Health Insurance Basics, Medical Plans, and Disability Income Flashcards
Health Insurance Basics
Definition of Health Insurance: Also known as Accident and Health or Accident and Sickness Insurance, it is designed to protect against financial and economic loss resulting from two basic perils: accidental injury and sickness.
Accidental Injury: An unexpected, unforeseen, and unintended event resulting in bodily injury or death.
Accidental Results Definition: Requires that the result of the accident (the injury or death) must be unexpected.
Accidental Means Definition: Requires that both the event and the injury (the cause and result) be unexpected, unforeseen, and unintended. This is the more restrictive definition.
Trampoline Example: If an insured (H) sprains an ankle voluntarily jumping, it is an accidental injury (unexpected result). However, it would not be covered under "accidental means" because the cause (the jump) was intentional. If H was catapulted off by another person (B), it would be covered under both definitions.
Sickness: An illness or disease that first occurs or manifests itself after the policy is issued. For coverage, treatment must usually be medically necessary (needed to diagnose and treat a medical condition).
Interested Parties:
Policyowner: The purchaser who controls the policy, makes premium payments, and decides on coverages. Usually the applicant.
Insured: The individual covered for losses. Typically, benefits are paid to the insured or assigned to a provider.
Beneficiary: Named by the policyowner to receive benefits if the insured dies.
Insurable Interest: Must exist between the owner/applicant and the insured at the time of application. It exists if the sickness or injury results in a financial or economic loss for the owner. One has an unlimited insurable interest in themselves. Examples include spouses, immediate family, business partners, or creditors.
Principal Types of Losses and Benefits:
Medical Expense: Covers cost of medical treatment (hospital, surgical, physician) resulting from accident or sickness.
Dental Expense: Covers care of dental disease and damage to teeth (cleanings, X-rays, crowns).
Loss of Income from Disability: Pays weekly or monthly benefits if an insured cannot work due to injury or sickness, based on past earnings.
Long-Term Care (LTC): Provide coverage for personal care services for chronic illness or disability in nursing homes, assisted living, or at home.
Classes of Health Insurance:
Individual vs. Group: Individual coverage requires evidence of insurability; premiums are based on age, gender, and occupation. Group insurance (typically employer-sponsored) underwrites the group as a whole; members receive a certificate of insurance, and evidence of insurability is generally not required during enrollment periods.
Private vs. Government: Private insurance is provided by the private sector. Government plans (Social Insurance) include Medicare, Medicaid, TRICARE, Veterans Affairs, and CHIP.
Limited vs. Comprehensive: Limited policies focus on specific losses (e.g., cancer, accident-only) with fixed benefits. Comprehensive plans cover a broad range of losses with higher limits.
Types of Limited Policies:
Notice of Limited Policy: By law, must appear on the first page of limited policies.
Accident-Only: Pays fixed benefits for specific expenses (ambulance, ER, etc.) resulting from an accident.
Blanket Insurance: Issued to organizations (schools, camps) to cover groups against injuries in specific activities.
Accidental Death and Dismemberment (AD&D): Pays a Principal Sum (face amount) for accidental death. Pays a Capital Sum (percentage of face value) for dismemberment occurring within 90 days of an accident. Single dismemberment (loss of one limb or sight in one eye) typically pays 50%; double dismemberment (loss of two limbs or total sight) pays 100%.
Hospital Income (Indemnity): Pays a fixed daily amount while hospitalized, regardless of actual expenses or other coverage.
Specified/Dread Disease: Covers high-cost sicknesses like cancer, stroke, or heart disease.
Critical Illness: Pays a lump sum upon the first diagnosis of covered life-threatening illnesses.
Credit Disability: Insures a debtor; makes monthly loan payments to the creditor if the debtor is disabled.
Vision/Hearing/Prescription/Travel: Specific limited plans for preventive eye/ear care, drugs based on a formulary, or accidents during travel.
Producer Responsibilities:
Suability: Producer must assess financial info/goals to recommend proper policies.
NAIC Advertising Regulations: Advertisements (printed, audio, web) must be clear and truthful. The insurer is responsible for all content, regardless of who created it.
