse selection (the tendency for higher-risk individuals to purchase insurance more frequently).
- The group must exist for another reason beyond obtaining a group insurance rate.

Limited Policies
- Cover specific diseases or incidents; examples include:
- Specified Dread Disease Insurance: Coverage only for specified diseases (e.g., cancer).
- Travel Insurance: Coverage only applies while traveling (usually outside the country).
- Tend to be cheaper due to their limited coverage.
- Specified Policies: Limited to one illness or a narrow set of coverages; may be standalone or added to major medical expense policies.
Comprehensive Policies
- Broader coverage encompassing all accidents and illnesses unless excluded in the policy.
- Major medical policies are an example of comprehensive coverage, which includes doctors' costs, surgeries, and hospitalizations.
Blanket Policies
- Cover groups participating in specific activities (e.g., students or sports teams); do not name individuals but cover all participants automatically.
- Provide temporary and limited coverage during activities.

Cover specific sicknesses or accidents with defined limits and coverage amounts.
Expense Paid Basis: Reimburses the insured for out-of-pocket expenses incurred.
Indemnity Basis: Pays the insured a fixed amount directly for covered incidents.
Examples of Limited Policies:
- Accident-Only Policy: Covers expenses directly resulting from accidents, including death and disability.
- Travel Medical Insurance: Short-term coverage for accidents or illnesses during travel.
- Credit Disability Policy: Pays off debts if the insured becomes disabled and unable to earn income.
- Critical Illness Insurance: Provides benefits for hospital stays due to specified critical illnesses (e.g., heart attacks, strokes).

War or Military Service: Excluded due to catastrophic risk; covered by military insurance.
Self-Inflicted Injuries: Intentional injuries are excluded from coverage.
Elective Cosmetic Surgery: Not covered unless deemed medically necessary.
Employment-Related Injuries: Covered by workers' compensation, excluding personal health insurance coverage.
Coverage by Government Plans: Services covered by Medicare or Medicaid are excluded from personal health insurance.
Illegal Activities: Injuries or illnesses resulting from participation in illegal activities are excluded.

Types of Cost Sharing:
- Deductibles: The initial amount paid by the insured before coverage kicks in; e.g., a $1,000 deductible must be met before the insurer covers subsequent costs.
- Some preventive services may not require meeting the deductible.
- Copayment (Copay): A fixed dollar amount the insured pays for specific services (e.g., $30 each visit to a primary care physician).
- Coinsurance: Expressed as a percentage of costs after the deductible is met; e.g., an 80/20 split where the insurer pays 80% of remaining costs after the deductible.
- Example: A $5,000 procedure with a $1,000 deductible results in $1,000 paid by the insured, followed by 20% coinsurance on the remaining $4,000 (resulting in an additional $800 payment). The insurer would cover the remaining $3,200.
Effect of Cost Sharing: Higher deductibles or coinsurance percentages generally lead to lower premiums, and vice versa.