Disclosures: An Outline of Coverage (Policy Summary) must be provided at application or delivery.
FCRA & HIPAA: Insurers must comply with the Fair Credit Reporting Act (notice of information practices) and HIPAA (confidentiality of identifiable health information).
HIV Testing: Insurers cannot discriminate but can require a test with the applicant's written consent; the insurer pays for the test.
Errors and Omissions (E&O): Covers producer liability for Inadequacy (failing to provide enough/proper coverage) and Negligence (misrepresentation).
Underwriting and Application Procedures:
Field Underwriting: The producer acts as the front line to detect moral hazards and adverse selection (avoiding applicants who need immediate coverage for conditions).
The Application: The primary source of info. Part I (General) and Part II (Medical).
Signatures: Producer and applicant must sign. If applicant is not the insured, the insured must also sign.
Underwriting Sources: Medical exams (insurer paid), the Medical Information Bureau (MIB), Attending Physician Statements (APS), and Investigative Consumer Reports.
MIB: Coded reports from member insurers. Cannot be the sole reason for declining an applicant.
Premium Determination:
Factors: Age, gender, tobacco use, occupation (most hazardous if multiple), and health history.
Morbidity: Predicted frequency of injury/illness. Higher morbidity = higher premium. Women generally have higher morbidity.
Interest: Lower the premium needed because of investment earnings.
Expenses (Loading): Covers insurer operation costs.
Net Premium Formula:
Gross Premium Formula:
Policy Delivery:
Conditional Receipt: Coverage effective as of application or medical exam date (whichever is later) if the policy is issued as applied for.
Statement of Good Health: Required at delivery if the initial premium was not paid with the application.
Counteroffer: If issued as substandard/rated, the policy is a counteroffer; coverage begins when the applicant accepts and pays the additional premium.
Individual Medical and Dental Plans
Classification of Plans:
Indemnity/Traditional Plans: Insureds choose any provider. Fee-for-service payment (reimbursement). Includes scheduled benefits, UCR (Usual, Customary, Reasonable), or cash indemnity.
Managed Care Plans: Managed delivery and financing. Subscribers use networks. Often prepaid (capitation).
HMO (Health Maintenance Organization):
Prepaid Capitation: HMO pays providers a fixed monthly fee per enrollee.
Services: Requires a Primary Care Physician (PCP/Gatekeeper) to coordinate care and provide referrals for specialists. Focuses on preventive medicine.
Service Area: Subscribers must live/work in a specific area. Out-of-network coverage typically limited to emergencies.
PPO (Preferred Provider Organization):
Discounted Fee-for-Service: Providers are paid a negotiated rate after services are rendered.
Flexibility: No PCP required; no referrals for specialists. Higher out-of-pocket costs (deductibles/coinsurance) for out-of-network providers.
POS (Point of Service):
Hybrid: In-network follows HMO rules (PCP/referral); out-of-network follows PPO/Indemnity rules (higher costs).
Cost Containment Strategies:
Preventive Care: Screenings, wellness programs to prevent expensive losses.
Alternative Services: Outpatient surgery, home health care, hospice.
Utilization Management: Preauthorization (before), Concurrent (during length of stay), Retrospective (after claims).
Deductibles in Major Medical Plans:
Calendar Year: Resets January 1st.
Family Deductible: Total cap for a family (usually 2-3 individual deductibles).
Common Accident: Only one deductible applies if multiple family members are in the same accident.
Carryover Provision: Expenses from the last 3 months of the year can apply to next year's deductible.
Corridor Deductible: Applied in Supplemental Major Medical after basic benefits are exhausted.
Integrated Deductible: Used in Comprehensive Major Medical (absorbed by basic benefits).
Coinsurance and Stop-Loss:
Coinsurance: Percent sharing after deductible (e.g., 80/20).
Stop-Loss (Out-of-Pocket Limit): A cap on total coinsurance paid by the insured per year, after which the insurer pays 100% of covered losses.
Dental Categories and Plans:
Diagnostic/Preventive: Routine cleanings/X-rays (often 100% covered).
Restorative: Fillings/crowns.
Endodontics: Root canals (pulp/nerve treatment).
Periodontics: Gums/bone treatment (gingivitis).
Prosthodontics: Artificial teeth (bridges/dentures).
Orthodontics: Braces/realignment (often has a separate deductible).
Scheduled vs. Nonscheduled: Scheduled pays fixed dollar amounts; nonscheduled pays based on UCR percentages (e.g., 80% for basic).
Federal Mandates (The ACA):
Essential Health Benefits (EHBs): 10 categories including ambulatory, emergency, maternity, meds, and pediatrics.
Metal Tiers (Actuarial Value): Bronze (60%), Silver (70%), Gold (80%), Platinum (90%).
Guaranteed Issue: Plans cannot deny for pre-existing conditions or medical history.
Limiting Age: Dependent coverage extends to age 26 (through age 25).
Disability Income Insurance
Goal: Replace lost income due to inability to work. Benefits are usually 60%-70% of income to prevent malingering.
Policy Timelines:
Probationary Period: Applies only to sickness (15-30 days) to prevent adverse selection.
Elimination Period: "Time deductible." Period after disability starts before benefits accrue (30-365 days).
Benefit Period: Duration of payments (2 years, 5 years, to age 65, or life).
Definitions of Disability:
Own Occupation: Inability to perform duties of the regular job. Easier to qualify for.
Any Occupation: Inability to perform duties of any job suited by education, training, or experience. More restrictive.
Partial Disability: Inability to perform one or more duties. Pays approximately 50% for 3-6 months.
Residual Disability: At-work benefit for income loss after returning to work after total disability.
Recurrent Disability: Second disability from the same cause within 6 months. No new elimination period required.
Presumptive Disability: Total/permanent loss of sight, speech, hearing, or two limbs. Qualifies for full benefits immediately.
Individual Disability Underwriting: Most significant factor is Occupation. Substandard risks may receive rated premiums, shorter benefit periods, or Impairment Riders.
Supplemental Riders:
Waiver of Premium: Waives cost after total disability for 3-6 months, retroactive to day one.
COLA: Increases benefits annually based on the Consumer Price Index (after 1 year of disability).
FIO (Future Increase Option): Purchase more coverage at set dates/events without proof of insurability.
Social Insurance Supplement (SIS): Coordinates with Social Security; pays until SocSec starts or if SocSec is denied.
Business Disability:
BOE (Business Overhead Expense): Reimburses rent, utilities, salaries if owner is disabled. (Premiums are tax-deductible; benefits are taxable).
Disability Buy-Sell: Values defined by a legal agreement to buy out the disabled owner. Funded by lump-sum insurance. (Premiums not deductible; benefits tax-free).
Key Person: Protects revenue loss and replacement costs for a vital employee.
Social Security Disability:
Qualifiers: Fully insured (40 quarters). Disability must be expected to last 12 months or result in death.
Waiting Period: 5-month waiting period; benefits start in the 6th full month.
Benefit: Based on PIA (Primary Insurance Amount).
Senior Needs
Medicare Overview:
Eligibility: Age 65+, or younger with SSDI for 24 months, or ESRD (kidney failure), or ALS.
Part A (Hospital): Semi-private room, nursing, drugs while inpatient, SNF (first 20 days 100%, days 21-100 copay). Benefit Period ends after 60 consecutive days without inpatient care. 60 lifetime reserve days.
Part B (Medical): Physician, outpatient, labs, home health, ambulance. Coinsurance is 80% Medicare / 20% patient. Excludes routine eye/dental/hearing care and long-term care.
Part C (Advantage): Managed care alternative; combines A and B, often includes D.
Part D (Prescription): Optional drug coverage. Donut hole (coverage gap) is the space between initial coverage and catastrophic coverage.
Medicare Claims:
Assignment: Agreement to accept the Medicare-approved amount as payment in full.
Limiting Charge: For non-participating providers, capped at 15% above the approved amount.
Medicare Supplement (Medigap):
Standardization: Plans A through N. Plan A provides the 365 days extra hospital coverage, blood (3 pints), and Part B coinsurance (core benefits).
Open Enrollment: 6 months starting the month one is age 65 and enrolled in Part B.
Medicaid: State/Federal program for those with insufficient financial resources. Eligibility based on income limits and household size.
Long-Term Care (LTC):
Benefit Triggers: Inability to perform 2 of 6 ADLs (Bathing, Continence, Dressing, Eating, Toileting, Transferring) or Cognitive Impairment (Alzheimer's/Dementia).
Levels of Care: Skilled (24-hour), Intermediate (daily nursing care), Custodial (non-medical help with ADLs).
Types of Care: Home health, Adult Day Care, Respite Care (relief for primary caregiver).
LTC Policies: Must be at least "Guaranteed Renewable." 30-day free look. Outline of Coverage required.
Tax-Qualified LTC: Premiums may be deductible if unreimbursed medical expenses exceed 7.5% of AGI. Benefits usually tax-free.
Individual Accident and Health Policy Provisions
Mandatory Uniform Provisions (NAIC):
Entire Contract: Policy, application, and riders. Agent cannot change anything.
Time Limit on Certain Defenses: Incontestable after 2 years, except for fraud.
Grace Period: 7 days (weekly), 10 days (monthly), 31 days (other).
Reinstatement: Auto-approval after 45 days if insurer fails to respond. Sickness coverage wait is 10 days.
Notice of Claim: Indivudual must notify insurer within 20 days.
Claim Forms: Insurer must send within 15 days.
Proof of Loss: Submitted within 90 days.
Legal Action: Cannot sue before 60 days of proof of loss submittal; cannot sue after 3 years.
Optional Uniform Provisions:
Change of Occupation: If more hazardous, benefits reduce. If less hazardous, premiums reduce.
Misstatement of Age: Benefits adjusted to what the premium would have bought at the correct age.
Insurance with Other Insurers: Prevents overinsurance/profit from claims by proportioning losses.
General Clauses:
Free Look: Usually 10 days; 30 days for LTC and Medicare Supplements.
Insuring Clause: Insurer's promise to pay benefits; names perils/parties.
Consideration Clause: Premium exchange/statements in the application.
Renewability Provisions:
Noncancellable: Insurer cannot increase premiums or cancel (the most protective).
Guaranteed Renewable: Insurer must renew but can increase premiums on a class basis.
Optionally Renewable: Insurer can nonrenew on policy anniversary.
Group Health and Consumer-Driven Healthcare
Group Characteristics: One Master Policy and Certificates of Insurance. Nonoccupational coverage only.
Underwriting: Views the group as a unit (size, turnover, stability). Persistent groups (low lapses) favored.
Rating: Experience Rating (based on the group's own claims) vs. Community Rating (based on geo-region stats).
Eligible Groups: METs (Multiple Employer Trusts), MEWAs (unrelated employers self-funding), Associations (100+ members), Credit (creditor is owner/beneficiary).
Eligibility & Enrollment:
Probationary Period: 30-90 days before a new hire can join.
Open Enrollment Period: No evidence of insurability needed. Late enrollees may need evidence.
Contributory (75% Participation) vs. Noncontributory (100% Participation).
COBRA (Consolidated Omnibus Budget Reconciliation Act):
Employer Size: 20+ employees.
Timeframes: 18 months for termination; 36 months for death of employee or divorce. 102% max premium.
HIPAA Portability: Creditable coverage reduces pre-existing condition periods if the gap between coverage is no more than 63 days.
Consumer-Driven Health Plans (CDHPs):
HDHP (High Deductible Health Plan): Low premiums, high out-of-pocket limits. Required to open an HSA.
HSA (Health Savings Account): Individual-owned, pre-tax contributions, tax-free growth, tax-free withdrawals for medical bills. Portable.
FSA (Flexible Spending Account): Employer-sponsored, pre-tax contributions. "Use it or lose it" annually (with minor grace period/carryover options). Not portable.
HRA (Health Reimbursement Arrangement): Entirely employer-funded; no employee contributions. If employee leaves, funds revert to employer.